What happened
Shares of genetic testing leader Invitae (NVTA -16.67%) fell over 14% today after the company provided investors a sneak peek at full-year 2017 results and preliminary guidance for 2018. It prepared investors to expect an overall strong 2017 campaign once results are finalized, although that was never in doubt.
Wall Street seems to be taking two issues with today's update. First, Invitae only hit the midpoint of its guidance range for revenue from its base operations in 2017. Second, it expects to grow full-year 2018 revenue "only" 79% to $120 million in a worst-case scenario. It may sound a bit silly to be dissatisfied with that rate of growth, but investors were expecting more -- and for good reason.
As of 1:42 p.m. EST, the stock had settled to a 12.2% loss.
Image source: Getty Images.
So what
Invitae said its base business processed 134,000 tests in 2017 compared to just 59,000 samples in 2016. That's year-over-year volume growth of 127%. That also handily beat guidance, which called for just 120,000 to 130,000 tests to be completed last year.
However, Invitae's top-line guidance called for $55 million to $65 million in base business revenue in 2017. It expects to deliver $59 million when results are finalized in the coming months. While that represents year-over-year growth of 136%, it's also "only" meeting the midpoint of the guidance range.
Why specify "base business" in the first place? Well, Invitae made two acquisitions last year, Good Start Genetics and CombiMatrix, that only contributed to parts of 2017. The pro forma results actually show $67 million in revenue last year for the combined trifecta.
Not bad, but the combined company's expected performance for 2018 is causing some disappointment on Wall Street. Invitae told investors that its preliminary expectations for the year ahead include volume of at least 250,000 samples and revenue of at least $120 million. Clearly, the high rates of growth are continuing, so how can anyone be upset about year-over-year revenue growth that could top 79%?
Well, management may have dug itself a hole with prior comments. In recent efforts to drum up excitement over the acquisitions of Good Start Genetics and CombiMatrix, Invitae created a table of hypothetical results from the combined companies showing revenue in the range of $90 million to $105 million in 2017. That seemed great compared to the company's $25 million in total revenue from 2016, but it makes the preliminary guidance calling for $120 million in total revenue in 2018 look a little weak given historical growth rates.
Now what
Invitae continues to expand its market share in the fast-growing genetic testing market. Its incredible growth rates achieved to date demonstrate that the business model is gaining traction, which is enough to keep investors sticking around even if losses are piling up.
Today's 10% drop has more to do with Wall Street's narrative for the company being interrupted by what it sees as a weak expectation for revenue growth in 2018. There may be some truth to that given management's prior comments, but keep in mind that it has yet to finalize its expectations for the year ahead. There may be reasons to worry that growth is slowing depending on how investors look at the numbers, but it seems much too early to let anxiety creep in. Keep an eye out for Invitae's presentation at the J.P. Morgan Healthcare Conference on Jan. 8 to see if anything changes.
