Shares of Illumina (ILMN 8.77%) were sinking by 10.4% as of 11:30 a.m. EDT on Friday following the company's third-quarter earnings announcement after the market closed on Thursday. Although Illumina beat analysts' revenue and earnings estimates and raised its full-year earnings guidance, investors appear to be concerned about uncertainties for the company's near-term growth.
There are plenty of questions for Illumina right now. The company's microarray revenue, which depends largely on sales to direct-to-consumer (DTC) personal genomics customers such as Ancestry and 23andMe, continues to slump. Illumina CEO Francis deSouza acknowledged in the company's Q3 conference call, "[W]e do not expect DTC to return to growth in the near term."
The company is seeing what it called "downward pressure on the pull-through" from its desktop systems. This is related to lower consumables revenue from customers with Illumina's smaller gene-sequencing systems including MiSeq and NextSeq. However, deSouza said this resulted mainly from customers moving to more powerful platforms. This transition can cause short-term pain but should result in larger consumables sales over the long run.
Illumina's acquisition of Pacific Biosciences of California also appears to be in jeopardy. On Thursday, the United Kingdom's Competition and Markets Authority (CMA) announced a provisional decision to stop the merger of the companies. DeSouza said that Illumina continues to think the deal promotes competition and will engage in further discussions with the CMA.
Growth stocks tend to be very volatile when there is any uncertainty or questions about what's next. We're seeing that play out now with Illumina.
However, the most important thing for investors to realize with the current uncertainty for Illumina is that it is related primarily to the near term. The company's long-term growth prospects, fueled in large part by increased use of genomic sequencing in oncology and population genomics initiatives, remain very good.