Already reeling from a tumbling stock price, Fluidigm (NASDAQ:FLDM) investors were shocked by the company's latest quarterly report. The laboratory hardware developer, supposedly in the midst of a promising growth trajectory, reported a year-over-year decline in total revenue in the third quarter of 2019. Both business segments, including the high-growth mass cytometry unit, failed to record revenue growth in the comparison period.

It all boiled down to one metric: Fluidigm sold fewer lab instruments than it did in the year-ago period. That wouldn't necessarily be a worrisome trend, as the company's goal is to generate most of its revenue and profit from recurring sales of consumables (sequencing kits, chemical reagents, and other products needed to run each machine), but the business simply isn't large enough to be insulated from a bad quarter of instrument sales. Here's what investors need to know about the latest operating results.

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Why are fewer instruments being sold?

Fluidigm was expecting third-quarter 2019 revenue of $27 million to $30 million, which likely would have been a disappointment given that the business generated $28.9 million in sales in the year-ago period. But the business didn't even meet its lackluster guidance, falling about $0.5 million shy of the low end of the range and declining 8.5% from the same quarter of last year.

On the third-quarter 2019 earnings conference call, management explained that belt-tightening at major research institutions in the United States and Europe is extending the sales cycle for the company's machines. Universities and institutes are applying additional scrutiny to labs spending over $500,000 as the flow of grant money begins to slow. And since mass cytometry machines are expensive, Fluidigm is running into obstacles when attempting to get instruments into the hands of new customers.

That resulted in a 34% year-over-year decline in instrument revenue in the third quarter. The silver lining is that consumables revenue -- sales of the chemical reagents and sequencing kits needed to run each instrument, the single most important metric for the business -- grew 11% from the year-ago period, while service revenue jumped 19%. That suggests that labs with instruments are getting good use out of them, but Fluidigm needs a substantially larger installed base of machines to reach sustainable operations or to cover for a bad quarter.


First Nine Months 2019

First Nine Months 2018

Change (YOY)


$84.8 million

$80.6 million


Gross profit

$46.4 million

$42.8 million


Operating expenses

$89.0 million

$79.9 million


Operating income

($42.6 million)

($37.0 million)


Operating cash flow

($29.7 million)

($24.5 million)


Data source: Company press release. YOY = Year over year.

So, how worried should investors be over sluggish instrument sales? There are two ways to look at it.

On the one hand, Wall Street has interpreted the unfolding trend as an indictment of the company's niche. While mass cytometry instruments are coveted for the high-value data they generate in immuno-oncology research, the technique may be a little too specialized. Combine that with the high price tag, and it may be easier for cash-strapped research institutions to nix plans for purchasing a mass cytometry machine altogether.

There's certainly some validity to that argument. Mass cytometry provides a way to conduct complex single-cell analysis, or the evaluation of many variables within a tissue sample on a cell-by-cell basis. Researchers can also add an imaging instrument to generate spatial context of a sample. The technique remains valuable, but advances in computing and microfluidics have significantly lowered the cost of single-cell analysis. Researchers may be able to use an alternative instrument that provides less granular data but saves on cost compared to a mass cytometry instrument.

On the other hand, it's still pretty early in the trajectory of mass cytometry and imaging mass cytometry. That makes it a little easier for research institutions to question the value of Fluidigm's instruments, although those concerns could ease as more peer-reviewed papers (totaling 945 at the end of September, including 280 new publications in 2019 alone) and clinical trials make use of mass cytometry platforms.

It's also important to make an important distinction: The most sales friction is coming from mid-tier research institutions. The largest and most well-funded labs are fully on board with the technique. Fluidigm has a market share of more than 50% among large academic medical centers in the U.S. and Europe, including multiple labs with 10 or more installed machines. As such, the company is making new investments to spend more time on site and better align its goals to those of mid-tier labs.

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This lab hardware developer has more work to do

Many investors have lost patience with Fluidigm and yanked its hard-earned label as a growth stock. Given the dud of a quarter just reported, that's not too surprising.

In a worst-case scenario, the company has priced itself out of the market for mid-tier research institution customers, which represents the largest opportunity to expand its base. Worse yet, the high price of mass cytometry machines could be pushing potential customers into the hands of competitors offering more affordable single-cell-analysis solutions.

It's also possible that investors are overreacting. Fluidigm's problems are largely solvable. It may be able to work with mid-tier customers on price to grow its installed base of instruments (needed to grow recurring revenue from consumables sales), or offset that weakness by investing heavily in biopharmaceutical customers -- which are largely insulated from capital constraints -- and the labs that service them.

That said, the business has little room for error. If course-correcting actions now underway don't start bearing fruit in the next few quarters, then investors may be right to leave Fluidigm behind in search of more promising lab analytics stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.