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The Big Questions for Illumina After Its Q1 Sneak Peek and 2021 Guidance

By Keith Speights and Brian Orelli, PhD - Apr 14, 2021 at 7:01AM

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The gene sequencing giant has a couple of key challenges going forward.

Illumina (ILMN 1.23%) delivered a pleasant surprise earlier this month with its revenue growth projected for the first quarter and for full-year 2021. In this Motley Fool Live video recorded on April 7, Motley Fool contributors Keith Speights and Brian Orelli talk about what the big questions for the gene sequencing giant are now after its Q1 sneak peek and full-year guidance.

Keith Speights: Illumina, ticker there is I-L-M-N, just announced preliminary first-quarter revenue. Just earlier this week, the company said that they expect Q1 revenue of $1.085 billion. That's up 26% year over year from $859 million in the same quarter of last year. Illumina also projects full-year 2021 year-over-year revenue growth is going to be between 25% and 28%.

Brian, what do you think investors should make of Illumina's sneak peek at its Q1 revenue and its full-year guidance?

Brian Orelli: The first-quarter numbers looked really good. I was a little surprised at the guidance for the 2021. We're looking at 26% in the first quarter, and then 25-28% for the whole year. So first quarter pegged in between those two.

But the second quarter last year, was way down as labs shut down. I went back and last year second quarter was 633 million, so if they do the same amount between the first quarter of this year and the second quarter of this year, the quarter we're in right now, that would be growth of 71%.

I don't know, maybe management is sandbagging. The other possibility, I guess is that they obviously have more insight into the demand. Maybe there was a lot of pent-up demand and that's going to wane as the quarters go on. Academics often are using grant money. Sometimes that grant money is tied to specific fiscal years, and so money that wasn't spent in the second quarter because the labs were shut down and now they're back at it, maybe they're just going to use up all that money. But the end result is that Illumina doesn't get any extra growth from that.

Speights: The stock jumped on the news after Illumina announced this, the following day the stock jumped I think close to 10%, maybe not quite 10%. Investors were looking at it favorably. Obviously, you're looking at 26% revenue growth in Q1, around that same amount for full year. That's not bad. I guess the real question is how sustainable is it?

Orelli: My biggest issue is that last year was way down. If you're looking for 25-28%, I just feel like they should be able to do a lot more than that for the whole year given the second quarter was down so much last year.

Speights: Then the big wildcard, something you and I have already talked about just a few days ago. The big wildcard for Illumina now is what happens with their planned acquisition of GRAIL, with the FTC weighing in and potentially throwing a wrench into the plans there.

Orelli: I think the biggest issue for Illumina is that maybe they aren't able to buy any of their customers, so that limits their expansion opportunities. If the FTC is basically saying, you can't buy any of your customers because their competitors are also your customers, and so therefore, you can't buy any of your customers, that's going to limit their ability to move quickly into the diagnostic space.

Speights: They've already run into problems with their attempt to acquire PacBio, Pacific Biosciences of California (PACB -0.96%).

Orelli: That one I understand. Because they are competitors against each other. That one makes sense because they would have a larger percentage of the market share of sequencing, but not being able to buy your customer because the thing you acquired is competing against your customers and you're worried about them raising the rates on the customers so that they would be able to compete out of the market, I think is a real problem for Illumina.

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