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Why 23andMe Stock Soared Today

By Rich Smith – Aug 17, 2021 at 10:56AM

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It's no great secret why Credit Suisse likes 23andMe.

What happened

Shares of genetic data miner 23andMe Holding (ME -5.33%) surged in early trading Tuesday -- up 11.5% as of 10:10 a.m. EDT.

If you own shares of the recent special purpose acquisition company (SPAC) IPO, you can thank Credit Suisse for that.

Glowing green arrow climbs on a stock screen.

Image source: Getty Images.

So what

Last night after close of trading, analysts at the Swiss investment bank initiated coverage of 23andMe stock with an outperform rating and a $13 price target, as reports.

"23andMe offers investors a platform that enables novel discoveries into the causes and potential treatments of a wide variety of diseases at unprecedented statistical power," explained a Credit Suisse analyst. In particular, the analyst said the company boasts a "uniquely differentiated ... genetic database" containing over 11 million customer samples, a database that's "not easily replicated" (because customers who signed up with one company to learn their genealogies, providing their genetic data almost as an afterthought, are unlikely to feel a need to do so a second time with a second company). 23andMe has also found that its customers are amenable to being contacted again and again with follow-up questions that further improve the quality of the data the company possesses.

Now what

Going forward, Credit Suisse expects 23andMe to leverage these advantages as it collaborates with pharmaceutical giant GlaxoSmithKline, its "exclusive strategic partner," and to potentially share in the profits as Glaxo uses 23andMe's data to validate more than 40 new potential drug candidates.

That being said, it may take time for these bets to pay off for 23andMe shareholders. In the meantime, the stock has shown declining revenue for two years running, presumably as it exhausts the pool of customers willing to hand over their genetic data in exchange for clues to their ancestry. For 23andMe right now, this really looks like a race between customer test revenue that is dying out and drug research revenue that has yet to really kick in.

The stock's ultimate success probably depends on which event happens first.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends GlaxoSmithKline. The Motley Fool has a disclosure policy.

Stocks Mentioned

23andMe Holding Co. Stock Quote
23andMe Holding Co.
$3.02 (-5.33%) $0.17

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