What happened
Shares of 23andMe (ME 41.91%) dropped 29.1% in November, according to data from S&P Global Market Intelligence. The DNA testing and therapeutics company reported a disappointing quarterly report and likely fell victim to the sell-off in high-growth names last month.
So what
On Nov. 10, 23andMe reported its earnings for the second quarter, which ended in September. Revenue only grew 7% year over year in the period, a big slowdown from the 23% growth it reported a quarter prior. With the stock trading at a price-to-sales (P/S) ratio well north of 10 at the time of the report, this slowdown in growth likely gave investors pause on the long-term trajectory of 23andMe's business.
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23andMe sells DNA testing kits that help people understand ways to improve their health while also giving access to interesting facts about their ancestral history. At the end of last quarter, 23andMe had data on 11.9 million customers, up from 11.6 million in Q1. The DNA testing business is not that profitable and seems to be slowing down rather quickly. In order to find a viable business model, 23andMe is trying to utilize the DNA/genetic data it has to develop drugs and medicines. None of its therapeutics have made it to market yet, but the company is spending millions trying to develop drugs and hopes its huge library of genetic data gives it an advantage in doing so.
Now what
Over the last six months, 23andMe has burned just over $100 million in operating cash flow, most of which is going to its drug/therapeutics business. With $700 million in cash on its balance sheet, the company has a lot of room to burn more money as it tries to bring drugs to market. However, with no clear path to profitability right now, investors in 23andMe need to expect further volatility ahead as the company tries to navigate as an early-stage drug developer.
