Moderna (MRNA -2.45%) surprised investors last quarter when it didn't incur a loss despite a significant drop in sales. But how was the vaccine maker able to stay out of the red? And can it continue to do so even as sales nosedive? Here's a closer look at how the company managed to post a positive net income number in Q1.
A tax benefit pulled the company into the black
For the first three months of 2023, Moderna's revenue totaled just under $1.9 billion, which is just a fraction of the $6.1 billion it reported in the same period last year. Meanwhile, its operating expenses, totaling $2.2 billion, rose by more than 21%. The company incurred an operating loss of $366 million for the period, and the only reason it didn't stay in the red was due to a tax benefit of $384 million that reduced its expenses.
Source: Company filings. Chart by author.
The company's cost structure has worsened
Another way to look at the company's expenses is as a percentage of revenue. And with respect to its main operating expenses, they are all accounting for much larger chunks of revenue than they used to previously. This past quarter, operating expenses were 120% of revenue versus 30% in the prior-year period.
Source: Company filings. Chart by author.
This is troubling for investors because expenses haven't gone down significantly along with revenue. It's not a typical situation. The company has built out its facilities and capabilities, so even though it is generating less revenue, it's still working on developing other vaccines and products. So a big drop-off in expenses isn't going to happen simply because revenue has declined.
Moderna investors should brace for losses
Moderna didn't incur a loss in Q1, but given the preceding charts, it's clear that the company's bottom line is heading for negative territory. It might get there as soon as next quarter. Investors should expect that Moderna will remain unprofitable until it can either significantly reduce the scale of its operations or bring a product to market that can make up for the loss in revenue.
Neither prospect is terribly likely, at least in the short term. That means there could be some challenging times ahead for Moderna investors.
Should you sell Moderna's stock?
This year, Moderna expects to generate $5 billion in revenue from the sale of its COVID-19 vaccine due to advanced purchase agreements. That's down from more than $18 billion last year.
Beyond that, there's plenty of uncertainty ahead for the business. Management is projecting between $8 billion and $15 billion in annual revenue by 2027 through multiple vaccine launches, including one for the respiratory syncytial virus (RSV) and one for the flu. But that could be a rosy outlook for a company whose flu vaccine hasn't done all that well and that faces a potentially competitive market in RSV.
Moderna isn't any safer a stock than it was a few weeks ago, before this latest earnings report. And while it managed to avoid reporting a loss this time around, investors shouldn't expect that to be the case in future quarters. Moderna has become a risky biotech stock again, and it's simply not worth its hefty $50 billion valuation. This is a stock I would sell before things get worse.
