In the world of quantum computing stocks, perhaps no other name commands more attention than IonQ (IONQ +5.31%). On the surface, investing in IonQ might look compelling. The company's systems integrate with each major cloud hyperscaler -- Amazon, Microsoft, and Alphabet. Meanwhile, CEO Niccolo de Masi has done a phenomenal job on the marketing side of the house by getting investors both intrigued and excited about the company's potentially revolutionary trapped ion technology.
With a cash pile of $3.5 billion, is IonQ poised to take over the quantum AI revolution? Below, I'll look at IonQ's financial profile and assess what the underlying business trajectory could look like over the coming years.
NYSE: IONQ
Key Data Points
IonQ's financial profile is upside down
The charts below illustrate IonQ's revenue and net income over the last 12 months. The dichotomy between the company's sales and profitability profile could not be more dramatic.
IONQ Revenue (TTM) data by YCharts.
It appears that the sales trajectory is firing on all cylinders. However, if that were true, why is IonQ hemorrhaging operating losses?
As is often the case with financial due diligence, the devil is in the details.
Image source: Getty Images.
How does the company have all this cash?
There's an important nuance to point out as it pertains to IonQ's revenue. Over the last year, the company has completed a number of acquisitions. Essentially, the revenue figure pictured above is a pro forma representation of the business -- meaning it represents both organic revenue growth in combination with IonQ's newly acquired assets tucked into the overall operation.
This leads to my second point. For the nine-month period ended Sept. 30, IonQ spent $210 million on research and development (R&D) and $154 million on selling, general, and administrative (SG&A) expenses. This represents annual growth of 116% and 275%, respectively, across R&D and SG&A.
Given that the company's expense profile is accelerating at a far steeper pace than revenue, I think it's reasonable to say that IonQ's acquisitions haven't yet been accretive to the business. As a result, the company is racking up lots of losses.
The billion-dollar question remains: If IonQ's revenue growth is augmented by acquisitions and the company's expenses are mounting, how does the balance sheet feature billions in cash?
The very last line item on IonQ's statement of cash flow reveals the answer. Buried in the company's latest 10Q filing, investors will see that IonQ has issued $2.4 billion to fund its acquisitions.
About a month ago, IonQ completed a $2 billion equity offering. Prior to that, the company raised $358 million through an "at the market" (ATM) offering, as well as a subsequent $977 million in a separate stock deal.
The theme here is clear: IonQ continues to tap the capital markets to fund its operations. Management understands that the stock is trading for a premium and is therefore taking advantage of IonQ's frothy valuation by issuing stock at elevated levels to raise large sums of cash.
Image source: Getty Images.
Is IonQ stock a good buy right now?
The irony here is that, despite carrying $3.5 billion in total liquidity, IonQ's current burn rate is so large that this capital only has a runway of about 28 months. The only way these funds won't be depleted quickly is if IonQ begins generating significantly higher revenue and turning a profit.
I see this as highly unlikely. IonQ has spent approximately $2.5 billion on acquisitions over the last year -- only to generate tens of millions in incremental revenue at this time. Even if revenue continues to gradually increase, thanks to the acquisitions, I'm skeptical that IonQ will integrate these new businesses at a swift enough pace to recognize significant synergies and cash savings.
Given the amount of capital IonQ has already deployed toward acquisitions -- funded by continuous equity offerings and diluting shareholders -- in combination with the company's current cash burn, I don't think management has been efficient at capital allocation.
In my view, it's only a matter of time before the investment community wakes up and realizes the financial engineering that IonQ is employing. Subsequently, enthusiasm around IonQ's growth prospects and its actual operational progress in the quantum AI race could wane.
For this reason, I don't think the company's $3.5 billion balance sheet should play into the idea of a positive investment thesis. Should investor sentiment begin to shift toward a bearish narrative, IonQ stock could plummet -- leaving those who buy the stock now, as management continues issuing shares, holding the bag at an inopportune time.
