From the moment of self-awareness, people wonder about their ancestry. Not only is such information intriguing from a historical perspective, your heritage connects you to a bigger narrative. Indeed, health and wellness experts state that understanding your family history provides you with a sense of identity. Thanks to genetic testing technology, 23andMe allows its clients to dig further than ever into their origin.
Just as crucially, assessing your genetic background may alert you to potential health risks. Therefore, investors have high hopes for 23andMe.
When Did 23andMe IPO?
23andMe IPO’d on June 16, 2021, raising $592 million in the initial offering.
23andMe Financial History
Though the consumer DNA testing market demonstrated strong appeal with a broad audience, much of the bullish narrative for 23andMe rests on speculation regarding continued end-user interest. It’s the reason why Richard Branson staked his own money into the 23andMe IPO even though the aspirational nature of ME stock admittedly makes it a high-risk, high-reward opportunity.
In 2017, industry sales of DNA tests boomed, particularly after the Food and Drug Administration approved 23andMe’s direct-to-consumer testing kits. But in 2019 and heading into the pandemic-disrupted year of 2020, sector revenue slipped sharply. In fiscal year 2020 (ending March 31, 2020), 23andMe posted top-line sales of $305.5 million, which were down nearly 31% from fiscal 2019 sales of $440.9 million.
Even more problematic, in the 9 months ending on Dec. 31, 2020, the company generated only $155.3 million. That puts its per-quarter average revenue at under $52 million. In contrast, the prior fiscal year (which was already down sharply from FY 2019) saw the aforementioned metric hit over $76 million. Understandably, this trend might turn some investors off from ME stock’s market debut.
It’s important to realize that 1 year of disappointing sales doesn’t constitute a trend. Also, you shouldn’t read too much into 2020 revenue results as most consumers had far more pressing issues to worry about. Finally, industry insiders anticipate that the global DNA test kit market will rise at a compound annual growth rate (CAGR) of 24% between 2020 and 2025.
23andMe sat near the tail end of what has been a flurry of IPO activity regarding new public offerings in mid-June 2021. All told, 15 companies will look to raise up to $2.5 billion. In this particular case, 23andMe has a value of $3.5 billion. Its shares will trade on the Nasdaq exchange under the ticker symbol “ME.”
Unlike traditional IPOs, 23andMe is going public through a special purpose acquisition company (SPAC). As Benzinga Staff Writer Chris Katje reported in early February of this year, VG Acquisition Corp (NYSE: VGAC) will combine with the genetic testing firm via a reverse merger. The Virgin Group’s Richard Branson heads the VG Acquisition SPAC. He and Anne Wojcicki, 23andMe’s co-founder and CEO, each contributed $25 million investments into the deal.
Over the trailing year, SPACs generated both intrigue and controversy. For the market debutant, SPACs represent an easier path to accessing public capital. By merging with a blank-check firm, startup enterprises can avoid some of the regulatory uncertainties associated with traditional IPOs.
On the other hand, SPACs have not enjoyed sustained success due to their dilutive nature. First, SPAC sponsors often take home about 20% equity in the combined firm. Second, exercised warrants can easily hurt market valuations. Ultimately, though, SPACs provide more options for retail investors, possibly extending their relevance.
In an article from MIT Technology Review, more people purchased consumer DNA tests in 2018 than in all previous years combined. As it explained, “Surging public interest in ancestry and health—propelled by heavy TV and online marketing—was behind a record year for sales of the tests, which enticed consumers to spit in a tube or swab their cheeks and ship the sample back to have their genomes analyzed.”
At the start of 2019, more than 26 million people added their genetic profile to 1of 4leading commercial ancestry and health databases. To be fair, MIT implied that if this pace continued, more than 100 million people would have requested DNA kits within a 24-month period. As mentioned earlier, this growth rate didn’t quite pan out and later, the COVID-19 pandemic killed a possible comeback. But moving forward, demand could swing back up.
First, ME stock might benefit from society’s eager return to normalization. For instance, many consumers already opened their wallets to make up for products that went unpurchased during the pandemic. Also, workers still operating from home have had time to reflect on life’s bigger questions. One of them could easily be about their ancestry, which naturally bodes well for 23andMe.
Second, genetic testing doesn’t just revolve around connecting people to their lineage, as important and affirming as that is. Rather, a DNA analysis can help a consumer understand what health conditions people of their profile are susceptible to. This knowledge can be incredibly helpful from both a wellness and economic perspective as it may prevent health problems from occurring in the first place.
How to Buy 23andMe (ME) Stock
What makes ME stock intriguing is that it’s trading at a discount from its original peak. If you’re interested, below is a rundown on how to buy stocks.
Step 1: Pick a brokerage.
For buying SPACs before they officially combine with their target enterprise, certain brokers may offer advantages over others. But with ME stock set to trade on the Nasdaq, any legitimate platform will do the job just fine. Therefore, you should pick from the best brokers that fit your lifestyle and needs.
Step 2: Decide how many shares you want.
Your share count determines your risk-reward profile, with a higher count leading to greater profitability potential but conversely exposing you to greater risk. Therefore, give some thought to your share count before executing your trade.
Step 3: Choose your order type.
Before placing your trade, take a moment to learn some important market concepts:
- Bid: The bid is the maximum price a buyer will offer. It is always lower than the ask.
- Ask: The ask is the minimum price that a seller will accept. It is always higher than the bid.
- Spread: The difference between the bid and ask price, the spread also provides clues about market liquidity and risk. Narrower spreads signal higher liquidity and lower risk due to buyer availability, while conversely, wider spreads indicate lower liquidity and higher risk.
- Limit order: Use a limit order to buy or sell at a specific price. However, there’s no guarantee that the market will fulfill your limit order.
- Market order: To buy shares at the prevailing price, place a market order. The terms are least favorable to you, with buy orders executing on the ask and sell orders on the bid.
- Stop-loss order: Use a stop-loss order to automatically exit your position at a predetermined price or the next available price, whichever comes first. Watch out for gap-down sessions, which may cause your stop-loss order to fill below your predetermined price.
- Stop-limit order: A stop-limit order only fulfills at a specified price, offering complete transparency. But again, you have no guarantee that the market will fulfill limit orders of any type.
Step 4: Execute your trade.
To execute a market order, follow these steps:
- Select action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the buy (or sell) button.
Use the same steps above for a limit order, with the difference being that you must enter your desired execution price.
A Risky Bet on a Compelling Need
In the year leading up to the coronavirus pandemic, the consumer genetic testing market received a rude wake-up call. Naturally, this worldwide event softened demand for such product providers, clouding some enthusiasm for 23andMe stock.
Ample research indicates that one year of bad sales will not be the end of the story for the DNA testing industry. Additionally, this sector has powerful implications for personal discovery and holistic wellness. For the contrarian, ME stock could very well end up being one of the big surprises of 2021.