As we move well into earnings season, equities have been facing a volatile market due to economic conditions and company quarterly results. Focusing on tickers covered in my past articles, I will recap the latest results in the 3D printing industry and Russian search engine giant Yandex (YNDX). In addition, there will be a focus on the upcoming Organovo (ONVO) earnings outlining several important points investors should look for as the company develops its cutting edge technology.
Hot 3D Printing Sector Sustains Consistent Growth
The two leading 3D printing companies, 3D Systems (DDD) and Stratasys (SSYS), saw significant changes in their stock prices, albeit in opposite directions, after reporting earnings last week. DDD shares soared 20% after the earnings were released as the company continued its consistent growth across the board, beating consensus Wall Street estimates. Printer sales more than doubled as the company shifted focus from production printers to the lower priced personal/professional printers, which made up 70% of printer revenue (up from 47% in 2011). This is a crucial swing for DDD as it integrates acquired businesses Z Corp and Vidar, both of which focus on consumer/professional production.
Looking forward, 3D Systems management aggressively raised top and bottom - line guidance for FY2012, signaling great confidence to investors. Adding to this point, a material component investors should keep an eye on is DDD's Cube. As awareness of 3D printing technology grows, the Cube printer presents consumers with the opportunity to bring home 3D printing, proving to be a potential entrance to making the technology mainstream with the public. In its most recent earnings call, management discussed the material revenue this printer may bring in, as it was excluded from revenue calculations this quarter. The company conducted two test-runs, in London and the Benelux, both of which showed impressive sales demand for the Cube. These telling results could prove to be significant income streams for the company in the future, which is why investors should pay close attention to any updates.
Conversely, the other main player in the 3D field, Stratasys, saw a 12% drop in its share price after posting better-than-expected results in the third quarter. The complicated merger between SSYS and Objet caused management to forecast a conservative guidance increase for the rest of 2012, which triggered pessimism amongst investors. This market overreaction appears to be unwarranted of a drastic drop in share price, especially considering that SSYS beat estimates and raised guidance. Due to the outstanding DDD results and overall hype surrounding the 3D printing sector, SSYS was facing unrealistic expectations, which it failed to meet.
Russian Google Avoids Competitor Faults
Yandex released third-quarter results in late October, relieving anxious investors after the unexpected disappointment of rival Google (GOOG), further discussed in my previous article. The company reported better-than-expected revenue, rising 41% from a year ago, as it continues to grow at a remarkable rate, something Google could not manage in its latest release. To add, Yandex improved on its concerning cost per click ,CPC, figure, as it increased for the first time in a year, yet another feat Google has struggled with. This increase in CPC shows that Yandex is improving the efficiency of online advertising, specifically its mobile strategy - where 11% of searches originate from).
Yandex has successfully captured its first percent of Turkish search share as the company continues its strong progress with expansion abroad, becoming the number two search provider behind Google. Overall, YNDX had a strong quarter maintaining a 60% market share in its home turf while also increasing influence abroad. This successful operation is further verified through the increased guidance of expected revenue growth to be in the upper range of 42-45% for 2012, an indication that should keep investors bullish in upcoming quarters.
Can The 3D Printing Sector Enthusiasm Spill Into 'Bioprinting'?
Organovo is on the cusp of being a popular play in the 3D printing technology (in depth discussion here) as the company has developed cutting-edge technology specializing in printing functional human tissue. Acting as the lone public company in this new forming 3D bioprinting sector, Organovo could prove to be an efficient use of capital to buy into the hot new trend of 3D printing technology. With its quarterly report and conference call anticipated by mid-November (the 15th , according to Bloomberg), investors should look for certain key developments to evaluate the company's progress and outlook for the quarters ahead.
Key milestones such as new collaborations or updates on current agreements are an important disclosure for Organovo to settle in its next release. Currently the company is under a collaborative agreement with Pfizer (PFE) to develop 3D tissue assays for drug discovery. According to the Zacks Report, the collaboration lasts until the second half of 2012, and any extension beyond the initial term could be seen as bullish, both from a product development and commercialization standpoint (and, as implied, from a financial perspective). Being that revenue from such collaborations provide the largest portion of income for the company, extended contracts lead to additional funds for ONVO's operation. In addition, renewed collaboration is indicative that ONVO's technology is progressive enough (conservatively put, since most view this technology to be totally disruptive) to warrant further appliance.
Cooperative agreements, such as the one with United Therapeutics, have option clauses allowing Organovo to receive sales-based royalties if its NovoGen MMX bioprinter technology is used in the development of any product that's commercialized. If applicable, this could add, yet again, additional revenue streams for ONVO. To add, investors must keep an eye on any academic partnerships with leading educational institutions, like the one currently ongoing with Harvard Medical. Though these affiliations don't provide much in revenue, they are a cheap method of advancing the technology, as funding is provided from government bursaries or research firms (instead of Organovo).
A company like Organovo that is in the early development stages, does not provide much information through absolute figures in financial statements - for instance, net income or liabilities count. The cash figure along with the cash burn rate, however, are important indicators of how much operating room the company has got before requiring additional capital to fund development.
On its balance sheet, ONVO includes a "warrant liability" that is valued at $80.5 million. This non-cash liability is from the 24.11 million warrants the company issued as part of a capital raise earlier on. Not to be confused, the liability is similar to an IOU only if the issued warrants are exercised. However, these warrants are callable if the company's stock trades over $2.50/share for 20 consecutive days. In this case, investors have the option to exercise their warrant and convert it to a common share of the company at a price of $1.00. If presented with the opportunity, exercising the option would prove to be beneficial for both Organovo and warrant holders. The company would receive $24.11 million in gross proceeds ($1/warrant * 24.11M warrants), while also erasing its warrant liability, which would be converted into equity.
Importantly, the clearing of this derivative (non-cash) liability would bring ONVO one step closer to qualify for NASDAQ listing. Such advancement would be huge as the company would see greater exposure to both retail and institutional investors who otherwise avoid issues listed over-the-counter. Liquidity would inevitably improve and create a better risk-profile. By converting that warrant liability into equity, ONVO would meet the equity requirement of the NASDAQ Capital Market. To add, the company meets the financial requirements of the "Market Value Standard" qualifications to enlist, but it must take care of criteria such as market makers and corporate governance requirement to be approved for listing. In a conference call with investors, ONVO CEO, David Murphy, discussed possible NASDAQ listing, expressing the company's interest:
"We believe we are on track in getting to meet all the criteria."
Upcoming earnings release will prove to be very telling of Organovo's progress as a company through its relationship with partners that lead to continued development of its bioprinting technology. Investors should also keep an eye on financials such as the derivative liabilities (and accompanying notes), now that the stock hovers around $2.50/share. This could provide an influx of capital, which in turn could open doors for a NASDAQ listing. Organovo provides investors with a cheaper alternative to invest in an exciting new wave that combines tech with medical technology which, in itself, could supply endless applications. The earnings call, itself, could serve as a catalyst for ONVO shares through year-end.