Fulgent Genetics, Inc

Fulgent Genetics, Inc (NASDAQ: FLGT), is a technology company which offers genetic testing to provide physicians with clinically actionable diagnostic information to improve quality of patient care. 

Key Highlights

• Awarded Contract from CDC to Study Variants of COVID-19 Virus: Recently, the company got a contract from the U.S. Centers for Disease Control and Prevention (“CDC”) to provide genomic sequencing of samples of SARS-CoV-2 on an ongoing basis, leveraging the Company’s Next Generation Sequencing (“NGS”) capabilities. The Company’s ability to handle large volumes of samples on its NGS platform makes it uniquely suited to aid the CDC in this initiative. 

• Explosive performance for FY2020: On the back of the differentiated technology platform, which the company has built, it delivered some dynamic numbers. In FY 2020, it produced revenue of USD 421.7 million, an increase of 1,200% from USD 32.5 million in 2019, while net income stood at USD 214.3 million. 

• Robust outlook for 2021: For Q1 2021, the company expects to generate revenue of USD 325.0 million and approximately USD 800.0 million for the full year 2021, which would represent a growth of 90% year-over-year. The company anticipates that out of USD 800.0 million, around USD 70.0 million will be realized from Next Generation Sequencing (“NGS”) testing, and the remaining USD 730.0 million would be realized from non-NGS testing. Furthermore, the group also expects to drive healthy gross and operating margins by leveraging its proprietary technology platform, hence, generating GAAP income of nearly USD 380.0 million.

• Industry Beating Margins: The resilient business of the company assisted in outperforming the industry margins. The matrix below gives a glimpse of this.

Source: Refinitiv (Thomson Reuters) 

Financial overview of FY2020

Source: Company 

• In FY2020, the company delivered a revenue was USD 421.7 million, an increase of 1,200% from USD 32.5 million in FY2019, primarily due to an increased number of billable tests.
• Gross profit stood at USD 331.9 million in FY2020, against USD 18.4 million in the previous corresponding period; the rise in gross profit was primarily due to higher revenue.
• The company's net income for FY 2020 stood at USD 214.3 million, against a loss of USD 0.4 million in the previous corresponding period.

Risks associated with investment

The level of success depends on the company’s ability to generate and grow sales. Moreover, its results of operation fluctuate from period to period. These fluctuations can occur because of various factors, including the prices they charge for tests due to changes in product, customer or payor mix, competitive factors, technological changes, and government regulations. 

Valuation Methodology (Illustrative): EV to Sales 

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company’s differentiated technology platform helped in achieving a healthy result, while most of the business this year was from COVID-19 testing. Moreover, FLGT made inroads with numerous new customers, established new reimbursement agreements, expanded capacity and commercial capabilities, and have grown its direct-to-consumer genetic testing platform. The group continued to demonstrate improving leverage in Q4 2020 with a record gross margin of 82% and an operating margin of 77% while generating income of USD 6.20 per share. The company remain optimistic about its positioning for the quarters ahead and expect to see revenue growth of at least 90% for the full year 2021 to USD 800 million, which is a key positive.  Therefore, based on the above rationale and valuation, we have given a “Buy” rating at the closing price of USD 87.75 on April 13, 2021. We have considered Luminex Corp, Myriad Genetics Inc, Fluidigm Corp, etc. as the peer group for the comparison.

1-Year Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)

fuboTV Inc.

fuboTV Inc. (NYSE: FUBO) offers a live TV streaming platform wherein the viewers have the option to watch tens of thousands of live sporting events annually as well as leading news and other entertainment content. 

Key Highlights:

• Recently, the company acquired the exclusive live streaming rights to the Qatar World Cup 2022 Qualifying matches of the South American Football Confederation. Other than that, fuboTV will stream many qualifying matches through its carriage of other channel partners.
• Recently, the company and Marquee Sports Network announced a carriage agreement that would bring Chicago Cubs game coverage to the leading sports-first live TV streaming platform. The addition of Marquee Sports Network further bolsters fuboTV’s already strong sports offering, which includes more than 50,000 live sporting events annually - many streaming in 4K - and more RSNs in its base package than any other live TV streaming platform. We believe, this is positive as it would enhance the company’s overall viewers.
• On March 30, 2021, the company announced the appointment of Ali Ghanavati as head of regulatory technology for Fubo Gaming subsidiary.

FY20 Financial Highlights:

• FUBO announced its full-year result, wherein the company posted total revenue of USD 217.746 million, significantly higher than USD 4.271 million in FY19. The increase was driven by the start of the company’s subscriptions and advertisements revenue during the year.
• Operating expenses stood significantly higher at USD 697.645 million v/s USD 43.156 million in FY19. The period was marked by higher input costs like inclusion of Subscriber related expenses, Broadcasting and transmission and Technology and development costs. Moreover, a surge in Sales and marketing costs and higher General and administrative costs remained a drag.
• Operating loss widened to USD 479.899 million from a loss of USD 38.885 million in the previous year.
• Net loss was recorded at USD 599.392 million, from a net loss of USD 38.127 million in FY19. The decline was majorly attributable to a higher operating loss coupled with a Loss on extinguishment of debt of USD 24.521 million, Loss on deconsolidation of Nexway amounting to USD 11.919 million and Change in fair value of warrant liabilities amounting to USD 83.338 million.

FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company is loss making at the operational level might require additional capital in order to sustain the operations. The addition of capital without profitability might hinder the company’s financial flexibility.

Stock Recommendation:

The company’s subscribers base might be hindered due to the change and preference of the viewers. Moreover, TV streaming is a highly competitive business as it requires constant offerings of new contents and requires high working capital. Moreover, the subscriber’s base is also not guaranteed as it might change depending upon the contents offered. Despite some recent positive news, the company is lossmaking on the operating level, which is an area of concern. On the valuation front, the stock is trading at an EV to Sales multiple of 4.7x on TTM basis, which is higher than the industry (Technology) median of 4.3x. Moreover, the stock corrected in the recent past and slides ~34% and ~41% in the last one month and three months, respectively. Hence, considering the aforesaid facts, we give an ‘Avoid’ rating on the stock at the closing price of USD 21.24 on April 13, 2021.

One-Year Price Chart (as on April 13, 2021). Source: Refinitiv (Thomson Reuters)