10x Genomics (TXG)

Biotech company 10x Genomics (NASDAQ:TXG) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 9.8% year on year to $154.9 million. On the other hand, next quarter’s revenue guidance of $140 million was less impressive, coming in 3.6% below analysts’ estimates. Its GAAP loss of $0.28 per share was 40.6% above analysts’ consensus estimates.

Company Overview

Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ:TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.

Genomics and sequencing companies within the life sciences industry provide the technology for increasingly personalized medicine, drug discovery, and disease research. These firms leverage cutting-edge platforms for high-throughput sequencing and genomic analysis, enabling researchers and healthcare providers to better understand genetic underpinnings of diseases. While the industry enjoys high barriers to entry due to proprietary technology and intellectual property, the business model also faces significant R&D costs, reliance on continued innovation, and exposure to shifts in academic, biotech, and clinical research funding. Over the next few years, the subsector is well-positioned to benefit from tailwinds such as increasing adoption of precision medicine, expanded applications for sequencing technologies in areas like oncology and rare disease diagnostics, and growing use of genomic data in drug development. Advances in artificial intelligence could further enhance the speed and accuracy of genomic insights. However, potential headwinds include price sensitivity among research institutions and healthcare systems that are constantly trying to contain and lower costs. Additionally, regulations around data privacy and genomic testing are not yet set in stone, adding uncertainty to the industry.

10x Genomics competes with NanoString Technologies (NASDAQ:NSTG), Bio-Rad Laboratories (NYSE:BIO), Illumina (NASDAQ:ILMN), and Akoya Biosciences (NASDAQ:AKYA) in the spatial biology and single-cell analysis markets. The company also faces competition from emerging private companies like Parse Biosciences and Vizgen.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $624.7 million in revenue over the past 12 months, 10x Genomics is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, 10x Genomics’s 18.8% annualized revenue growth over the last five years was impressive. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. 10x Genomics’s annualized revenue growth of 7.9% over the last two years is below its five-year trend, but we still think the results were respectable.

We can better understand the company’s revenue dynamics by analyzing its most important segment, Consumables. Over the last two years, 10x Genomics’s Consumables revenue (recurring orders) averaged 5.6% year-on-year growth. This segment has lagged the company’s overall sales.

This quarter, 10x Genomics reported year-on-year revenue growth of 9.8%, and its $154.9 million of revenue exceeded Wall Street’s estimates by 16.7%. Company management is currently guiding for a 8.6% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

10x Genomics’s high expenses have contributed to an average operating margin of negative 47.1% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, 10x Genomics’s operating margin rose over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 5.6 percentage points on a two-year basis.

This quarter, 10x Genomics generated a negative 25.4% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

10x Genomics’s full-year EPS was flat over the last five years. This performance was underwhelming across the board.

In Q1, 10x Genomics reported EPS at negative $0.28, up from negative $0.50 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects 10x Genomics to perform poorly. Analysts forecast its full-year EPS of negative $1.30 will tumble to negative $1.40.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

10x Genomics’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 24.4%, meaning it lit $24.41 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that 10x Genomics’s margin expanded during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

10x Genomics’s five-year average ROIC was negative 54.1%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, 10x Genomics’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

10x Genomics is a well-capitalized company with $426.9 million of cash and $80.07 million of debt on its balance sheet. This $346.8 million net cash position is 32.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly 10x Genomics blew past analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its revenue guidance for next quarter missed significantly. Zooming out, we think this quarter featured some important positives. The stock traded up 4.5% to $9 immediately following the results.

Updated: May 21, 2025 at 11:54 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own 10x Genomics, you should also grasp the company’s longer-term business quality and valuation.

10x Genomics doesn’t pass our quality test. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

10x Genomics’s forward price-to-sales ratio is 1.7x. The market typically values companies like 10x Genomics based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy.

Wall Street analysts have a consensus one-year price target of $12.46 on the company (compared to the current share price of $8.36).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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