Zymergen (ZY) stock is falling sharply on Aug. 4. The company went public in May and the slide only adds to the gloom in the IPO market where a lot of recently listed companies are trading below the IPO price. Will Zymergen stock recover and go back up and should you buy now?
California-based Zymergen deploys biological processes to manufacture chemicals. According to the company, “A unique combination of biology, chemistry, software and automation enables the company to design and create new materials.”
Why ZY stock falling.
ZY stock is falling sharply on Aug. 4 after releasing its business update, which shocked markets. The company made several announcements in the release.
- The company doesn't expect to generate any product revenues in 2021, while 2022 revenues would also be negligible. Previously, the company forecasted that it would start generating product revenues in the second half of 2021.
- Zymergen also raised doubt about the TAM (total addressable market) for foldable display applications.
- It also announced the departure of CEO Josh Hoffman.
- The company reported massive losses in the second quarter.
“We are disappointed by these developments, and the Board and management team are focused on resolving the underlying issues to ensure Zymergen moves forward as a stronger company with a compelling operating plan,” said Jay Flatley, who has been appointed as the acting CEO.
Zymergen's Q2 earnings
Zymergen also provided the preliminary results for the second quarter. The company expects revenues between $5 million–$6 million in the quarter largely from R&D services. It expects to post a GAAP total cost between $100 million and $105 million in the quarter. While it had cash and cash equivalents of around $588 million as of June 30, the company is devising a plan to lower the expenses in line with the lower projected revenues.
Zymergen stock forecast
Wall Street analysts had a positive forecast for ZY stock before the business update. Among the seven analysts polled by TipRanks, four rated the stock as a buy, while three rated the stock as a hold. Zymergen has an average target price of $47.20. However, after the business update, analysts would take a fresh look at the stock and revise the target price accordingly.
Goldman Sachs analyst Matthew Sykes issued a bullish note on the stock and assigned a target price of $55. However, he saw the execution and successful commercial launch of Hyaline as the “key” for the stock. After the business update, Zymergen stock is now in uncharted waters and has kept the markets guessing about the company's future.
Will Zymergen stock recover?
Zymergen stock has hit its all-time low and recovery would depend on more qualitative as well as quantitative updates on the business. In its business update, Zymergen said that during the second quarter, several of its key clients “encountered technical issues in implementing Hyaline into their manufacturing processes.”
However, Zymergen said, “The Company has made significant progress towards addressing these challenges and believes there are no intrinsic technical issues with Hyaline.”
The company said that such issues aren't uncommon in new products but it would delay the commercialization of Hyaline. For now, it's tough to say when ZY stock will recover. The business update has altered the investment thesis ranging from the TAM to commercialization.