23andMe (ME) went public via SPAC this summer, with shares blasting off over 21% in a wildly successful market debut. Since the initial boom, shares have come falling back to Earth, providing growth-focused investors with an exciting second chance to pick up shares of the personal genomics play at or below the $10 range.
Despite the pullback off its high, shares of ME remain extremely expensive. In this kind of market environment though, that’s to be expected.
The real question is whether 23andMe can grow into its rich multiple now that it has deeper pockets to take its business to the next level. I think it can. For that reason, I am bullish. (See Insiders’ Hot Stocks on TipRanks)
Cutting Edge of Innovation
23andMe is a unique and popular consumer product with a very long growth runway, and nearly limitless growth possibilities. It’s also quite tough to stack up against the firm, given the complexities of genomics and the security of allowing just any unproven company to hold your genetic information.
23andMe has been around for a while, and it’s quickly growing into one of the most trusted names in its field, with maybe the exception of top rival Ancestry DNA.
While 23andMe may not be the go-to choice to discover one’s ancestry reports, it is arguably one of the best options on the market for health reports. The company’s health offerings have grown considerably over the years, paving the way for its new 23andMe+ subscription service, which could be a needle mover for ME stock over the next 18 months.
23andMe+
Many of 23andMe’s past users may be inclined to subscribe to such services to gain access to new disease susceptibility reports, in addition to more advanced DNA Relatives features.
With the introduction of the subscription service, one has to think that many of 23andMe’s satisfied customers will be more than willing to pay a mere $29 per year to learn more about their genetic makeup, and potentially take a preventative approach to avoiding certain genetic conditions.
Undoubtedly, one could go to the doctor and receive a more detailed, accurate and comprehensive round of genetic testing. Still, such tests are quite costly, making 23andMe+’s value proposition very appealing, especially to consumers who would have never got genetic health screening done otherwise.
The innovation going on behind the scenes of 23andMe is on the very cutting edge of consumer genomics. CEO Anne Wojcicki is a brilliant mind, and she’s more than worth paying a premium multiple for, as 23andMe’s business evolves as a company in the public spotlight.
With new health reports and other premium features likely to be added regularly to 23andMe+, the subscription service could be met with profound success, and it could have the potential to get very sticky down the road as more advanced features are released.
The company has genotyped millions of people, many of which can quickly get 23andMe+ without having to send in another vial of saliva. Indeed, the ARPU opportunity is considerable.
Furthermore, growth in health reports may entice more people to purchase the firm’s kits. Millions of users under 23andMe’s umbrella is impressive, but it’s just scratching the surface of what could be a massive target market.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, ME stock comes in as a Moderate Buy. Out of two analyst ratings, there are two Buy recommendations.
The average 23andMe price target is $12.50. Analyst price targets range from a low of $12 per share, to a high of $13 per share.
Bottom Line
As exciting as 23andMe’s growth prospects are, it’s tough to justify paying up such a hefty multiple, which could leave it feeling the full force of the next rate-driven sell-off in growth.
Still, the company stands out as a misunderstood play in a nascent market that may be underestimated.
In any case, 23andMe’s new subscription-based model could be a game-changer, as the company transforms one-time kit buyers into a sticky cash flow stream.
Disclosure: Joey Frenette doesn’t own shares of any mentioned companies at the time of publication.
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