When a growth company metamorphoses into something else over time, the stock returns can be substantial.
For example, Amazon started life as an online book store. Fast forward to today, books are a tiny fraction of the overall business. Much of Amazon’s value now comes from AWS, its cloud computing platform
Nvidia‘s another prime example of a company that’s transformed itself. Its graphics processing units (GPUs) were originally designed to improve computer game images, not power a global artificial intelligence (AI) revolution.
Both stocks have delivered massive returns over the past 20 years.
I thought something similar could happen with Moderna (NASDAQ: MRNA). Its vaccines gained widespread recognition during the pandemic when they were deployed to combat the Covid virus. However, the underlying mRNA technology has far-reaching potential beyond Covid, with applications that include vaccines for HIV, respiratory syncytial virus (RSV), and even personalised cancer treatments.
Alas, that investment case is looking threadbare right now, with Moderna stock falling 66% in the past 12 months. It took another 16% tumble on 13 January, adding insult to my already badly injured holding.
What’s gone wrong with this supposed growth stock? Let’s dig in.
Falling sales
The big problem is that Moderna’s revised its sales forecasts downward multiple times in recent months. It was at it again this week, when management lowered its 2025 sales guidance by $1bn.
It now sees revenue landing between $1.5bn and $2.5bn, rather than its previous September guess of $2.5bn to $3.5bn. For context, it achieved around $3bn in product sales last year.
These incredibly wide ranges tell us that the firm hasn’t really the foggiest about true demand for its two vaccines (Covid and RSV for adults aged 60 years and older). Whether because of vaccine fatigue or misinformation, less people are getting inoculated.
The firm had originally intended to break even on an operating cash basis by 2026. Then it was pushed back to 2028. Now, with sales still under huge pressure, even that might prove optimistic. Actual profits appear a distant prospect.
Some good bits
On the plus side, the firm’s identified cost reductions of $1bn this year and $500m in 2026. It expects to finish 2025 with about $6bn in cash. So Moderna isn’t in any immediate existential danger.
CEO Stéphane Bancel said: “We remain focused on our three strategic priorities: driving sales growth, delivering up to 10 product approvals over the next three years, and reducing costs across our business.”
It’s encouraging that Moderna’s still aiming to deliver up to 10 new products over the next three years, including three approvals this year. This includes potentially expanding its RSV vaccine to younger patients and a flu/Covid combination vaccine.
Should I sell?
I thought Moderna would use its pandemic windfall to rapidly diversify always from Covid sales before they evaporated. This hasn’t happened yet, and its new RSV vaccine’s struggling to get off the ground.
Looking ahead, there’s still Moderna’s late-stage personalised cancer vaccine, in development with Merck. This was shown to reduce melanoma spreading, or death, by 62% when combined with Merck’s Keytruda therapy. The companies have quickly expanded their research to other types of cancer.
These cancer vaccines could still be revolutionary, so I’m going to keep holding my shares.
This post was originally published on Motley Fool
