DexCom, a leading player in the diabetes care market, is well-known for its continuous glucose monitoring (CGM) devices—those small patches often seen on the back of people’s arms. These devices have revolutionized diabetes management, offering a more convenient and accurate way for individuals to monitor their glucose levels. But recently, DexCom's stock took a significant hit, dropping 40% following its latest earnings report. Let's dive into what happened and what it means for investors.
DexCom’s Earnings Miss: A Deeper Look
DexCom's revenue for the quarter came in at $1 billion, just shy of the $1.04 billion that analysts had expected. However, the real issue lies in the company's updated guidance. For Q3, DexCom projects revenue between $975 million and $1 billion, citing "certain unique items impacting 2024 seasonality." This has led the company to lower its full-year revenue expectations to $4 billion to $4.05 billion, down from the previous $4.2 billion to $4.35 billion.
This $300 million reduction in just 12 weeks is alarming, especially considering that the previous guidance was issued only last quarter. Investors were caught off guard, and the stock price plummeted in response.
What’s Behind the Decline?
DexCom's management cited several factors contributing to the disappointing results, but the explanations were somewhat fragmented. CEO Kevin Sayer pointed to a restructuring of the sales team, fewer new customer acquisitions, and lower revenue per user. The sales team overhaul appears to have caused significant disruptions, with some regions losing coverage and doctors dealing with new sales representatives, leading to operational challenges.
Additionally, DexCom is facing increased costs due to rebates on its new G7 device further compounding its financial woes.
The Impact of Premium Valuations
DexCom has long been viewed as a high-growth stock, often trading at lofty valuations. At one point, the stock was trading at 25 times revenue, which is a steep price for any company. The recent quarter's underperformance has shown just how vulnerable such premium valuations can be. When a company with such high expectations experiences a quarter where everything seems to go wrong, the resulting impact on the stock price can be severe.
The Ozempic Factor: Is It to Blame?
A major talking point during DexCom's earnings call was the potential impact of Ozempic and other GLP-1 drugs. These medications, initially developed for diabetes treatment, have gained popularity for weight loss, raising concerns about their impact on the diabetes market, particularly for Type-2 diabetes—a market DexCom has been eyeing for growth.
Interestingly, the numbers tell a different story. New users with Type-2 diabetes actually increased during the quarter, and both DexCom and Abbott have noted that patients using GLP-1s are more consistent in their CGM usage than those who aren't. So, while the rise of Ozempic is a concern, it may not be the primary reason behind DexCom's recent struggles.
What’s Next for DexCom Investors?
For investors, DexCom's recent performance serves as a cautionary tale about the risks of investing in high-valuation stocks. While the company remains a leader in the CGM space, the challenges it faces—ranging from operational disruptions to competitive pressures—are significant.
Investors should closely monitor how DexCom addresses these issues in the coming quarters, particularly its efforts to stabilize its sales operations and manage the costs associated with new product launches. Additionally, keeping an eye on the broader diabetes care market, including the impact of new treatments like GLP-1s, will be crucial in assessing DexCom's long-term prospects.
Should you invest $1,000 in Dexcom right now?
Before you buy stock in Dexcom, consider this:
MyWallSt founder Emmet Savage and his team of analysts have been successfully picking stocks for more than 25 years and their favorites are crowned Stock of the Month.
MyWallSt’s Stock of the Month service has more than quadrupled the return of the S&P since 2018* and will provide you with all the guidance you need to confidently build a market-beating portfolio.
Shopify became Stock of the Month in January of 2017 and has since returned 1323%*.
Join MyWallSt Invest Plus to enjoy Stock of the Month and other great benefits like:
Ten Foundational Stocks to hold until 2034
A new stock pitch each week from 60k worldwide
A ranked library of 60+ international stocks
*As of May 2024
