Why 77% Revenue Growth Is Meaningless for IonQ Stock
Investors tend to take note when they see a company with a 77% year-over-year revenue growth rate. When growth is so robust, investor interest and rising stock prices often follow, especially when it is innovation driving such gains.
Unfortunately, that is likely not the case with IonQ (NYSE: IONQ). The company is a leader in quantum computing, a technology that could drastically speed up processing times for certain types of highly complex problems. This would allow quantum computers to perform functions and solve problems that conventional computers can't accomplish in a useful time frame.
For investors, the issue here comes down to financials. Even though IonQ does not necessarily have to turn an immediate profit, the quantum computing stock is unlikely to make sustainable gains without a dramatic change in its fiscal condition.
IonQ's financials
Regarding the results for the first quarter of 2024, the aforementioned 77% year-over-year revenue gain took its top line to $7.6 million. Interest has risen in IonQ's technology, and its manufacturing facility is fully operational. It also found a customer for the first production model of its IonQ Forte Enterprise system, the first generation of quantum computers that can be deployed in data centers.
Unfortunately, IonQ's higher sales seem to have had a damaging effect on the rest of its financial health. During this time, its cost of revenue more than tripled to $3.4 million. Additionally, revenue did not come close to covering its $57 million in quarterly expenses, which were up from $31 million in the prior-year period.
Consequently, IonQ lost almost $40 million in Q1, up from its $27 million loss in the same quarter last year.
Although IonQ holds about $375 million in cash and short-term investments on its books, that likely won't be enough of a cushion to keep it from needing more funding in the foreseeable future. To get it, the company will likely either issue debt or hold a secondary stock offering, neither of which is good for shareholders.
Ongoing challenges
One reason IonQ is operating at a loss is that it's investing heavily in research and development -- outlays under that category nearly doubled year over year in Q1 to $32 million.
The company remains in a race to improve. The basic unit of a quantum computer's power is the qubit, but to measure its machines' actual performance, IonQ uses a metric dubbed "algorithmic qubits," aka #AQ. In January, it announced that its Forte Enterprise system had reached an impressive milestone, hitting computational power of 35 algorithmic qubits a year ahead of its schedule to do so. Its "#AQ 35" machine -- which can consider 34 billion possibilities simultaneously -- is significantly faster than the #AQ 29 version it built in mid-2023.
However, it also has a more advanced #AQ 64 quantum computer in development. That will constitute a massive improvement: A machine with that many algorithmic qubits would be able to consider 18 quintillion possibilities at one time.
Still, such advancements do not negate IonQ's challenges. Qubits are inherently unstable, and creating hardware that can sustain them long enough to perform calculations is a serious challenge.
Moreover, much larger and better-funded competitors like IBM, Microsoft, Intel, and Amazon have taken an interest in quantum computing. As a company running massive losses, IonQ will probably struggle to keep up with its competitors in this field.
Avoid IonQ stock
Ultimately, IonQ's 77% revenue growth in Q1 is not enough to make the stock a good bet. While such growth is impressive on the surface, it is negated in IonQ's case because not only did its costs and expenses far exceed its revenue, but they are also growing at faster rates than the top line. Even with significant liquidity on the balance sheet, this situation poses a danger to investors with even the best technology backing it.
Unfortunately, IonQ will probably have to spend heavily to keep it with its much larger competitors. Although the quantum computing industry may benefit from IonQ's technology, those benefits will probably not accrue to its stock.
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Why 77% Revenue Growth Is Meaningless for IonQ Stock was originally published by The Motley Fool
