Why 23andMe Stock Tumbled 10% on Tuesday

Genetic database builder 23andMe (ME -15.27%) stock slid 10% through 12:05 p.m. ET Tuesday. Curiously, though, the news that 23andMe reported today seemed generally of the “good” variety. The company announced a collaboration with the nonprofit Colorectal Cancer Alliance “to help advance research on colorectal cancer in the Black/African American community.”

Now, why might investors consider this bad news for 23andMe stock?

Non-profit plus an unprofitable company equals what?

Let’s start with the obvious: 23andMe is partnering with a non-profit organization, on a project that will have it sign up individuals “to help fill in the gap … [in] research on colorectal cancer in the Black community.” Presumably, the individuals recruited will all get genetic tests with 23andMe, but they will receive “the option to access health reports through a 23andMe+ Premium membership at no cost.”

The company didn’t describe any financial benefit for its business from the research project (aside from PR value). Indeed, it sounds most likely that 23andMe will be incurring costs in providing a service here, with little or no revenue to offset those costs.

23andMe is in no position for altruism

While a worthy goal, 23andMe really isn’t in a great position to be providing its services gratis. The company is not currently profitable. Indeed, 23andMe has never been profitable, and its losses are actually growing over time, reaching $667 million in the most recent financial year.

23andMe is also burning cash at a pretty steady rate of about $165 million per year, but has only $140 million (net of cash) on its balance sheet. This implies that, unless 23andMe finds a way to generate some cash quickly, it will be in a net-debt position within a year.

While the goals of this study may be laudable, it’s more likely to worsen 23andMe’s financial position, rather than help. Today’s sell-off in the stock suggests that investors have reached the same conclusion.