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Why Shares of Pacific Biosciences of California Popped 19% Today

Image source: Pacific Biosciences of California.

What: Shares of gene sequencing company Pacific Biosciences of California (NASDAQ: PACB) jumped as much as 19.3% in early trading Friday after reporting second-quarter earnings. At 11:45 a.m. EDT, shares had settled slightly lower to a 14.5% gain on the day.

So what: Quarterly revenue fell 17% to $20.7 million, but that was driven by a decline in contract revenue from $13.6 million to $3.6 million. The good news is that product and service revenue jumped 51% to $17.1 million, and long term, that's the line investors want to see moving higher.  

Net loss was still up from $11.9 million a year ago to $18.5 million, or $0.21 per share. But that's hardly a focus given the increase in product revenue, which should keep recurring revenue coming in for years to come.  

Now what: Investors have been waiting for Pacific Biosciences to gain traction on its product for years, which will drive consumable revenues and higher margins long term. That's why the growth in product revenue and shipments of 26 Sequel systems was so important.

While the growth has been impressive, it may be just starting to ramp up. Management has limited shipments of new Sequel systems because it was using a prototype SMRT cell supplier and it didn't want to ramp too quickly and run into problems. But that roadblock is coming down with a high-volume supplier coming online and expected to be in full production by the end of the year. When that happens, sales should jump, and we could see operations move toward profitability -- welcome news for investors.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.