Shake Shack and 23andMe: A Year of Ups and Downs

While 2022 was a tough year for Shake Shack (SHAK) and 23andMe Holdings (ME), 2023 has seen a significant turnaround for one of them.

Shake Shack, which suffered a 42% decline in shares last year, has bounced back impressively since the arrival of activist investor Engaged Capital. The firm plans to take three director seats and has called for significant changes to Shake Shack’s real estate strategy, store design, and supply chain framework. Since Engaged’s involvement, Shake Shack’s shares have skyrocketed by 78%, more than erasing last year’s losses. On August 4th, the company’s shares hit $76.14, their highest levels since February 2022.

Engaged and Shake Shack reached an agreement in May to seat two directors agreeable to both parties. This deal allowed Engaged to help steer Shake Shack towards “full growth potential and profitable scaling” while reducing the risk of a protracted boardroom battle.

Meanwhile, 23andMe saw its shares fall 68% in 2022 following the exit of former CFO Steve Schoch last August. While Joe Selsavage now serves as interim CFO, the company is yet to make a permanent appointment to Schoch’s position.

As we move further into 2023, both firms will be hoping for smoother sailing than last year. Shake Shack will be keen to build on its recent gains while 23andMe will be looking for stability amid the management changes.

23andMe Shares Drop, Despite Strong DNA Kit Sales

23andMe has seen a 24% decrease in shares so far this year, with the stock dropping to a record intraday low of $1.57 in Thursday trading. This is a sharp decline since the company went public in June 2021, merging with a special-purpose acquisition company. At the current stock price, purchasing the cheapest 23andMe test for “Ancestry Service” at $99 would cost about 63 shares.

Despite this, the company’s site reports that 12 million DNA kits have been sold since 2006, generating approximately $1.2 billion in profits. This is over $400 million more than 23andMe’s current market value of $770 million.

Credit Suisse analyst Tiago Fauth is optimistic about future potential investment opportunities, writing, “Looking ahead, the key upcoming catalyst remains the potential announcement of new collaboration(s), as the GSK (GSK) exclusivity period is set to end in July 2023.” In 2018, GSK and 23andMe agreed to a five-year research partnership, with GSK investing $300 million in the company and agreeing to pay an annual $25 million fee. In 2022, GSK extended the agreement for a fifth year at a cost of $50 million.

Fauth rates 23andMe stock as Outperform with a $6 target price, down from his previous assessment of $21. As of now, it remains to be seen whether 23andMe will be able to improve its stock rates in the coming months.

Key Takeaways:

  • Shares of 23andMe have dropped 24% this year
  • Despite this, the company has sold over 12 million DNA kits since 2006, generating approximately $1.2 billion
  • Analyst Tiago Fauth cites new potential collaborations with GSK as a potential investment opportunity
  • Fauth rates 23andMe stock at Outperform with a $6 target price, down from previous assessments
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