Solazyme Inc (SZYM), Chevron (CVX): Three Things to Become Profitable

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Most of us have heard of Solazyme Inc (NASDAQ:SZYM).  This company is on the front lines of an industry that is attempting to create cleaner energy, in this case from bio-diesel made from algae.  It’s a great idea.  It doesn’t matter on what side of the line you’re on when it comes to protecting the environment–diesel made from a renewable source is very appealing.  So, it’s a good idea.  But is it a good investment?

Chevron Corporation (CVX)Solazyme’s History

This stock has gone nowhere but down for the last couple of years.  It is currently sitting close to 50% off of its 52 week highs.  If this is such a great idea, what are investors waiting for?

They are waiting for profits.

SZYM Net Income TTM data by YCharts

Profits have gone from bad to worse since January 2012.  What started as a $50 million hole, has grown to an over $80 million loss.

This isn’t just a net income problem or a margins problem, this is also a revenue problem.

SZYM Revenue TTM data by YCharts

Revenue was climbing early on in 2012, before falling in the second half of the year.

All Part of the Plan

Management isn’t worried about the numbers right now.  In fact, from their perspective, they are achieving all of their goals.  From CEO Jonathan Wolfson: “2013 is a critical year for us and we are ready for it. This is the combination of more than 10 years of focused work systematically executing our strategy, delivering on our goals, and de-risking our commercial prospects.”  As you listen to management talk, you begin to realize that making money isn’t the goal right now.  The goal right now is laying the foundation to make money for a long time.

This year is not supposed to be the break-out year.  Management is planning for “2014 to be the first year we are able to capture true financial returns in the form of meaningful growth in revenues and positive cash flows.”  To be able to do that, this company needs to accomplish three things:

1. Prove its technology

2. Broaden its portfolio

3. Establish a path to commercial production

Prove Technology

I should mention that the oils Solazyme Inc (NASDAQ:SZYM) is developing have varied uses, of which bio-diesel is one of them.  This potential for diesel from a renewable source such as algae has caught the eyes of some big dogs, such as Chevron Corporation (NYSE:CVX).  While competitor Exxon Mobil Corporation (NYSE:XOM) decided to fund Synthetic Genomics, Chevron decided to fund Solazyme along in their research.

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