Why IonQ Stock Fell 10% Today
Key Points
IonQ agreed to buy Zero Trust security specialist Elisity in an all-stock deal worth up to $1.3 billion.
The companies didn’t disclose Elisity’s revenue, leaving investors guessing about Elisity's price tag and valuation multiples.
Monday’s drop erased more market value than the entire purchase price.
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Quantum computing company IonQ (NYSE:IONQ) announced a $1.3 billion acquisition on Monday morning. It's an all-stock deal, and Wall Street immediately reflected the incoming dilution -- and then some. At noon ET, the stock is down 10%, lowering IonQ's total market value by $1.45 billion.
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Why IonQ wants a cybersecurity company
IonQ has been on a shopping spree for a while now, and privately held security expert Elisity is the latest item in the cart. This one steps outside the quantum world entirely.
Elisity makes Zero Trust security software, which runs on a simple principle: assume that nobody on the network is trustworthy, then hand out access one narrow permission at a time.
IonQ plans to combine that platform with its own post-quantum cryptography and quantum key distribution tools, then cross-sell the quantum-infused package to enterprise and government clients.
The trouble is the receipt. IonQ is paying with its own shares and didn't say how much revenue Elisity brings in. Shareholders are being asked to trust the deal without seeing any numbers, which is an odd request to make while announcing a Zero Trust acquisition.
Why investors don't trust IonQ's zero-trust security deal
The all-stock buyout is expected to close in the fourth quarter, pending the usual run of regulatory approvals. The actual share count will depend on IonQ's stock price, and $150 million of the total tally consists of potential earn-out bonuses based on Elisity's financial performance after closing.
Too long, didn't read? Elisity's final price may vary, and so will IonQ's resulting stock dilution.
Shareholders don't seem overly enthusiastic today. The morning's price drop removed more than the full price of the Elisity deal from IonQ's market cap. In other words, many investors think that IonQ won't benefit at all from Elisity's business.
The open questions are financial. IonQ's upcoming filings and next earnings report should shed light on Elisity's actual revenue and margins, and on whether cross-selling shows up in IonQ's multi-product revenue, which grew 40% year over year in the second quarter.
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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.
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