Think Long Term: Buy Solazyme


SZYM has recently rebranded as TerraVia and refocused as a food, nutrition and specialty ingredients company

SZYM’s Q4 2015 financial results shows improvements in cash from operations

The 5-year deal supply agreement with Unilever will bring in $200 million in revenue for SZYM

We believe at $2.10 per share, secondary investors looking for a long term deal will get a great discount and should increase their exposure

Company Overview

Founded in 2003, Solazyme Inc (NASDAQ:SZYM) is engaged in creating various bio-based products and renewable oil. Solazyme Inc produces its range of products by mainly using a kind of algae called microphytes or microalgae to transform various plant based sugars into triglyceride oils and other bioproducts.

The flagship product of Solazyme Inc includes the Algenist, which is a skin and personal care product marketed by Sephora S.A. They also produce other intermediate products and ingredients such as tailored oils, powdered oils, and other closely related products for customers in the industrial realm as well as caters to the personal care products markets.

Recently, Solazyme Inc announced that they are moving forward as a food, nutrition and specialty ingredients company under the new brand name TerraVia.

As of March 26, the market capitalization of Solazyme Inc is around $172 million and they employ around 230 employees.

Q4 2015 Performance


Figure 1: Solazyme Inc’s Revenue Continued to Decline for the Last Few Quarters

On March 14, Solazyme Inc released its Q4 2015 financial results, that showed that their sales have continued to plunge. Compared to around $28 million in quarterly revenue in Q3 2014, Solazyme Inc only managed to generate $10.39 million in revenue in Q4 2015, representing a 62.89% decline in the last five quarters.


Figure 2: Solazyme Inc’s Stock Price Had a Roller Coaster Ride Over the Last Two Weeks

Regardless of the declining revenue, as soon as Q4 2015 results were announced, their stock price of Solazyme Inc jumped up from around $1.93 per share on March 14 to $2.78 per share on March 21, representing a 44.04% increase within a week. However, since March 21, the enthusiastic euphoria among secondary investors are fading away, it seems, as the stock price has come down to more realistic levels. As of March 26, the stock of Solazyme Inc is trading at $2.10 per share, which still represents a 10.53% increase since the release of the Q4 2015 earnings.


Figure 3: Solazyme Inc Did Not Experience Any Revenue Growth in the Last Five Years

While the stock price of Solazyme Inc was rising a week ago, we were skeptical about the potential downfall, and one of the reasons behind that skepticism is that for the last five years, this company did not manage to grow their sales. Capital Cube did a good year-over-year analysis of the company’s finances and they have put “Not Applicable” in the revenue growth row!

Also, their gross margin seems to be falling along, which is being reflected in their net margin, as displayed in Figure 4.


Figure 4: The Recent Price Jump Could Be Attributed to the Improving Cash from Operations

Regardless of the falling revenue, the cash from operations of Solazyme Inc has drastically improved in the last three quarters. Currently, it is still in negative territory, but since the start of 2015, cash from operations has improved from around -$37 million to around -$16 million in the Q4 2015.

Can TerraVia Deliver Something That Solazyme Has Repeatedly Failed to Do?

We have already learned that Solazyme is moving forward as a food, nutrition and specialty ingredients company under the name TerraVia, and the CEO, Jonathan Wolfson, claimed during the Q4 earnings call that under the new brand they “have a tremendous opportunity to fulfill our mission by making products that are better for people and the planet.”

He might be on to something when he mentioned that having a customer like Unilever and a $200 million plus supply agreement will dramatically improve their sales of the refocused range of bioproducts.

We are optimistic that this deal with Unilever alone would be sufficient to turn TerraVia into a successful venture, which Solazyme has failed to accomplish since the start of the company, which initially had a mission of utilizing microalgae to create a renewable source of energy and transportation fuels.


From a realistic financial point of view, after the end of Q4 2015, they have hardly any major visible change that can make investors optimistic.

Solazyme Inc started with a grand vision that has failed to deliver a commercially viable business model. However, with the new branding, financing, and a restructured board with a focus on food, nutrition and specialty ingredients, we still see hope for the future.

We are particularly interested to see how the supply agreement with Unilever goes in the next 12-month period and if the management can grow their revenue by signing in a few large supply agreements.

We would have still recommended buying Solazyme Inc at $2.5 per share, based on the single 5-year supply agreement with Unilever. But, since the stock price has come down to $2.10, we believe at this price level secondary investors looking for a long term deal will get a great discount.