IonQ, Inc. (IONQ) in College Park, Md., is the world’s first publicly traded pure-play quantum computing company. The company was mentioned in the 2022 Time 100 Most Influential Companies list. It went public through a reverse merger with special purpose acquisition company dMY Technology Group, Inc. III, on Oct. 1, 2021.

Regarding this, Niccolo de Masi, CEO of dMY Technology group of companies, said “IonQ’s listing today marks an incredibly significant milestone for quantum computing–the demand for this technology is real and the path to commercialization and scale is tangible.”

However, IONQ’s shares have slumped 45.1% in price since their stock market debut to close yesterday’s trading session at $5.71. In addition, the stock has plummeted 65.8% year-to-date. The bearish market sentiment combined with IONQ’s history of operating losses has caused the stock to lose momentum since its listing.

Here is what could shape IONQ’s performance in the near term:

Poor Financials

IONQ’s total bookings came in at $4.20 million in the fiscal first quarter, ended March 31, 2022. Its net revenues increased 1462.4% year-over-year to $1.95 million. However, the company’s loss from operations widened 149.2% from the same period last year to $18.28 million. This can be attributed to a substantial increase in operating expenses. IONQ’s total operating costs and expenses rose 171.2% from the prior-year quarter to $20.34 million. And its net operating cash outflow increased 113.5% year-over-year to $8.32 million.

However, IONQ’s net loss narrowed 42.4% from its year-ago value to $4.23 million. This is due to a $13.45 million gain from a change in the fair value of warrant liabilities. Its loss per share amounted to $0.02, compared to a $0.06 loss reported in the prior-year quarter.

Material Weakness in Internal Control

In its S-1 registration statement, the company stated that it recognized a material weakness in its internal control over financial reporting. IONQ does not have adequate accounting and financial reporting personnel with sufficient knowledge of U.S. GAAP accounting principles and SEC rules. Also, the company’s financial accounting system has limited functionality and does not facilitate effective information technology general controls relevant to financial reporting. Moreover, elements of IONQ’s close process are managed and processed outside the accounting system, increasing the risk of error.

The material weakness in internal control might result in material misstatements in financial statements and/or restrict IONQ’s ability to meet its periodic reporting obligations. Due to such potential errors in its financial statements, IONQ may be unable to raise capital in the future unless the weakness is rectified.

Risk Factors

IONQ is an early-stage company with limited operating history. Since last October, the company has been able to commercialize a quantum computer with 11 algorithmic qubits. Thus, its scalable business model has not been formed. The development of its scalable business will likely result in extensive operating expenses, while revenues are not expected to increase until more powerful computers are produced.

The company expects to incur substantial operating and net losses until it begins significant production of quantum computers, which is not expected to occur until at least 2025. Because its business model is unproven, there is a considerable risk that IONQ might never achieve profitability.

POWR Ratings Reflect Bleak Prospects

IONQ has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

IONQ has an F grade for Value and Quality. The stock’s EV/EBITDA multiple stood at negative 14.10, which is in sync with the Value grade. In addition, its negative profit margins justify the Quality grade.

Among the 44 stocks in the Technology – Hardware industry, IONQ is ranked last.

Beyond what I have stated above, view IONQ ratings for Growth, Momentum, Sentiment, and Stability here.

Bottom Line

IONQ is one of the most promising start-ups in the quantum computing industry. Its recognition by Times Magazine indicates the company’s substantial technological innovation capacity. However, it might take significant time for IONQ to scale its business model fully to generate adequate revenues. The company stated in its prospectus that it expects to begin the commercial production of quantum computers in 2025. Thus, given its bleak near-term growth prospects, we think IONQ is best avoided now.

How Does IonQ (IONQ) Stack Up Against its Peers?

While IONQ has an F rating in our proprietary rating system, one might want to consider looking at its industry peers, AstroNova, Inc. (ALOT), Lenovo Group Limited (LNVGY), and Murata Manufacturing Co., Ltd. (MRAAY), which have an A (Strong Buy) rating.

IONQ shares were trading at $5.95 per share on Wednesday morning, up $0.24 (+4.20%). Year-to-date, IONQ has declined -64.37%, versus a -15.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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