DexCom, Inc. reported adjusted earnings of 48 cents per share for the second quarter of 2025, beating expectations by 6.7%. This is up from last year’s earnings of 43 cents. Revenues increased by 15.2% to $1.16 billion, surpassing projections by 3.1%. This growth was fueled by strong demand, especially in the type 2 diabetes market, and recent access gains. However, DexCom’s shares fell by 5.5% in after-hours trading on July 30, 2025, even though they are up 9.9% so far this year. This decline comes amidst a 7.3% drop in the industry. Sensor and other revenue, which makes up 97% of total revenue, grew by 18% to $1.12 billion. In contrast, hardware revenue dropped by 31% to $39.3 million. In the U.S., revenues went up 15% to $841 million, while international revenues rose 16% to $316.1 million. However, their adjusted gross margin fell to 60.1%, down 340 basis points from the previous year. DexCom also reported a 9% increase in research and development costs, totaling $148.2 million. Adjusted operating income rose by 13.5% to $221.8 million, although margins were slightly lower. The company expects revenues for 2025 to be between $4.6 billion and $4.625 billion, signaling 14-15% growth. They anticipate a gross margin of around 62%. Product innovations include the new 15-day G7 sensor and the Stelo biosensor app, which has over 400,000 downloads. They are also launching an AI-powered Smart Food Logging feature for better diabetes management. Despite expected short-term margin pressures, the company remains positive about its gross margin outlook. Kevin Sayer will step down as CEO in early 2026, with Jake Leach taking over. The planned competitive bidding program for Medicare continuous glucose monitoring (CGM) could be challenging, but DexCom is confident in its strong market position. The company is expanding its reach to about 6 million new lives, with a goal of 25 million. With significant cash reserves and a growing customer base, DexCom is well-placed in the CGM market. We are seeing a typical “sell the news” pattern with DexCom after its earnings report on July 30. Despite exceeding revenue and earnings forecasts, the stock’s drop suggests that the market is worried about declining gross margins. This pressure on profit is the main concern right now, overshadowing the positive revenue growth. From an options perspective, this event has changed the landscape. The implied volatility for DXCM, which spiked over 60% before the announcement, has already begun to decrease sharply to around 45%. This drop in post-earnings volatility makes selling options more appealing than buying. Market concerns about margins are heightened by external factors. Reports from mid-July 2025 revealed that competitor Abbott received an accelerated FDA review for its next-generation Libre 4 sensor, raising fears of a price war. This situation makes it unlikely that DXCM shares will reach new highs anytime soon. Looking at the stock’s history, we’ve seen similar post-earnings dips in late 2023 and mid-2024. In those cases, strong user growth was also overshadowed by worries about future profitability, leading to short-term declines. This pattern suggests that the current drop is part of a recurring theme rather than a new problem. Given the solid growth drivers, like the new Stelo biosensor and broader market access, a complete drop in the stock price seems unlikely. The recent sell-off could offer opportunities for strategies that bet on a floor price, such as selling out-of-the-money put spreads. This approach allows us to earn premium while managing risk in case of temporary dips due to margins concerns. In the coming weeks, we expect the stock to enter a consolidation phase as traders balance the positive sales growth against the negative margin pressures. The upcoming CEO transition in 2026 adds some long-term uncertainty but is unlikely to affect short-term trading. Therefore, we are considering strategies that profit from the stock trading within a certain range.

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