Israel’s MyHeritage Defies the Slump in the Home DNA Testing Market – for Now, at Least

Rivals Ancestry and 23andMe are fighting a saturated market and privacy concerns in U.S. But MyHeritage’s European market is still growing, and the firm is tapping new growth engines

Illustration: A lab worker performs a DNA test, New York, September 6, 2018.
ANGELA WEISS / AFP

Four years ago, the Israeli online genealogy platform MyHeritage entered into what was then the hot new business of home DNA testing. Over the next two years sales of the kits were the main driver of the company’s jump in revenues from $50 million in 2016 to $156 million in 2018.

But those days look like they are over. The global market for DNA testing has been flooded with products at the same time there are growing concerns about data privacy.

Home DNA testing has become in recent years a hot consumer item, especially in the United States.

The tests are cheap and easy to complete: Costing $100 or less, the kits are sent to the user’s home, where he or she deposits a saliva sample to be sent back to the company.

The company analyzes the sample and sends back a detailed digital report that includes, among other things, information of the user’s ethnic background and risks of certain genetic diseases.

The market for the kits has soared, led by the U.S. companies Ancestry and 23andMe. MyHeritage was the No. 3 company in ths segment, albeit a distant No. 3, followed by GEDMatch. By the start of last year, the companies had together sold some 30 million kits.

But in the last several months, the market has taken a sudden turn for the worst.

It began last summer when a company called Illumina, which had developed technology for mapping and digitizing gene variations associated with health and disease, lowered its revenue outlook for the rest of the year. Most of the companies selling DNA tests used Illumina’s technology, so Illumina’s warning was seen as a barometer for the industry.

Last month 23andMe said it was laying off 100 staff, or 14% of its payroll, saying sales were coming in lower than expected. The following month, Ancestry said it, too, was axing 100 jobs, or 6% of its workforce, citing “a slowdown in demand across the entire DNA category” now that “most early adopters have entered the category.”

MyHeritage CEO Gilad Japhet says that his company has suffered less than its rivals in the downturn.

“Most of the [market] weakness is in the U.S. and Canada, where the market is saturated and in decline,” he said. “MyHeritage is the leader in the home DNA testing market in Europe and the rest of the world, which have shown far less weakness – growth has slowed but sales haven’t fallen.”

Still, Japhet, conceded his company isn’t immune to market trends in the U.S.

“It’s reasonable to assume that in rest of the world sales of DNA tests will eventually decline, but it will take longer because the DNA revolution came to these markets a few years after it did in the U.S.,” he said.

As part of MyHeritage’s continued investment in the European market, it was a sponsor of the 2019 Eurovision song competition, which was held in Tel Aviv.

MyHeritage is among the veteran companies in Israel’s Startup Nation. It was formed in 2003 and is known primarily as a platform for people to discover their family trees. The company has hundreds of thousands of users and employs 500 people, 360 of them in Israel. Over the years, it has raised $49 million from investors.

A source who asked not to be identified said some employees connected with the DNA part of the business had left the company, but Japhet said he had not ordered any layoffs or had any plans to do so.

“DNA testing is a growth engine, but it’s only the second component of the company’s revenues, which is based on is based on 700,000 paying subscribers in genealogy. That segment grew almost 20% in 2019. The company as a whole recorded record profits and expects to double them in 2020,” Japhet said.

Last May, My Heritage expanded into a new area of medical DNA testing, which he described as a “new growth engine for the company.”

MyHeritage has had problems with data security. In June 2018 it discovered that hackers had obtained the email addresses and hashed passwords of 92 million people who had signed up for the service. TheMarker has learned that following the incident the company let go 20 staff as it slowed product development and focus on data security,

That touches on another issue facing the DNA-testing industry: Privacy and consumer fears that their DNA may end up in the wrong hands or be used in unexpected ways. Those fears surfaced after the 2018 arrest of a suspect in the decades-old Golden State Killer case. A distant relative had shared their genetic information through a free online database that was accessed by criminal investigators.

In December, the Pentagon advised military personnel to refrain from conducting such tests “unintended security consequences and increased risk to the joint force and mission.” That is because a genetic test uncovered a risk factor for a certain disease, it could affect a military members’ future career, media reports said.

Another factor limiting growth is that the applications for DNA testing is limited and even for early adopters once they’ve done the test there’s no reason ever to do it again. Discovering one’s ethnic roots satisfies a curiosity while the information about running a risk for certain diseases is based on statistics. Users can act on the information.

The bigger companies in the market are turning to new businesses, such as selling the generic databases to big pharmaceutical companies.