Ginkgo Bioworks Equity: Optimists versus Skeptics
Ginkgo Bioworks Equity: Optimists versus Skeptics
Once upon a time, Ginkgo Bioworks (boasting a 15.33% DNA stake) was hailed as an up-and-coming beacon in the biotech sector. Following its September 2021 initial public offering, however, the stock experienced a drastic plummet of 95%. In 2024 alone, its shares have further dipped by over 60%.
Two analysts weigh in on Ginkgo Bioworks' potential performance, offering the bullish and bearish perspectives on the stock.
Bullish scenario: Expanding clientele and projects
Adria Cimino:** Ginkgo Bioworks' cell engineering platform has piqued the interest of various industries, fostering a flourishing customer base. The company's most remarkable growth can be attributed to the healthcare and food & agriculture sectors. In the pharmaceutical and biotech realm, Ginkgo's active programs surged by 20% in the inaugural quarter from the preceding year. Meanwhile, the food & agriculture sector saw an over 50% jump in active projects.
Ginkgo collaborates with industry heavyweights such as Pfizer and Syngenta. Pfizer, for instance, is utilizing Ginkgo's platform for the discovery of mRNA molecules across their primary research areas. The partnership offers Ginkgo lucrative upfront payments, milestone payouts, and potential royalties on product sales. Signing such agreements could result in long-term revenue generation.
Ginkgo's total active customers escalated by 37% in the initial quarter. The corporation anticipates 100 new projects in 2024.
Although Ginkgo's revenue has increased since its market debut, it has since dipped, and its biosecurity division has yet to contribute significantly to growth. However, Ginkgo acknowledges these challenges and has outlined a plan to accelerate its path to profitability.
During Ginkgo's most recent earnings report, it announced a strategy to achieve adjusted EBITDA breakeven by the end of 2026. The company aims to reduce annualized run rate expenses by $200 million by the middle of the following year, accomplishing this through consolidation of its foundry operations and a workforce reduction. Ginkgo predicts that consolidating its foundry facilities could decrease expenses by up to 60%.
It's noteworthy that Ginkgo has an $840 million war chest and no outstanding bank debt, serving as valuable assets as the company embarks on this cost-cutting mission.
Ginkgo's shares have faltered since the company's market introduction, but there remains reason to remain optimistic about this cutting-edge biotech. Its technology could enable customers to save time and produce superior products more swiftly, with major companies recognizing this and signing up for Ginkgo's services. Today, investors willing to accept some risk may consider adding a modest position in Ginkgo, as its cost-cutting plan could prove to be the much-needed catalyst for improving share performance and eventual profitability.
Bearish scenario: Insufficient reasons to invest in Ginkgo
Keith Speights:** Ginkgo Bioworks' concerning figure is its significant short-interest. More than 22% of the stock float was sold short as of May 15, 2024, implying that some investors are betting that Ginkgo's shares will continue to tumble.
I can't state definitively whether these short-sellers are right, but I'm hesitant to wager that Ginkgo's share price will experience a significant surge. Essentially, the main argument against the stock in my opinion is: there's no compelling reason to invest in Ginkgo.
Ginkgo's revenue plunged 53% year-on-year in the first quarter. The corporation posted a hefty net loss of nearly $166 million. Its substantial cash reserves won't last long at this rate.
As Ginkgo's management claims, they have a strategy to reach adjusted EBITDA breakeven within approximately 2.5 years, along with projecting biosecurity revenue of at least $50 million. However, plans and predictions do not automatically equate to a robust investment choice.
Arguably, the primary immediate problem for Ginkgo involves the warning the corporation received from the New York Stock Exchange. Ginkgo must attain compliance with listing requirements by achieving a share price above $1 for 30 consecutive trading days or face potential delisting. I believe Ginkgo will be compelled to implement a reverse stock split to boost its share price.
Ginkgo Bioworks' financial situation continues to be a topic of discussion among investors, with some viewing it as an opportunity for potential gains. In light of the company's expanding clientele and projects, particularly in the healthcare and food & agriculture sectors, some analysts believe that Ginkgo's cell engineering platform could lead to long-term revenue generation through partnerships with industry heavyweights such as Pfizer and Syngenta.
However, others are more skeptical, citing concerns such as the company's significant short-interest and its net loss of nearly $166 million in the first quarter, which resulted in a 53% year-on-year revenue decline. With such a bearish outlook, some investors might question whether investing in Ginkgo Bioworks is a wise financial decision at this point.