Pondering Over Whether to Invest in Ginkgo Bioworks' Dropping Shares?
Pondering Over Whether to Invest in Ginkgo Bioworks' Dropping Shares?
Last three months haven't been kind to Ginkgo Bioworks shares, witnessing a 50% drop. But for shrewd investors, a fall like this could be an opportunity to acquire shares at a reduced price, with expectations of a potential price increase in the future. However, is this the scenario for Ginkgo Bioworks, or should investors seek alternatives? Let's dive in and uncover.
Core Challenges Need Time to Address
On May 9, Ginkgo reported its first-quarter earnings, which, by some standards, fell short. Revenue from its biofoundry segment amounted to $28 million, a 18% decrease compared to a year prior. Despite the addition of 17 new cell engineering programs, the foundry segment continues to operate at a loss.
In response, Ginkgo announced a cost-saving program aiming to reduce annual expenses by $200 million, with a goal to complete by mid-2023. This plan involves a 25% reduction in labor costs, leading to potential layoffs, mainly impacting key research and development (R&D) staff. The reduction in lab space could also result in a 60% decrease in its footprint.
Ginkgo's management has hinted that their cellular engineering services might be streamlined. The company's adaptable and customizable biofoundry business model is attractive to their customers. If this adaptability proves too costly to maintain, the company's market size might shrink, negatively impacting its stock price.
Upon successful completion of cost cuts, leaders expect the company's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to reach breakeven by the end of 2026. Although investors will still likely not see a positive net profit margin under generally accepted accounting principles (GAAP) at this point, at least they have a timeline for Ginkgo's path to greater profitability.
Investors may experience a bumpy ride as the company projects cell engineering services revenue for 2024 to amount to only $140 million. This revenue estimation results from slower-than-expected revenue growth from existing programs and potential cost cuts.
Moreover, the company mentions that the number of new programs added to the biofoundry quarterly is no longer the most crucial metric. Previously, this metric was an essential aspect of understanding the company's platform scaling progress. However, the shift in messaging might also portray a possible decline in the number of new programs compared to prior years.
Risks Persist, and Lessening is Slow
Ginkgo concluded Q1 with $840 million in cash and equivalents, facing an increasing cash crunch due to its trailing 12-month operating expenses of $898.3 million. Even after the cost-cutting program, the company will require careful financial management.
Currently, the company has no long-term debt, but its $221.8 million in long-term capital lease obligations might serve as a borrowing option or the chance to issue additional shares. As a result, Ginkgo looks like a risky investment due to its financial instability.
There isn't a guarantee that the company can provide industrial-scale, low-cost bioengineering and biomanufacturing services to other biopharma companies. The company's conservative financial trajectory and the unpredictability of its synthetic biology ventures detract from its appeal.
Investors should not jump on the "buy the dip" bandwagon unless they're willing to maintain their shares till the end of the decade, bearing significant losses along the way. It's essential to consider an investment in Ginkgo Bioworks selectively, given its road to profitability and the unpredictability of its future performance.
While Ginkgo Bioworks is making strides in cost reduction, the company's financial performance concerns persist. Investors need to evaluate its long-term growth and profitability potential to determine if it's worth the investment risk.
Enrichment Data, Selectively Integrated:
Ginkgo Bioworks' financial stability and overall growth potential remain uncertain. Here are key takeaways:
- Revenue Decline: Experiencing a 10% year-over-year (Y/Y) revenue dip in 2025 with Q3 2024 revenues estimated at $90.96 million (a 21% Y/Y decrease) due to non-cash deferred revenue[1].
- Cash Burn: Ginkgo Bioworks continues to incur high cash burn despite cost-cutting measures, requiring careful financial management[1].
- Cost-Cutting Measures: The company reduced its workforce by 35%, consolidating sites, and aiming for over $200 million in annualized cost reductions by mid-2024, with the expectation of reaching adjusted EBITDA breakeven by mid-2026[2][5].
- Profitability Challenges: Ginkgo's profitability remains uncertain due to its highly diverse market approach, high-risk synthetic biology ventures, and strategic partnerships with major firms like Pfizer and Merck[1].
- Analyst Outlook: Analysts maintain a "Hold" rating for Ginkgo Bioworks stock with a 12-month price forecast of $37.8, representing a 208.57% increase from the current price. This suggests a cautious evaluation of the company's long-term performance prospects[3].
In conclusion, Ginkgo Bioworks is taking steps to address convoluted financial performance and improve efficiency, but the company's future growth potential remains uncertain. Investors should thoroughly evaluate the company's long-term prospects to determine its investment appeal.
Despite Ginkgo Bioworks' cost-cutting measures and efforts to improve efficiency, the company's future growth potential remains unclear. Smart investors might see this situation as an opportunity to invest their money in Ginkgo Bioworks shares, anticipating a potential price increase due to the company's improving financial performance in the future. However, careful financial management and a long-term investment strategy would be crucial for potential investors, given the financial instability and unpredictable future performance of the company.