Down 88% in One Year, What’s Next for Ginkgo Bioworks Stock?

Ginkgo Bioworks (DNA -1.81%) The stock had a rough 12 months, falling 88%, and underwent a reverse stock split on Aug. 20 that left its shares down about 18% afterward. Depending on which company’s view you subscribe to, things could continue to get worse for shareholders over the next two years — or they could get a lot better.

Let’s make up some scenarios so you can understand if this stock is worth taking a chance on or if it’s too risky to touch given your preferences.

The optimistic case

The optimistic case for Ginkgo is that it will manage to find a way to reduce its costs while also continuing to gain traction with its customers over the next 24 months, thereby growing revenues moderately while generating steadily growing operating profits . Management’s main goal right now is to achieve its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) before the end of 2026.

By mid-2025, the company plans to reduce its annual cash burn from operating expenses by $200 million. For reference, its trailing 12-month (TTM) operating expenses are $852.2 million, and in Q2, it reported an operating loss of $223 million. The cuts it is making to recoup those costs will come significantly from labor costs, as it expects to lay off more than 450 people by the middle of next year. It is also consolidating its operations into a new facility.

Ginkgo expects to bring in revenue of up to $190 million for 2024, down from $251 million in 2023. In the optimistic case, revenue growth will start to pick up again in 2025 and 2026 as a result of programs more successful to show potential customers. This is plausible because as other biopharmas learn what they can offload onto Ginkgo’s biomanufacturing platform and how much work it takes to do it from the bottom up, as well as how much it costs, the company’s core value proposition will become more tangible.

If this happens, expect the stock to reverse its downtrend and rise steadily.

The pessimistic case

The less optimistic case for Ginkgo calls for it to continue to fight to reduce its overhead and program maintenance costs. Then, out of necessity, Ginkgo will have to further scale back the ambitions of its biomanufacturing platform, resulting in lost revenue from customers who might have been interested only in niche capabilities. Eventually, it might even run out of money and be forced to sell its productive assets to stay afloat.

It currently has $730 million in cash and cash equivalents on hand. Even with the drastic cuts planned, cash will be very tight relative to its spending. The Company may find it necessary to decline expensive programs proposed by customers due to limited ability to generate satisfactory operating margins through upfront royalties or milestone payments, especially if the programs are implemented according to specifications.

In addition, while it currently has no long-term debt, it has capital lease obligations of $452.2 million. It will likely have to either take on new debt or issue more shares of its stock to stay afloat. This will affect the stock price more in the short term, even if it survives and continues to thrive thereafter.

Which is the more realistic case?

Despite the fact that Ginkgo counts many of the biggest players in biopharma and agriculture among its list of clients and collaborators, it has yet to consistently grow its revenue by adding more programs to its workload. While in Q2 2023 it had 105 active programs, in Q2 this year it had 140 programs, slightly lower revenue and slightly lower losses. Adding more programs does not appear to result in economies of scale in bioproduction that would reduce maintenance costs enough for it to break even.

And given the ongoing cutbacks and tight cash situation, it likely won’t be able to continue starting new projects at the same pace as before. In other words, it doesn’t currently seem like there’s a way to be an upwardly mobile stock without making massive efficiency improvements, which have so far been elusive.

If management manages to hit its adjusted EBITDA target for 2026, it will suggest that a better future is possible. Until then, the next most likely direction for this stock, unfortunately, is down. Making a risky bet on its eventual effectiveness is inadvisable for now, though it’s worth checking back in a year or so to see how things go.