Once upon a time, Ginkgo Bioworks(NYSE: DNA) was viewed by many as a rising star in the biotechnology world. However, since its initial public offering in September 2021, the stock has plunged 95%. So far in 2024, Ginkgo's shares have fallen more than 60%.
Can Ginkgo Bioworks stage a major comeback? Or is the stock likely to continue floundering? Two Motley Fool contributors make the bull and bear arguments for Ginkgo.
Bull case: A growing number of programs and customers
Adria Cimino: Ginkgo Bioworks has built a cell engineering platform that's attracted a wide range of customers across industries. The company has seen the most growth, though, in the healthcare and food and agriculture businesses. In pharma and biotech, Ginkgo's number of active programs increased 20% in the first quarter from the year-earlier period. And in food and agriculture, the number climbed more than 50%.
The company is working with some of these industries' biggest names, from Pfizer to Syngenta. Pfizer, for example, is using Gingko's platform for the discovery of mRNA molecules across its key research areas. The deal offers Ginkgo an upfront payment, milestone payments, and potential royalties on product sales. So signing such an agreement now could result in revenue over the long term.
Total active customers increased 37% in the first quarter. Ginkgo predicts at least 100 new projects this year.
Though Ginkgo's revenue has advanced since its IPO back in 2021, it has come down from its peak -- and Ginkgo's biosecurity business isn't yet a steady contributor to growth. But the company has taken note of these and other challenges and recently announced a move to speed up its pace to profitability.
During Ginkgo's recent earnings report, it announced a plan to help it reach adjusted EBITDA breakeven by the end of 2026. The company aims to reduce annualized run rate expenses by $200 million by the middle of next year and it plans to do this by consolidating its foundry operations and cutting its workforce. Through decreasing its number of foundry facilities, Ginkgo says it could lower expenses by as much as 60%.
It's also important to keep in mind that Ginkgo has $840 million in cash and no bank debt -- two positive points as the company embarks on this cost-cutting journey.
Ginkgo's shares have struggled since the company's market debut, but there's still reason to be optimistic about this innovative biotech. The company's technology could help customers save time and develop better products faster -- and major companies are recognizing this and signing on for Ginkgo's services. Today, investors with some tolerance for risk may consider taking a small position in Ginkgo as the new cost-cutting plan could be the catalyst the company needs -- to reach positive share performance and eventually profitability.
Bear case: No compelling reason to buy Ginkgo
Keith Speights: One thing jumps out to me about Ginkgo -- and it's not good. More than 22% of the stock float (the number of shares available for the public to trade) was sold short as of May 15, 2024. This indicates that some investors are betting big that Ginkgo's shares will decline further.
I don't know if the short-sellers are right. However, I wouldn't make an equally big bet that Ginkgo's share price will rise significantly. And that underscores the main bear case against the stock in my view: There's simply no compelling reason to buy Ginkgo.
The company's revenue sank 53% year over year in Q1. Ginkgo posted a net loss of nearly $166 million. Its hefty cash stockpile won't last long at that rate.
Sure, Ginkgo's management says that they have a plan to reach adjusted EBITDA break-even within 2.5 years or so. They also expect biosecurity revenue of at least $50 million. But plans and projections aren't enough to make the stock a great pick.
Arguably the main near-term concern for Ginkgo relates to the notice the company received from the New York Stock Exchange that it's not in compliance with listing requirements. Ginkgo must regain compliance by having its share price reach $1 over 30 consecutive trading days or face potential delisting. I suspect Ginkgo will be forced to conduct a reverse stock split to boost its share price.
Buy or avoid Ginkgo Bioworks stock?
Should you buy Ginkgo Bioworks stock or avoid it? Different investors will have different answers. Ginkgo certainly faces risks, but the company's turnaround strategy could pay off and reward patient investors handsomely over time. That's what investing is about -- taking on risk for the possibility of gaining rewards. Ginkgo bulls will focus on the potential rewards, while bears will highlight the stock's risks.
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Adria Cimino has no position in any of the stocks mentioned. Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
