Ginkgo Bioworks (DNA 10.60%) has given investors a lot of hope that the business can generate significant growth in the future. But that hasn't panned out just yet. In the meantime, the company has been burning through cash and incurring huge losses.
However, the cell programming company has been partnering with many top healthcare companies to help with drug discovery and biologic manufacturing, which should unlock growth opportunities down the road.
Management recently provided investors with an encouraging update about its operations, but is there enough of a reason to invest in this beaten-down stock, which has fallen by 82% since 2022?
Is Ginkgo Bioworks headed in the right direction?
Ginkgo Bioworks has been struggling to win investors over as the company's results haven't been all that impressive. Losses continue to be a problem for Ginkgo, and even revenue growth hasn't been consistent.
But the company issued a recent update which suggests that Ginkgo's upcoming quarterly results could be encouraging. CEO Jason Kelly said that Ginkgo has been growing its cell engineering revenue related to biopharma customers by over 50% in the past year. The company has partnered with many big names in the healthcare industry over the years.
This has helped open up many opportunities for Ginkgo. It says that last year alone, it "signed or advanced several major new biopharma programs" with big names such as Pfizer, Merck, and Novo Nordisk. Just in upfront research fees alone, the new programs it has launched could generate more than $1.2 billion in revenue for Ginkgo.
For 2023, Ginkgo anticipates that revenue will come in at around $250 million to $260 million. That's down from $477.7 million a year ago, when Ginkgo's results were stronger due to COVID testing revenue. The total number of new cell programs added to Ginkgo's platform this past year will be within the range of 80 to 85. A year ago, the company added 59 new cell programs, which was already a 90% increase from the previous year.
Can Ginkgo Bioworks turn a profit?
Ginkgo has been growing and adding more programs to its platform, but investors haven't been seeing the payoff from that with respect to stronger financials. That's one of the reasons investors are losing hope in the healthcare stock and why short interest as a percentage of Ginkgo's float remains high at 18% -- many investors expect the stock to fail.
Whether or not Ginkgo can ever post a profit is a big worry. During the first nine months of 2023, Ginkgo's revenue totaled $216.7 million, but its research and development expenses alone totaled nearly $464 million. Its net loss during that time frame was $681 million. While that was significantly less than the mammoth $1.9 billion loss Ginkgo incurred over the same period in the previous year, the business still has a long way to go in getting to breakeven.
Should you invest in Ginkgo Bioworks stock?
There's a lot of potential for Ginkgo Bioworks to help businesses transform their operations and for them to be more efficient and effective through cell programming. But without a clear path for when all these new programs will translate into significant revenue growth and profitability, investors are left in limbo.
The safest option for investors is to invest in other growth stocks and simply keep Ginkgo Bioworks on a watchlist, to see if the company's results show improvement and whether it can prove that the business' financials are indeed moving in the right direction. As of now, the stock remains too risky and isn't suitable for most investors.
