Down 81% in 2024, Is Ginkgo Bioworks Stock Still a Buy?

To say that Ginkgo Bioworks‘ (DNA -10.03%) stock is in a bit of a rough patch doesn’t quite capture it. With the price of its shares down by 81% in 2024 alone, many investors are likely wishing they had walked out the door months ago.

But with the biotech’s ambitious vision for highly automated biopharma manufacturing still unrealized, there may yet be rewards waiting for those who hold on for a bit longer. Or shareholders could just experience even more pain.

So is this stock still worth buying, or is it better to look elsewhere for potentially disruptive growth picks?

What’s going wrong

Let’s begin with why the market has been so bearish on this business lately. This May, Ginkgo announced that it will be cutting its labor costs by around 25%, which translates to letting go of more than 33% of its workforce. In total, management is looking to reduce recurring expenditures by at least $200 million annually, with a self-imposed deadline of the middle of 2025.

If everything goes as planned, the company will report positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) before the close of 2026. Aside from the layoffs, it plans to accomplish that by consolidating some of its operations into its new facility Biofab1, which it claims will be ready to start operating by mid-2025.

Reading between the lines, it’s also clear that Ginkgo will now be more selective about which programs it agrees to take on from customers, so it only onboards those programs it believes will be the most profitable and scalable with its biomanufacturing hardware. That will allow it both to reduce the amount of manual labor hours it devotes to research and development (R&D) on behalf of its clients, and to increase the utilization of its automation solutions, likely by restricting the range of possible tasks it says it can take on.

There are pluses and minuses to adjusting its operations in this way. The most obvious benefit will be that its operating margin should improve somewhat, and perhaps even become positive eventually. The company’s core thesis — that biomanufacturing done at industrial scale will produce economies of scale that drive its costs down — could become closer to being a reality.

But there is also a chance that by being more picky about which projects it takes on, it’ll miss out on revenue. That’s an important consideration at the moment, as over the last three years its trailing-12-month revenue only rose by 5.7%, reaching $208.7 million. And if the company declines new business, it’s unlikely to reach the scale it claims to need to drive down costs.

Nonetheless, Ginkgo is still collaborating with a smattering of the biggest and most influential players in biopharma. If it can impress clients like Pfizer, Novo Nordisk, and others, missing out on niche projects may not matter.

Right now, it has $840 million in cash, equivalents, and short-term investments. But with trailing-12-month total expenses of $939.1 million, it’s clear that something needs to change promptly or the company will be running on empty.

The odds for new investors are starting to narrow

Ginkgo currently has no debt, so it can probably take out a loan to cover its operating expenses while it gets its house in order. But the investing thesis for buying its shares is starting to look a bit weak.

Despite continuing to onboard more customers and initiate more programs each quarter, its margins are still poor. Its biosecurity services segment has collapsed, bringing in just $10 million in revenue in the first quarter, down from $47 million a year prior; it’s also even less profitable than before.

And while management is optimistic about winding down its old facility to transfer operations to its highly efficient new facility, signs suggest that both its ambitions and the capacity of its manufacturing capabilities are scaling down.

So it’s probably best to avoid buying shares of Ginkgo Bioworks until it can demonstrate that it’s actually on the road to becoming profitable. The risk of an investment right now is simply too high to be worth it.