Should You Buy the Dip on Ginkgo Bioworks Stock?

Core Viewpoint - Ginkgo Bioworks has experienced a significant decline in share price, dropping 50% in the last three months, which may present a buying opportunity for investors if future recovery is anticipated [1][2] Financial Performance - In Q1, Ginkgo reported a revenue of $28 million from its biofoundry segment, an 18% decrease year-over-year, indicating ongoing unprofitability despite adding 17 new cell engineering programs [3] - Management has initiated a cost-cutting program aimed at reducing expenses by $200 million annually, with a target completion before mid-next year [4] Cost Management and Profitability Outlook - The cost-cutting plan includes a 25% reduction in labor costs, likely resulting in layoffs, particularly in R&D, and a potential 60% reduction in foundry lab space [4] - If cost reductions are successful, adjusted EBITDA is expected to reach breakeven by the end of 2026, although a positive net profit margin under GAAP is not anticipated at that time [6] Revenue Projections - For 2024, Ginkgo anticipates revenue from cell engineering services to be up to $140 million, impacted by slower revenue growth from existing programs and cost-cutting measures [7] - The company has shifted its focus away from the number of new programs onboarded as a key metric, which may indicate a slowdown in growth [8] Cash Position and Financial Risks - As of the end of Q1, Ginkgo held $840 million in cash and equivalents, with trailing-12-month operating expenses of $898.3 million, suggesting potential cash flow challenges despite cost-cutting efforts [10] - The company has no long-term debt but does have $221.8 million in long-term capital lease obligations, indicating possible avenues for raising cash through borrowing or stock issuance [11] Future Potential - There is a scenario where Ginkgo could become a profitable provider of biotech services, but a clear trajectory toward this goal is necessary for the stock to be attractive to investors [13]