Ginkgo Bioworks (DNA -5.51%) is a cell programming company that claims to have large addressable markets (for bioengineered products) in multiple industries in which it can play a key role, and that those are worth trillions of dollars in total. But the problem is it may take more than a decade for those markets to reach that kind of size. Investors could require a lot of patience.
While there may be a lot of potential for the business in the long run, investors have largely been unimpressed with the stock thus far, as its shares are down more than 31% over the past 12 months. Is Ginkgo a stock worth taking a chance on right now?
Could Ginkgo be an underrated AI investment?
It's not hard to see why Ginkgo may be attracting the attention of many investors. The company has partnerships with many top businesses, and it's also using artificial intelligence (AI) as a way to further its operations. Last year, Ginkgo announced a partnership with Google (which Alphabet owns), where it said that the companies would be bringing AI to biology. Using AI to help analyze biological data has the potential to develop a more efficient and effective platform for Ginkgo's business.
Ginkgo has also been using acquisitions to bolster its AI capabilities. Earlier this year, the company announced it acquired Reverie Labs and Patch Biosciences. Reverie has developed AI tools to help speed up drug discovery, and Patch has created an AI platform for sequence design, which can help companies create more specific and durable genetic medicines.
While these may be promising developments, investors need to be careful not to get too excited, as Ginkgo hasn't exactly been delivering strong growth despite all of its deals and partnerships.
Ginkgo's results haven't aligned with the hype
On May 9, Ginkgo released its earnings numbers for the first three months of the year. Unfortunately, there wasn't a whole lot for investors to get excited about as the company once again showed its volatility and unpredictability.
Revenue of $37.9 million was less than half of the $80.7 million that Ginkgo reported this time last year. The company blamed the significant dip on a decline in revenue for school testing. Ginkgo benefited from an uptick in testing revenue from COVID-19 as it was helping test schools nationwide. But now that the demand for COVID testing has largely evaporated, the company is feeling the effects of that in its financials.
Arguably, with all the press releases the company has been issuing announcing all its partnerships, investors would have been expecting a more robust business at this stage, where a dip in COVID testing demand shouldn't weigh so heavily on its operations. But unfortunately, that's where the business is today -- without a great deal of revenue to show for its efforts. The one positive is that Ginkgo's net loss of $165.9 million this past quarter was smaller than the $205 million loss that the company incurred a year ago.
Ginkgo expects to add 100 customer projects this year. And the biotech company anticipates its revenue will total between $170 million and $190 million. By comparison, in 2023, the company's revenue totaled $251 million, and it added 78 new cell programs, which was a 32% increase from the previous year.
Is Ginkgo Bioworks stock a buy today?
Unfortunately, it's the same old story with Ginkgo Bioworks. There's a lot of news, press releases, and hype involving the company and its long-term prospects, but there isn't the substance (i.e., revenue) to back up all those positive developments and to prove that it's on the right path. Ginkgo needs to show some positive results before it can be anything but a highly speculative investment. With ongoing losses and plenty of volatility in its numbers, this isn't a business that's suitable for most investors to consider for their portfolios.
For now, investors are better off staying away from the stock as there's still far too much risk with Ginkgo and, despite its struggles, it can still go much lower given its fairly high $1.8 billion valuation. There are much better growth stocks out there for investors to pursue than Ginkgo.
