Biopharma Demand Will Boost Automation And Data Services

Key Takeaways

• Shifting towards tools like Ginkgo Automation platform addresses biopharma AI data demand, enhancing revenue through diversification.
  
• Expanding customer base and government partnerships in Cell Engineering and Biosecurity aim for sustained revenue growth.
  
• The shift towards larger biopharma clientele and reliance on government contracts exposes Ginkgo Bioworks to revenue volatility and macroeconomic uncertainties.

Catalysts

Develops a platform for cell programming in the United States.

• The company's shift towards selling tools like the Ginkgo Automation platform and Data Points services is responding to increased demand from the biopharma industry for data to train AI models. This is likely to enhance revenue through diversification and scale with less customization required in service delivery.
  
• Significant cost reductions have been achieved and the company continues to target further cost cuts in 2025. This reduction in operating expenses is expected to improve net margins by decreasing cash burn and moving towards adjusted EBITDA breakeven.
  
• Ginkgo Bioworks has a pipeline of large potential milestone payments from customer collaborations which are not yet included in revenue forecasts. Successful commercialization of these collaborations could significantly boost future earnings.
  
• The company has made strides in expanding its customer base with 31 new programs and contracts, reflecting a potential increase in revenue growth as these programs mature and generate income.
  
• Ginkgo’s strategic focus on growing its Cell Engineering and Biosecurity business with new government and international partnerships may drive sustained revenue growth, despite challenges in the biotech R&D market.

Ginkgo Bioworks Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ginkgo Bioworks Holdings's revenue will decrease by 0.0% annually over the next 3 years.
• Analysts are not forecasting that Ginkgo Bioworks Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ginkgo Bioworks Holdings's profit margin will increase from -240.9% to the average US Chemicals industry of 7.9% in 3 years.
• If Ginkgo Bioworks Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $17.8 million (and earnings per share of $0.35) by about April 2028, up from $-547.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.8x on those 2028 earnings, up from -0.7x today. This future PE is greater than the current PE for the US Chemicals industry at 17.6x.
• Analysts expect the number of shares outstanding to decline by 1.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.02%, as per the Simply Wall St company report.

Ginkgo Bioworks Holdings Future Earnings Per Share Growth

Risks

• The company's shift in customer mix, moving away from smaller industrial biotech to larger biopharma and government customers, might create volatility in revenue streams if government contracts or larger partnerships are disrupted. This could impact overall revenue stability.
  
• Ginkgo Bioworks is experiencing a 51% decline in Biosecurity revenue, partly due to the end of COVID testing contracts. This decrease highlights vulnerability to fluctuating demand for their Biosecurity products, affecting both revenue and net margins.
  
• The macro environment is uncertain, with risks related to government funding cuts and broader biotech R&D market challenges. These factors could hinder revenue growth and impact earnings if the market does not improve.
  
• While adjusted EBITDA has improved, achieving breakeven by 2026 still depends on cost reductions, subleasing excess space, and successful execution of new revenue streams like tools and automation. Any failure in these areas might prolong achieving profitability.
  
• While Ginkgo Bioworks aims to bolster its Biosecurity and Automation divisions, reliance on government contracts and technology adoption rates presents risks. If government priorities shift or technology adoption lags, it could impede projected revenue growth and earnings.

Valuation

• The analysts have a consensus price target of $8.3 for Ginkgo Bioworks Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $5.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $226.8 million, earnings will come to $17.8 million, and it would be trading on a PE ratio of 30.8x, assuming you use a discount rate of 9.0%.
• Given the current share price of $7.54, the analyst price target of $8.3 is 9.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.