DNA Synthesis Commoditization And Trade Tensions Will Erode Margins

Key Takeaways

• Intensifying competition and industry consolidation are driving down margins, pressuring Twist Bioscience to increase spending on innovation and commercialization.
  
• Heavy reliance on a few customers heightens revenue volatility, while operational costs and regulatory risks challenge the path to consistent profitability.
  
• Ongoing product innovation, strategic market expansion, and improved margins position Twist Bioscience for robust long-term growth with increasing profitability and diversified revenue streams.

Catalysts

Manufactures and sells synthetic DNA-based products.

• The increasing commoditization of DNA synthesis and next-generation sequencing services, driven by rapid advancements in AI-driven protein design and DNA manufacturing, threatens to erode Twist Bioscience's technological differentiation, resulting in sustained pricing pressure and contraction of gross margins over the next several years.
  
• Persistent customer concentration risk remains in both the NGS and SynBio businesses, leaving revenues highly exposed to contract delays or the loss of a handful of large pharma or diagnostic accounts. Recent quarter results already show revenue impacts from single-customer order timing and transitions, foreshadowing potential future volatility and impairing predictability of earnings.
  
• Escalating international trade tensions and the risk of tighter global biosecurity or data privacy regulations could disrupt supply chains, drive up input costs, and increase compliance expenditure for Twist, putting downward pressure on net margins while undermining the company's ability to deliver on global revenue growth targets.
  
• While the company is investing heavily in R&D and platform expansion in pursuit of profitability, persistent high operational expenditures without the realization of scalable profit could result in extended negative net margins, particularly if revenue growth decelerates or fails to outpace rising costs amid an increasingly competitive landscape.
  
• Large, well-capitalized competitors and aggressive industry consolidation threaten to intensify customer acquisition costs and force Twist to accelerate reinvestment into both product innovation and commercial infrastructure. This scenario risks diluting operating leverage, suppressing future earnings per share, and potentially stalling the company's path to sustainable profitability.

Twist Bioscience Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Twist Bioscience compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Twist Bioscience's revenue will grow by 15.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Twist Bioscience will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Twist Bioscience's profit margin will increase from -23.5% to the average US Biotechs industry of 13.8% in 3 years.
• If Twist Bioscience's profit margin were to converge on the industry average, you could expect earnings to reach $76.3 million (and earnings per share of $1.16) by about August 2028, up from $-85.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.3x on those 2028 earnings, up from -18.4x today. This future PE is greater than the current PE for the US Biotechs industry at 16.7x.
• Analysts expect the number of shares outstanding to grow by 3.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Twist Bioscience Future Earnings Per Share Growth

Risks

• The company reported significant year-over-year revenue growth across all major segments, including SynBio (7% growth) and NGS (27% growth), as well as expansion into new customer bases and markets, which points to underlying revenue strength and ongoing customer demand.
  
• Gross margin has improved dramatically, rising from 31% to over 53% in two years, with management guiding for continued gross margin expansion, supporting future improvements in net margins and overall profitability.
  
• Twist Bioscience's ongoing product innovation-including internally manufactured primers, new SynBio offerings, and differentiated high-throughput solutions-positions the firm to benefit from long-term secular trends in synthetic biology, which could drive sustained growth in top-line revenue and earnings.
  
• The company is seeing strong adoption within the clinical segment of NGS and emerging growth in minimal residual disease (MRD), with management expecting further commercial launches in 2026 and 2027 that could lead to sequential growth and recurring revenue streams, bolstering earnings stability.
  
• Management highlighted successful customer diversification in both industrial and academic markets, combined with disciplined OpEx management and a clear commitment to reaching adjusted EBITDA breakeven, indicating a strong strategic focus on improving net profits and ensuring sustained financial health.

Valuation

• The assumed bearish price target for Twist Bioscience is $25.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Twist Bioscience's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $62.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $553.8 million, earnings will come to $76.3 million, and it would be trading on a PE ratio of 26.3x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $25.9, the bearish analyst price target of $25.0 is 3.6% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.