Loads of promise in Ginkgo Bioworks, says Raymond James

Raymond James analyst Rahul Sarugaser continues to have great expectations for Ginkgo Bioworks Holdings (Ginkgo Bioworks Stock Quote, Chart, News NYSE:DNA), maintaining his “Outperform 2” rating and target price of $14.50/share for a projected return of 146.2 per cent in an update to clients on Thursday.

Headquartered in Boston, Ginkgo Bioworks Holdings builds bespoke living cells through the use of its Foundry + Codebase platform, where the Foundry is the suite of physical infrastructure on which Ginkgo undertakes its cell programming work, while the Codebase is Ginkgo’s expanding catalogue of institutional biological knowledge it uses on to execute new projects.

Sarugaser’s updated analysis comes after the company announced a few selected items from its year-end financials, which won’t be fully released until March.

“For folks focusing on Ginkgo’s short-term revenue prospects, yesterday was an encouraging day,” Sarugaser said.

In the release, Ginkgo indicated it had met its goal of adding at least 30 new programs in 2021, resulting in over 100 cumulative cell programs being launched at the company.

In addition, the company noted its preliminary unaudited Foundry revenue is expected to exceed the previously disclosed outlook of $100 million for the full year, inclusive of both downstream value share and services revenue. Meanwhile, Ginkgo’s preliminary unaudited Biosecurity revenue is expected to exceed previously disclosed outlook of $110 million for full year 2021 by over 50 per cent. (All figures in US dollars.)

“Scale is fundamental to our strategy and competitive advantage, and with over $1.6 billion in gross proceeds from our public debut, we believe we are well-positioned to continue to play offense in the coming years,” said Jason Kelly, Ginkgo’s co-founder and Chief Executive Officer in the company’s January 12 press release. “The past year was transformational for Ginkgo, and I am grateful for the dedication of our team and the commitment of our partners in contributing to our success in 2021. I’m excited to work with our team to continue to deliver on our mission and drive rapid growth in the year ahead.”

Sarugaser noted that the company has plenty of liquidity at its disposal with $1.9 billion in cash available on its balance sheet, with the expectation of a $600 million burn between now and 2024, which is when Sarugaser projects the company will achieve positive net income.

Ginkgo also made news this week at the virtual JPM Conference, Ginkgo announced its intent to adopt Inscripta’s Onyx Digital Genome Engineering platform across its various Foundries, with the aim of accelerating workflows in protein and metabolic engineering; during initial evaluations of the platform, Ginkgo was able to realize material improvements in bacteria and yeast strain performance while proceeding 50 per cent faster than with its base platform.

“We see Ginkgo’s very high-volume setting for cell programming as an ideal placement (and case study) for Inscripta’s Onyx platform,” Sarugaser said.

The pre-release led to Sarugaser revising some of his estimates, raising his 2021 revenue guidance from $219 million to $272 million, implying a year-over-year increase of 253 per cent from the reported $77 million in 2020. Looking ahead to 2022, Sarugaser now estimates the company will pull in $359 million in revenue (previously $299 million) for an implied year-over-year increase of 32 per cent.

Accordingly, Sarugaser’s EV/Revenue multiple projections drop, having lowered his 2020 multiple from 328.4x to 99.8x, then dropping his 2021 estimate from 115x to a projected 28.1x, followed by a slicing of his 2022 estimate from 84.3x to a projected 21.3x.

Meanwhile, Sarugaser’s EBITDA estimates remain unchanged, as he projects losses of $161 million and $114 million in 2021 and 2022, respectively. The EV/EBITDA multiple projections remain negative as a result, but significantly less so as Sarugaser moved his 2020 multiple from (205.2x) to (62.4)x, the 2021 multiple projection from (156.6)x to (47.6)x, and the 2022 projection from (221.8)x to (66.9)x.

In terms of a comparison, Sarugaser likens Ginkgo’s positioning to that of Amazon in e-commerce’s uncertain early days in the early 2010s.

“Should Ginkgo continue to execute and establish fermentation as an easy-to-use, mainstream manufacturing modality—which we believe it will—this company would be worth many multiples of its current valuation,” Sarugaser said. “But, we expect this tech will take five to 10+ years to be firmly and broadly established. In that time, skeptics and believers will come and go, driving volatility in the stock, and, all the while, Ginkgo will continue with its mission to demonstrate that biology is the future of manufacturing.”

Over the last six months, Ginkgo’s stock price has experienced volatility in the form of a 40.7 per cent loss, hitting a high point in that period of $14.92/share on November 9 before falling to a six-month low of $5.88/share today.