Ginkgo Bioworks keeps Outperform rating with Raymond James

The stock has fallen a long way over the past year and a half, but these days investors should be focusing more on the operational performance of Ginkgo Bioworks (Ginkgo Bioworks Stock Quote, Charts, News, Analysts, Financials NYSE:DNA), as the company continues to grow its topline as well as broaden its customer base. That’s the takeaway from Raymond James analyst Rahul Sarugaser, who reviewed Ginkgo’s fourth quarter results in a new report on Thursday.

Ginkgo, a bioengineering company that designs and builds bespoke living cells to manufacture materials for a range of industries, announced its Q4 2022 financials on Wednesday, showing revenue down 34 per cent to $98 million and an adjusted EBITDA loss of $80 million compared to positive $1 million a year earlier. The company’s topline drop was explained as an expected reduction in its COVID-19 testing services. (All figures in US dollars.)

“We added 59 new programs to the cell programming platform in 2022 as our team delivered toward the high end of our program guidance,” said Jason Kelly, co-founder and CEO, in a press release. “This outstanding performance illustrates strong growth in customer demand as our capabilities progress.”

Looking at the results, Sarugaser said the $98 million topline was above his estimate at $79.1 million and the consensus call at $84.6 million, while the $80 million adjusted EBITDA loss was better than his forecast at a loss of $87.3 million but below the Street’s call at negative $78.4 million.

Sarugaser noted that Ginkgo’s Cell Engineering revenue was $53.1 million versus his estimate at $59.1 million, while Biosecurity revenue at $45 million was well above his forecast at $20.0 million.

The analyst commented on management’s decision to decouple its Foundry revenue into Cell Engineering revenue and Downstream Value revenue, where the latter would include royalties, milestones and equity, which are challenging to estimate in terms of size and timing. The company said it will no longer provide guidance on the Downstream Value revenue.

This change removes a significant revenue stream from its guidance, Sarugaser said, making the new 2023 guidance (100 new cell programs for its Foundry platform, Foundry revenue of “at least $175 million” and Biosecurity revenue of “at least $100 million”) look weak at first glance.

At the same time, Sarugaser said the company’s Service revenue is poised to grow materially and the Downstream revenue is also positioned to grow year-over-year.

“Net net, we appreciate that through all of DNA’s internal iteration and variation, the company continued to post strong and growing key metrics through FY22: Total Rev. grew 52 per cent Y/Y; new cell programs grew 90 per cent Y/Y; and total active customers grew 70 per cent Y/Y (Exhibits 2 & 4). And, DNA’s FY23 guidance shows cell programs growing +59 per cent Y/Y, with solid growth in Cell Engineering Service Rev. at +65 per cent Y/Y,” he said.

With the update, Sarugaser reiterated an “Outperform” rating on DNA while lowering his target price from $6.00 to $5.00, implying at press time a projected one-year return of 257 per cent.