Ginkgo Bioworks (DNA -1.81%) The stock has had a rough 12 months, falling 88% and experiencing a reverse stock split on August 20 that sent the share price down about 18%. Depending on your view of the company, things could get worse for shareholders in the next few years – or a lot better.

Let’s run through a few scenarios to help you assess whether this stock is worth taking a risk on or if it’s too risky given your preferences.

The optimistic case

The optimistic scenario for Ginkgo is that it manages to find a way to reduce its costs while continuing to gain traction with its customers over the next 24 months, thereby modestly increasing revenue while generating steadily growing operating profits. Management’s main goal right now is to break even on adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) before the end of 2026.

By mid-2025, the company aims to reduce its annual cash burn from operating expenses by $200 million. Trailing 12-month (TTM) operating expenses are $852.2 million, and in the second quarter, the company reported operating losses of $223 million. The cuts the company is making to cover these costs will primarily impact labor costs, as the company expects to lay off more than 450 employees by the middle of next year. The company is also consolidating its operations into a new facility.

Ginkgo expects revenue to reach up to $190 million in 2024, up from $251 million in 2023. In the optimistic case, revenue growth will pick up in 2025 and 2026 as the company has more successful, high-profile programs to show potential customers. This is plausible because as other biopharmaceutical companies learn what they can outsource to Ginkgo’s biomanufacturing platform and how much work and cost that requires on their part, the company’s core value proposition will become more tangible.

If this happens, the stock is expected to reverse its downward trend and rise steadily.

The pessimistic case

The less optimistic case for Ginkgo assumes that the company will continue to struggle to reduce its overhead and program maintenance costs. Then, out of necessity, Ginkgo will have to further scale back the ambitions of its biomanufacturing platform, resulting in lost sales from customers who may have only been interested in niche capabilities. At some point, the company may even run out of cash and be forced to sell its manufacturing assets to stay afloat.

Currently, the Company has $730 million in cash and cash equivalents. Even with the drastic cuts planned, money will be very tight relative to expenses. The Company may be forced to reject expensive programs proposed by customers due to its limited ability to generate satisfactory operating margins through expected royalties or milestone payments, especially if the programs are implemented as specified.

In addition, while the company currently has no long-term debt, it does have lease obligations of $452.2 million. To stay afloat, it will likely need to either take on new debt or issue more stock. That will hurt its stock price more in the short term, even if it survives and continues to thrive afterward.

Which case is more realistic?

Although Ginkgo counts many of the most powerful players in biopharmaceuticals and agriculture among its customers and partners, the company has not yet managed to consistently increase its revenue by adding more programs. While there were 105 active programs in the second quarter of 2023, there were 140 programs in the second quarter of this year, slightly less revenue and slightly lower losses. Adding more programs does not seem to lead to economies of scale in bioproduction that would reduce the cost of service enough for the company to break even.

And with the ongoing cutbacks and cash shortages, the company will likely not be able to continue to launch new projects at the same pace as before. In other words, it doesn’t currently look like there’s a path for the company to move upward without making massive efficiency improvements that haven’t been achieved yet.

If management manages to hit its 2026 adjusted EBITDA target, it suggests a brighter future is possible. Until then, unfortunately, the next most likely direction for this stock is down. A risky bet on its future efficiency is not advisable right now, but it’s worth checking back in a year or so to see how things are going.