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Bloom Energy’s Path to Profitability Will Be Difficult

Bloom Energy Corp. (BE) engages in the manufacturing and installation of on-site distributed power generators. Its product, Bloom Energy Server, converts standard low-pressure natural gas or biogas into electricity through an electrochemical process without combustion. The company was founded in 2001 and is headquartered in San Jose, CA.

Shares of Bloom Energy have losses of nearly 27% in 2022 and 62% in the past year. I am bearish on BE stock. Q3 2021 earnings were weak, and the company is losing money and generates negative free cash flows. Its upcoming earnings (after market close today) are expected to add plenty of volatility.

Bloom Energy Business News

On December 20, 2021, Bloom Energy announced, “NTPC Limited, India’s largest energy conglomerate under the jurisdiction of the Ministry of Power, has selected Bloom’s electrolyzer and hydrogen-powered fuel cell technologies for the country’s first green hydrogen-based energy storage deployment. As part of India’s pledge to reach carbon neutrality by 2070, the project is designed to explore large-scale, off-grid hydrogen energy storage and microgrid projects at strategic locations throughout the country.”

Bloom Energy is transforming energy from inefficient, dirty, and unreliable to resilient, sustainable, and predictable. According to the firm, “Bloom’s solid oxide fuel cells produce energy without combustion using certified natural gas, biofuels, or hydrogen as fuel.” Bloom’s technology can be “configured for distributed generation of electricity or as an electrolyzer to produce clean hydrogen.”

Q3 2021 Earnings: A Miss on EPS and Revenue

In Q3 2021, Bloom Energy reported EPS GAAP of -$0.30, a miss by -$0.14, and revenue of $207.23 million, a miss by -$33.24 million. BE’s earnings have been negative as of Q1 2020.

Year-over-year revenue increased 3.5%, and the firm announced record acceptances of 353 systems in the third quarter of 2021, an increase of 12.4% versus the third quarter of 2020.

It is also notable that Bloom Energy and SK ecoplant expanded their strategic partnership to accelerate hydrogen commercialization on October 25, 2021.

The operating loss reported was ~$43.9 million compared to a loss of $0.37 million in Q3 2020.

Gross profit of $36.9 million in Q3 2021 was lower than the gross profit of ~$56 million in Q3 2020, and the gross margin of 17.8% was also lower than the gross margin of 28.0% in Q3 2020.

Fundamentals – Risks

Bloom Energy has been losing money as of 2014 (as far back as the data goes). The financial strength is very weak, with a cash-to-debt ratio of 0.12 as of its Q3 report. This is too low.

Bloom Energy has an Altman Z-Score of -1.5, indicating it is in the “Distress Zone.” This implies bankruptcy possibility in the next two years. Bloom Energy has less than a year of cash runway based on its current free cash flow. For the first nine months of 2021, Bloom Energy reported a cumulative negative free cash flow of $152.53 million. In Q3 2021, free cash flow was a negative figure of $82.77 million.

Stock dilution is another key concern. Shareholders have been diluted by 5.6% in the past year.

Total operating expenses increased in Q3 2021 compared to Q3 2020, and the operating income has been negative since 2014. The revenue per share has been in decline over the past three years.

Another main concern is the slowdown of revenue growth. In 2017 annual revenue growth was 80.3%. In the past three consecutive years, 2018, 2019, and 2020 sales growth declined to 68.3%, 24.1%, and 1.2%, respectively. On a TTM basis, the net margin of -18% has marginally improved compared to the net margin of -19.8% for 2020, but profitability is nowhere near.

Valuation

BE stock has a price/sales (FWD) ratio of 3 and a price/book (FWD) ratio of 13.8. The industrial sector has median values of 1.5 and 2.8 for price/sales (FWD) and price/book (FWD) ratios, respectively, signaling that Bloom Energy is relatively significantly overvalued.

Wall Street’s Take

Bloom Energy has a Moderate Buy consensus rating based on three Buys and three Hold ratings. The average Bloom Energy price target of $26.67 represents 65.2% upside potential.

Conclusion

Bloom Energy has positive macro trends such as a global policy to address climate change, decarbonization, and ESG investments. However, its fundamentals remain poor with net losses and negative free cash flows, while its stock is relatively expensive.

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