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Bloom Energy: Powering Up and Standing Out as Clear Leader

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Bloom Energy Fuel Cells

Bloom Energy (NYSE:BE) is setting itself apart from other clean energy companies by excelling and delivering as promised, evident in its performance in 3Q23.

Several aspects of the 3Q23 report are clear indicators that Bloom Energy’s management is hitting and surpassing its targets and aspirations, as illustrated below.

Exceeding Expectations in 3Q23

Bloom Energy reported revenues of $400 million in 3Q23, a robust 8% increase from the consensus expectation of $370 million. Revenues surged by 37% compared to the previous year, and 33% sequentially. Product revenue witnessed a 43% year-on-year increase, while installations revenue grew by 27% from the prior year.

During 3Q23, Bloom Energy achieved gross margins of 32%, a significant improvement from the 20% in the prior quarter and 19% from the previous year – a remarkable 13 percentage point uptick attributed to sustained pricing on acceptances along with ongoing reductions in unit costs.

Key to the expansion of gross margins was the successful reduction in product costs, which dipped by 18% from the previous year, resulting in a marked improvement in product margin from 27% in 3Q22 to 42% in 3Q23.

In addition, 3Q23 EBITDA soared to $66 million, a staggering 266% jump from the consensus expectation of $18 million, while adjusted EPS stood at $0.15, a substantial beat compared to the consensus expectation of -$0.04.

  1. The magnitude of the beat was phenomenal, not just on the top line, but particularly on the bottom line.
  2. Management’s projection in the previous quarter about service margins hitting a trough in 2Q23 strongly materialized with service margin improving from -32% to -19% in 3Q23.
  3. The acceleration in product cost reduction to 18% in 3Q23, compared to the 13% in 2Q23 was pivotal in contributing to the significant 13 percentage point uptick in gross margins.

Reaffirming Guidance

Bloom Energy reiterated its 2023 guidance, maintaining its expectation of $1.4 billion to $1.5 billion in revenues for the year and targeting 25% gross margins. Anticipating 4Q23 acceptances, annual revenue, and gross margins for 2023, Bloom Energy foresees a positive operating margin for the year.

The company also addressed concerns over its working capital, citing the intentional rise by about $250 million in 2023 for building inventories to support quick delivery to customers with urgent power needs after completing permitting and paperwork.

Management expressed confidence in this elevated inventory position with a clear visibility on the commercial pipeline and strong conviction of timely order conversion into deliveries, positioning Bloom Energy for robust growth in 2024 while efficiently meeting customer demands.

Interest Costs, Margin Improvements, and Future Prospects

Addressing concerns about rising interest rate costs, Bloom Energy outlined how it countered this challenge through an improving credit profile and leveraging Investment Tax Credit benefits, effectively mitigating the impact of escalating rates.

This quarter, Bloom Energy achieved a significant 19% reduction in product cost from the prior year, attributed to lower material costs, automation, and enhanced power output. The company remains confident in achieving its 2023 target of 12% cost reduction.

Furthermore, the company anticipates service margins to expand to 20% by 2025, driven by revenue growth, reduced performance payments, and decreased replacement power module costs.

Bloom Energy also disclosed targeted restructuring initiatives to lower costs without compromising technical and commercial capabilities, including a 10% reduction in operating headcount and planned restructuring charges.

Another milestone was the sale of a consolidated PPA entity and the clearance of $119 million in non-recourse debt, further streamlining financial reporting and boosting margins.

Powering Up Demand

Bloom Energy is witnessing strong demand from data centers, further fueled by the surge in AI adoption, evident through a rich sales inquiry pipeline as demand for power escalates, especially for AI-powered data centers.

The impact of AI on Bloom Energy’s business has widened its product adoption in the data center market, particularly as AI-powered searches consume significantly more energy than regular CPU searches, translating into an exponential surge in energy demand from data centers.

The AI surge has also catalyzed demand from semiconductor companies and cloud service providers, where Bloom Energy is prominently addressing the need for energy resilience and timely primary power availability, notably in Taiwan and Singapore.

Embracing the Hydrogen Boom

In a significant development, Bloom Energy’s electrolyzers were included in four of the seven winning hydrogen hubs as part of a $7 billion investment by the Department of Energy, emphasizing the company’s electrolyzer efficiency and scale capabilities from its fully operational giga factories in Fremont and Newark.

These hubs are anticipated to become operational between 2025 and 2026, marking a major breakthrough for Bloom Energy and underscoring the versatility of its platform as fuel cells to provide power and as electrolyzers to produce hydrogen.

Future Challenges and Valuation

While Bloom Energy’s 3Q23 performance has been commendable, unresolved queries about the Amazon deal have raised concerns among analysts. Nonetheless, the company’s strong execution and affluent sales inquiry pipeline continue to indicate a positive revenue outlook.

There are no adjustments to the one-year price target for Bloom Energy, with a reiterated target of $25.24, implying a 2025 P/E of 32x.

Final Thoughts

With its remarkable 3Q23 performance and sustained guidance, Bloom Energy has proven its mettle in the clean energy space, outshining rivals such as Plug Power (PLUG) by delivering positive margins and demonstrating robust demand traction in key end markets.

As the company continues to focus on efficiency and cost optimization, Bloom Energy is poised for improving margins and sustained pipeline momentum.

The company’s foray into lucrative hydrogen hubs is another promising avenue, positioning it favorably for substantial growth beyond 2025.

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