Bloom Energy Corporation

Moat: 2/5

Understandability: 4/5

Balance Sheet Health: 2/5

Bloom Energy is a clean energy technology company specializing in solid oxide fuel cells that provide on-site, clean electricity generation, and is expanding into hydrogen production and carbon capture.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview Bloom Energy Corporation (BE) is a company focused on manufacturing and marketing solid oxide fuel cells for on-site power generation. Their Energy Servers offer continuous electricity, and are designed to work with a variety of fuels, including natural gas, biogas, and hydrogen. Here’s an overview of their business:

  • Core Technology: Bloom Energy’s central product is their solid oxide fuel cell (SOFC) technology. This electrochemical process directly converts fuel into electricity without combustion, which is more efficient and cleaner than traditional methods. They have begun using their SOFC in hydrogen production and carbon capture.

  • Energy Servers: Their energy servers are modular and scalable power generation units. These can be arranged to provide specific capacity, creating customized power solutions for a diverse set of clients.

  • Market Positioning: Bloom Energy positions itself as a provider of clean, reliable power solutions. They focus on customers who seek a balance of energy independence, environmental stewardship, and reliable power supply with long-term cost savings.

  • Revenue Distribution:

    • Product Revenue: This is the biggest chunk of BE revenue, driven by sales of their Energy Servers.
    • Service Revenue: This segment includes revenue from contracts related to maintenance, spare parts, and other services for the Energy Servers.
    • Installation Revenue: Refers to revenue recognized from the installation of the servers.
    • Other Revenue: Includes other smaller streams such as revenue from carbon credits, and other revenue streams.
  • Industry Trends: The energy market is under transition with a large increase in investment in clean, renewable, and sustainable energy. Customers, especially in big industry, are more and more aware of the impact of their operations on the environment.

    • The increasing demand for reliable and resilient power has also benefited Bloom, as their solutions provide a reliable source of electricity.

    • The market is also being driven by regulatory initiatives that are incentivizing adoption of clean energy and carbon reduction. This has increased demand for hydrogen technology.

    • The growing awareness of climate change makes companies interested in energy solutions that also help in achieving their sustainability and decarbonization goals.

  • Competitive Landscape:

    • The energy generation space is getting competitive with players like Bloom and FuelCell Energy being directly competitive in the SOFC space.

    • Companies such as Bloom compete with traditional power sources and other renewable energy providers. The landscape is affected by companies using a combination of technologies and by changing preferences of customers and regulators.

    • As for market position, in a 2023 10-K report, Bloom notes that it faces competitors across its value chain, and they include both traditional power generators and some other clean energy companies.

What Makes Bloom Energy Different:

  • Technology: Bloom Energy’s solid oxide fuel cell technology is the company’s key differentiator and is very innovative and unique.
  • On-Site Generation: They emphasize on-site power generation, which gives the customer more control, is more secure, and helps reduce distribution costs.
  • Versatile Fuel Usage: It can use a variety of fuels, and is making inroads in the hydrogen market.
  • Modular and Scalable Solutions: Their energy servers are designed to be deployed quickly and for a wide variety of uses.

Financials In-Depth

Bloom Energy’s financials present a picture of growth, innovation, and also of challenges. Here is a detailed assessment:

  • Revenue Growth:
    • Revenue growth is high and the trend is upward. The company has been increasing revenue from both its product and service segment.
    • 9mo 2023 revenue was at $1.07B, compared to $740.1M in 9mo 2022.
  • Gross Profit:
    • Gross profits were at $126 million in 9mo 2023 versus $63.8 million in 9mo 2022, so is increasing, but is still fairly weak in comparison to overall revenues.
  • Operating Expenses:
    • Operating expenses are still very high, and thus the company doesn’t have profits. Research and development, sales, and general administrative costs are high.
      • R&D: $268.9 million in 9mo 2023 vs $278.4 million in 9mo 2022.
      • Sales and marketing: $192.9 million in 9mo 2023 vs 164.6 million in 9mo 2022.
      • General and Adminstrative expenses: $239.2 million vs 207.4 million in the same period of the previous year.
    • Operating expenses are the biggest expense on the income statement.
  • Net Income: They company still reports high losses.
    • Net loss was at $392.7 million in 9mo 2023 as compared to $177 million in 9mo 2022
  • Profitability:
    • There’s a clear lack of profitability.
    • The company has had a very negative net income and hasn’t managed to reach profitability.
  • Capital Expenditures:
    • Capital expenditures have been trending downwards, which reduces the need for outside funding and also signals the company’s move towards scale and profitability.
  • Cash Flow:
    • Free cash flow is negative.
    • Free cash flow was a negative $588 million in 9mo 2023, compared to - $300 million in 9mo 2022. A significant cause is the high investment in working capital, as the company continues to scale operations.

Balance Sheet Health

Bloom Energy’s balance sheet is a cause for concern.

  • Debt: The company has high debt which can cause risk of default. Their current ratio and quick ratio are also very low, reflecting liquidity issues. The company has been issuing both equity and debt to keep operations running.
    • Their net debt to capital ratio is relatively high.
  • Cash:
    • There is little cash on hand.
    • Cash and cash equivalents were at $352 million in 9mo 2023, a level that isn’t enough for a company of this scale, and they seem to be dependent on outside capital to fund operations.
  • Equity:
    • The shareholder’s equity is negative because of high losses in the past. This is not a good sign.
      • Total shareholders’ deficit stood at -$88 million in 9mo 2023.
  • Overall: While the company has significant assets, most of it is long term, and are not easily available for covering short term debt. They have significant liabilities and a negative shareholders equity, which is the biggest red flag. This suggests the company is very high-risk from a balance sheet perspective.

Controversies and Risks

  • Uncertainty around government subsidies and incentives: The industry is heavily affected by government subsidies and tax credits, and changes in them can affect the company’s revenue and costs. Any change in future environmental policies may negatively impact demand.
  • Technology Risk: Solid oxide fuel cell technology is still not widely used, so there are uncertainties related to its long term performance, durability, and scalability. If there are better technology options then this could undermine Bloom’s offerings.
  • Competition: The company is facing increasing competition. Competitors using a combination of technologies have also been able to offer competitive alternatives to customers. Competitors are also trying to use similar technologies, and some are even claiming to have better performance on existing technologies.
  • Scalability and Supply Chain: The company is scaling its manufacturing capacity, which brings about both costs and risk. Supply chain risk also needs to be addressed as they need a lot of components for their products.
  • Profitability: The company has never had a profitable year and is continuously losing money. This is a big concern if the company can’t become profitable, its business could be unsustainable.
    • The CEO has said that they expect to be EBITDA-positive in 2024.
  • Dilution: There has been heavy dilution through new issues of equity to finance operations. This is a big concern for the shareholder value.
  • Cost of capital: High interest rates can make their debt harder to service, and also higher rates make investing in them riskier. * Their CFO noted in an earning call that a rapid change in interest rates will have an impact on the company’s cash flow and thus growth. They noted that the credit spread between bonds and treasuries was increasing.
  • Geopolitical Risk: Russia’s war on Ukraine is affecting supply chains and causing high energy prices. Further uncertainty on the global economic conditions is also a concern.

  • Customer Concentration: A large fraction of sales are tied to major partners/customers. This could create problems if these partnerships are terminated or there are issues with those customers.

  • The company faces claims related to intellectual property infringement in some cases.

Understandability The company’s core business model is relatively straightforward. However, their technology is novel and thus more difficult for an individual investor to analyze in depth, while their financials are complicated and rely on different financial assumptions compared to traditional companies. However, you don’t need to be a finance guru to understand this business:

  • Their core business operations are easy to understand.
  • Their products are generally clear to understand.

  • Their financial statements and key drivers may be complex for a non-financial analyst.

  • Overall: Given that the business model is not too complicated to comprehend, but the financials and future projections are more complicated to understand, we rate it a 4/5 in understandability.

Overall Assessment

Bloom Energy has innovative technology in a growing market, but it is still in an early stage of its growth phase. They have created a niche for themselves in on-site power generation, but it remains a riskier investment than one with established profitability, financial stability, and lower debt.

  • Moat: The company has a narrow economic moat due to its innovative technology, but given how quickly the market is changing, it’s not very sustainable and thus we give a 2/5
  • Understandability: A 4/5 in understandability as although their core business model is straightforward, the financials and key projections are more complex to understand.
  • Balance Sheet Health: The company shows very weak signs of a balance sheet with high debt, low cash, and negative shareholder’s equity. It is rated a 2/5.