Bloom Energy is planning a cooperation with Shell to use its SOEC technology for the large-scale production of hydrogen. Bloom points out that they’ve already performed very successful series of tests with the Ames Research Center of NASA in Mountain View: 2.4 metric tons of H₂ per day were able to be produced there – best performance in terms of energy input in relation to hydrogen output and thus far superior to PEM and alkaline electrolysis.

Bloom Energy reports for the fourth quarter of 2023 a turnover of 357 million USD, although they expected 450 to 500 million USD. That makes it 1.33 billion USD for the entire year 2023, when it was to be 1.4 to 1.5 billion USD. The non-GAAP profit margin is expected to be 28 percent in 2024. However: 160 million USD of the missing turnover is on account of a billion-dollar framework agreement with the South Korean SK Group, which is also the largest single shareholder in Bloom. Annual targets for projects and the associated revenues (orders) were defined here, which came out 160 million USD less than expected in year 2023.

These revenues will only be realized with a delay, namely starting 2024. Now, there is a new contract that runs on a quarterly basis and therefore – according to the chief financial officer – is much more calculable, as minimum sales per quarter have been defined. That the stock market is disappointed by the development in 2023 is obvious. On top of that, the growth in the first half of year 2024 will come out lower than expected, until things really get going again in the second half of the year. For 2024, a turnover target of 1.4 to 1.6 billion USD has now been set – it originally should have been over 1.8 billion USD. But – and this is positive – the non-GAAP profit is expected to lie between 75 and 100 million USD this year. Negative is that CFO Greg Cameron is leaving the company for personal reasons. This is truly a cocktail of “short-term” negative news, which may soon be forgotten in view of the prospects.

“Our full expectation for Bloom is that it will leave 2024 with a bunch of commercial momentum, both in winning deals as well as delivering on systems.”

Leaving CFO Greg Cameron

There is an orders on hand of 12 billion USD (backlog: 3 billion USD in hardware and 9 billion USD in long-term service contracts). The company with its Energy Servers is very well positioned and has a leading position in high-temperature electrolyzers, which will come onto the market in 2025 – initially with a capacity of 2 GW per year and a strong sales growth, likewise starting 2025.

Test series, including in the Idaho National Lab, were extremely positive, it was stated at the press conference on company figures. Nearly 750 million USD cash in the bank is a healthy self-financing cushion. Not until August 2025 must 250 million USD in debt be cleared. With higher share prices, it should not be a problem then to issue new shares and replace foreign capital with own capital. More important is the look at the company’s profit: That came out very well, with a plus of 27.4 million USD as non-GAAP profit in the fourth quarter 2023.

The goal is clearly defined: In 2024, the profit margin is to be increased through cost management, higher margins in the service area and price discipline. Material costs are set to fall significantly this year to avoid supply chain problems. The production facility in Fremont, California has a capacity of 700 MW per year, which can easily be doubled. In addition, new business models (energy on demand 24/7 and heat & power) and many innovations will characterize the new fiscal year. Clear is that AI as well as the increasing electrification will not allow, like before, an energy demand of around  AI and increasing electrification will not allow energy demand to rise by 0.5 percent per year, like before, but by a factor of ten, according to CEO KR Sridhar. The missing grid expansion will therefore promote island solutions, like what Bloom offers.

In the USA alone, 90,000 miles of high-voltage power lines would have to be built to transport the required energy. In 2022, it was just 700 miles in the USA. The risk of power outages and a lack of energy availability thus increases considerably. This applies not only to the USA, but also to many industrialized nations. Whereas in the past it was often about the price of energy, now it is about the availability and security of supply, since a loss of power can lead to enormous damages.

All this plays into the hands of Bloom Energy, said Sridhar. The demand for stand-alone solutions, for example for data centers, is enormous. Talks are being held with all important and leading companies in the industry. The talk is now always of gigawatts and no long of megawatts. Many an AI company has already received a message from its energy or electricity supplier that the desired amount of energy cannot be produced. In addition to these so-termed greenfield data centers, which basically form from scratch, are coming newly planned microchip production facilities, charging stations for commercial vehicles and logistics centers.

Here, Bloom is counting on its rapid project implementation (“rapid deployment capability”) and flexibility. Numerous orders are expected here by 2024. Furthermore, waste heat from data centers via net-zero stream and net-zero cooling will be used for process heat and be a CO₂-free waste product. With these solutions, Bloom can support energy suppliers by providing energy flexibly, cleanly (50 percent CO₂ reduction), 50 percent more cheaply and five times faster than ramping up gas turbines. Thus Bloom is also becoming a partner to energy suppliers.

Dr. Ravi Prasher was able to be gained as the new chief technical officer (CTO). He is, among other things, a member of the prestigious association National Academy of Engineering. He is to turn business opportunities into concrete orders. He comes, like so many board members at Bloom, from General Electric (GE), where he worked for 20 years. He sees the high-temperature fuel cells of Bloom as a game changer, with which no SO_X, no NO_X and no CO₂ emissions are produced during the combustion of hydrogen. Bloom could, according to Prasher, solve all the problems that many industries have with their energy use. In addition, Bloom’s electrolysis technology is the most efficient on the market.

General remarks

To various special analysts of notable banks Bloom has pointed out that some projects are delayed, as potential customers often need more time than planned to develop the spaces for data centers (approval procedure) or to clarify financing issues. This does not directly have anything to do with Bloom, but must be taken into account in the schedule. In addition, more attention will be paid to customer payment management. Accordingly, the second half of the year will be significantly more robust than the first half, it was said: 60 versus 40 percent in the second half of the year.

Potential not yet priced in

Starting 2025, the new market for high-temperature electrolyzers will generate further growth potential. Among other things, this technology will be used in four of the seven planned Energy Hubs of the Biden administration. As the outlooks are good and Bloom offers the right technologies for safe, clean and available decentralized energy solutions, the stock market will not be able to avoid anticipating all this in the share price. This will also result in a number of major orders this year, which, however, will only be included in the balance sheet from 2025 onwards due to the timing of implementation. For analysts, this is then the basis for upgrading the share – from “hold” to “buy” or “strong buy.” The current price weakness will soon pass and will be forgotten if Bloom – and this is expected – can book corresponding orders this year. The potential of shares from the electrolyzer sector will come on top of this.

Strongly depressed prices are clear buy prices

With a stock market valuation of only 2 billion USD an undervaluing has been reached that could even make Bloom a candidate for takeover. GE or Siemens Energy should take a close look at the company, as the SK Group has done: participation and joint project development. It would be better if the stock market were to correctly assess the prospects and quickly forget the current undervaluation. Year 2024 will be a transition year with weaker growth, but this will be followed by many years of very strong growth, which can be inferred from many of the statements made at the press conference for the fourth quarter of 2023 and the year as a whole. Important is above all that Bloom is well on the way to becoming profitable. For 2024, the previous CFO was targeting a non-GAAP profit of 75 to 100 million USD.

Disclaimer

Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.

Author: Sven Jösting, written March 15^th, 2024