Plug Power Inc (NASDAQ:PLUG) posted a loss of 15 cents per share on flat revenue, well short of analyst estimates, and the stock tanked.
Plug Power was supposed to have a sugar daddy in Amazon.com, Inc. (NASDAQ:AMZN), which agreed to buy warrants convertible into up to 23% of the company last month as it works to supply power to the forklifts in its warehouses. That contract sent the stock shooting up.
For the quarter ending in March, Plug Power reported a loss of $24 million, or 13 cents per share, on revenues of $15.2 million, against a loss of $11.8 million, then 17 cents per share, on revenues of $15.3 million a year ago. The company repeated its full-year guidance of $130 million in 2017 revenue, with $325 million in future bookings and a cash drain of $25 million – $35 million. Analysts had been expecting a loss of just 7 cents per share and revenue of $26.73 million.
In response, the shares fell below $2 per share in pre-market trading May 9.
Warehouse Power from PLUG Stock
Fuel cells were one of several promising renewable technologies in the early part of the decade. The idea that hydrogen could become clean fuel, combining with oxygen to produce water as its pollutant, was very appealing, in theory.
But for most applications it was simply uneconomic. The primary source of hydrogen is natural gas. Why not just burn gas?
The fuel cells that Plug Power now makes turn out to be best suited to running forklifts, which work in a closed environment but can have fuel stores located nearby. In this environment, the fuel cell’s price for power is competitive with rechargeable batteries, and fuel cells are just as quiet.
The company signed supply contracts with Wal-Mart Stores Inc (NYSE:WMT) based on its GenDrive technology in 2014 and 2015. Home Depot Inc (NYSE:HD) and Kroger Co (NYSE:KR) also signed orders for some of their warehouses around that time. The company’s latest report also noted new orders from Carrefour SA (OTCMKTS:CRERF), another large retailer with lots of warehouses.
But the April deal with Amazon was considered a game-changer, since it not only assured a steady stream of orders that could be worth $600 million but also included warrants to buy up to 55.3 million Plug Power shares, based on its continuing purchases. The fine print was that the warrants would be exercised at $1.19 per share.
Plug Power Ceiling
While the Amazon release talked about fuel cells as potential power packs for self-driving cars, the fact is that warehouses appear to be the company’s niche, and it’s a small market. Institutional investors own only about 21.85% of the shares, meaning small investors hold most of it.
The mood on StockTwits after the earnings were released was distinctly negative. Critics saw current pricing as too weak to sustain operations, and criticized CEO Andrew Marsh. Bulls noted that recurring revenue increased 30%.
The fact is that Plug Power is puttering around in a small world. The warehouse niche is not enormous, there is competition from companies like Ballard Power Systems Inc. USA (NASDAQ:BLDP) of Canada with broader product lines, and the technology needs some major breakthroughs on price-performance for it to expand beyond where it is.
Amazon’s warrants are in the money at prices much lower than the stock is currently selling at, and its April deal assures it forklift supplies it can operate profitably. This is good for Amazon, and for other companies that need forklifts in their warehouses.
But until Plug Power or one of its competitors can find a way to get beyond the niche they are in, I would avoid the stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.