What happened
Shares of Bloom Energy (BE -0.51%) fell over 30% last month, according to data from S&P Global Market Intelligence. The energy solutions provider reported third-quarter 2018 operating results that showed year-over-year improvements in the number and capacity of systems deliver to customers, revenue, and gross margin.
The year-over-year comparison isn't quite apples to apples, however, as the business didn't benefit from the investment tax credit (ITC) for product sales in 2017. Since customers capture the ITC, its absence last year meant Bloom Energy was forced to reduce the selling price of its products to compensate. It had to sell products at a loss throughout 2017, which is a significant factor driving the margin improvement in 2018.
Either way, investors might be more concerned with the company's guidance for the final period of 2018.
Image source: Getty Images.
So what
For the fourth quarter of 2018, Bloom Energy expects to sell about 250 systems at an average selling price of $6,695 per kilowatt and average total installed system cost (TISC) of $5,215 per kilowatt. Here's how that compares with the third-quarter 2018 numbers:
|
Metric |
Q4 2018 Guidance |
Q3 2018 Actual |
Change |
|---|---|---|---|
|
Systems sold |
250 (midpoint) |
206 |
21% |
|
Average selling price per kW |
$6,695 (midpoint) |
$7,231 |
(7.4%) |
|
Average TISC per kW |
$5,215 (midpoint) |
$5,648 |
(7.7%) |
|
Product and installation gross margin per kW |
$1,480 (from midpoints above) |
$1,583 |
(6.5%) |
Source: Press release, SEC filing.
The expected quarter-over-quarter decreases are primarily the result of customer orders of additional product add-ons in the third quarter of 2018, which increase both selling prices and TISC, that aren't expected to make a strong repeat performance in the fourth quarter of 2018. Either way, selling more systems should result in a higher total gross profit for product and installation categories in the final period of 2018. If gross margin from both the service and electricity segments continue to improve, then that bodes well for a strong end to the year for total gross profit.
Now what
Despite the improvement in gross profit, it hasn't been enough to offset rising operating expenses, which saw a 174% year-over-year increase in the third quarter of 2018. While Bloom Energy says that was primarily driven by stock-based compensation, investors can't accurately compare to the year-ago period because of the absence of the ITC.
In other words, blaming stock-based compensation, which still affects the earnings per share individual investors are concerned about, may be a little too convenient. If operating expenses -- and operating losses -- continue to grow as the business scales in 2019, then Bloom Energy stock might be one investors would rather avoid.
