Leading electric vehicle (EV) charging company ChargePoint Holdings (CHPT -1.45%) reported its third-quarter fiscal year 2022 earnings on Tuesday. Despite mostly positive results, the stock price is now down over 15% in the last month along with widespread pressure on the EV industry as a whole.
Should you flock toward EV charging growth stocks, or is ChargePoint worth avoiding for the time being?
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ChargePoint has found its footing and remains focused on the future
Daniel Foelber: All eyes remain on ChargePoint's top line, which is finally showing the growth that many industry watchers expected in 2021. For context, ChargePoint reported disappointing results last fiscal year (FY), growing revenue by just 1% from $144.5 million in FY20 to $146.5 million in FY21. Updated guidance now calls for FY22 revenue of $235 million to $240 million, including fourth-quarter revenue of $73 million to $78 million, which would be the highest quarterly revenue in company history.
ChargePoint's growth is largely due to its expanded charging network. Although the company consistently posts positive gross profit, it's still a long way from positive net income because it's spending a lot of money on its infrastructure, research, and development. Its network now consists of 163,000 total activated ports, including over 11,000 activated DC ports. DC charging solutions are ideal for situations where customers need a faster charge, whereas traditional Level 2 charging is good for when customers park their cars at a retail outlet, the grocery store, at work, or any place where time isn't of the essence.
ChargePoint had a total of 132,000 public and private places to charge at the end of fiscal 2021. As of June 2021, it had 1,600 DC charging points in North America and 620 in Europe, which represented 2% of its total chargers. Today, DC ports now make up nearly 7% of its chargers. Recognizing the need to expand both networks, management reiterated its intent to focus on top-line growth by improving its products, acquiring customers, and doing basically everything it can to remain the North American third-party leader in EV charging. If ChargePoint continues growing at its current pace, its valuation will look more and more attractive in the coming years.
It's all uphill from here
Howard Smith: Despite the headline of this discussion, I'm not technically bearish on ChargePoint. In fact, I own it. But I own a basket of EV charging network stocks. And there is a good reason I'm not just betting on ChargePoint. While ChargePoint has so far surpassed its early revenue estimates, the company's early projections call for exponential growth from here. And those levels of revenue will be much harder to achieve.
In the same week that ChargePoint released its solid quarterly financial report, another company in the EV sector provided investors a reminder of the risks with companies, including ChargePoint, that came public through mergers with special purpose acquisition companies (SPACs). That makes now a good time to review what ChargePoint told investors less than one year ago.
Widely followed EV maker Lucid Group (LCID 0.41%) disclosed this week that it has received a subpoena from the Securities and Exchange Commission (SEC) related to certain projections and statements provided to investors before the company went public via SPAC. It's typical for management to provide projections over an extended timeframe in advance of a SPAC merger. But once public, accountability is more regulated, and estimates and guidance are more short-term.
ChargePoint included revenue projections in its investor presentation prior to the completion of its SPAC merger that went out to 2026. It estimated that future annual revenue would approach $1 billion in calendar year 2024, and exceed $2 billion by 2026. As mentioned, its new quarterly revenue guidance for the current fiscal year now has $237.5 million as its midpoint. So the company expects to see its sales grow almost tenfold in the next five years.
Now, the EV market is also expected to experience exponential growth, so the company may achieve those early projections. And it's off to a good start, as the most recent revenue guidance does represent a jump of 20% over what the company included in that early investor presentation. But the company has a market cap approaching $7 billion, so investors should still remember what work lies ahead for the company to achieve its initial goals to justify that valuation.
An industry that's worth the risks
ChargePoint has its pros and cons, but we both agree that investing in a basket of EV charging stocks can offer an excellent pick-and-shovel option. Compared to the much riskier, but potentially more rewarding, endeavor of selecting the automakers that will drive the future of EVs, it's a much simpler and straightforward bet to invest in the growing need for charging infrastructure. However, it's worth keeping in mind that individual companies can rise and fall even if the industry itself grows over time.
