Investors expected a very bad financial report from Blink Charging (BLNK 4.44%) on Monday. Lucky for them, they were wrong -- the news was only half bad.
Reporting earnings for the first quarter of 2022 Monday evening, Blink Charging -- which like the name implies, is building a charging network to power electric cars on American highways -- surprised investors when it reported a $0.36 per share loss. Granted, that loss was big. But investors had been expecting losses to stretch as far as $0.41 per share, and so were elated to see Blink "beat" by a nickel.
Result: After plunging 13.5% during ordinary trading hours Monday, Blink stock turned around and charged 4% higher after hours.
Sales and losses
But did Blink's news really deserve the after-hours applause? Maybe no -- but maybe yes. Consider:
The big win for Blink this past quarter was on sales. Not only did Blink exceed analyst expectations ($6.9 million) by reporting sales of $9.8 million -- that sales number was also more than four times higher than what Blink reported a year ago, up by 339%.
Blink also managed to hold its costs growth (285% year over year) down to less than its rate of sales growth. As a result, Blink's gross profits expanded rapidly -- from less than $100,000 a year ago, to nearly $1.6 million this time around.
Granted, $1.6 million still isn't a lot of money for a stock valued at more than $660 million. Blink's bigger problem is that its operating costs are still enormous relative to its revenue -- $16.6 million in the quarter, and more than double Blink's operating costs from a year ago. (This, in a nutshell, is why Blink stock is still losing money.)
Hope springs eternal
But here's the thing: Even if operating costs doubled for Blink (and they did), even if its cost of goods sold nearly tripled (and that did, too), and even if all of this ended up costing Blink twice as much money in Q1 2022 as it lost in Q1 2021 (yes, this too is true)... even if all of the above happened, so long as sales continue to rise faster than the cost of those sales rises, the math dictates that Blink's losses will fall over time -- and eventually turn the company profitable.
The question investors need to ask themselves is whether Blink Charging, which is burning through cash at a rate approaching $50 million per year, and which has cash on hand to fund only about three-and-a-half years of such losses, can turn profitable before its cash runs out.
By my calculations, Blink actually does have a chance of making this all work out, but only if sales consistently keep outgrowing costs. In the quarters to come, that's the relationship you'll want to watch as an investor in Blink Charging.