Is this the end for Plug Power (PLUG +4.19%)?
Earlier this month, the biggest name in hydrogen fuel cells -- or it used to be; now Bloom Energy (BE 0.48%) is bigger -- disappointed investors in a big way when it reported Q3 sales and earnings that fell far short of expectations. Instead of the $238.9 million in sales that Wall Street had told investors to expect, Plug reported sales of only $198.7 million. And instead of a $0.30 per share loss, Plug admitted it lost $0.47 per share -- more than half again as bad as expected.
Plug Power stock promptly plummeted 40%.
NASDAQ: PLUG
Key Data Points
What went wrong?
Plug's earnings report was long on excuses, long on promises of how much brighter its future will look -- but short on explanations for what went wrong. What is clear, though, is that something is very much amiss at Plug Power.
For some time now, Plug Power management has been telling investors that by 2026, it expects to book annual sales of at least $5 billion -- and to do so profitably, earning operating profit margins of 17% and more. Just a few years later, in 2030, management believes revenues will grow fourfold, to $20 billion per year, and with operating margins of 20%. If these predictions prove correct, it would mark an amazing turnaround from last year's performance, when Plug reported sales of $701 million and losses of $724 million, according to data from S&P Global Market Intelligence.
This amazing run toward greater sales and eventual profits was supposed to begin this year, with Plug reporting $1.4 billion in sales and positive gross (not yet operating) profit margins. But this no longer seems in the cards. After sales grew an impressive 61% through the first half of the year, sales growth suddenly stalled in Q3, growing only 5% year over year. Gross margins, which had been improving, became much, much worse, falling from negative 24% to negative 69%. At least one analyst, UBS, now forecasts that Plug will miss its 2023 sales goal by nearly 30%, and then keep on missing, falling nearly 40% short of its $5 billion goal for 2026 sales.
So what went wrong?
Plug blamed "unprecedented supply challenges in the hydrogen network in North America." But it's worth pointing out that these challenges didn't prevent rival fuel cell company Bloom Energy from beating on both sales and earnings in its earnings report this month.
It's also curious to hear Plug Power complaining about a lack of hydrogen fuel supply, when some of Plug's biggest boasts in recent years have been about its own ability to produce and supply hydrogen -- such as its partnership with Arcadia eFuels, announced last month, to "produce approximately 120 tons per day (TPD) of green hydrogen," or its Texas hydrogen plant that will produce 45 tons per day, or its "multiple green hydrogen production plants that will yield 500 tons of liquid green hydrogen daily by 2025."
Granted, that last boast is about production that's still two years away -- but if that's anyone's fault at all, it has to be Plug's own.
What's next for Plug
Wherever the fault lies, Plug says the supply deficit that slowed its growth in Q3 has the company more convinced than ever of the need for it to build hydrogen production plants in Georgia, Louisiana, New York, Tennessee, and Texas. Describing its plans, Plug also waxed optimistic about future sales of electrolyzer for separating hydrogen, of "liquefier and cryogenics" equipment, of more fuel cell-powered forklifts, and also of "stationary power" units fueled by hydrogen.
These "diverse new product platforms," says the company, "will be instrumental in achieving our top line growth" and help move the company toward profitability as well.
And that may happen -- if Plug can remain solvent long enough. The worry is that, with Plug having already burned through $1.35 billion in cash so far this year -- a cash burn rate 60% faster than in 2022, by the way -- the hydrogen company is now down to its last $725 million in cash, restricted cash, and "available-for-sale securities." At a burn rate that's now roughly $450 million per quarter, this means Plug may run out of cash, and need to take on more debt or sell more shares, as little as two quarters from now.
And to remind you: Even Plug's optimistic assessment of its future says that profitability is still more than three years away.
This risk that Plug's money may run out before its dreams come to fruition caused Plug to warn investors that it may soon lack the "ability to continue as a going concern." And this, in a nutshell, is what went wrong with Plug stock this month.
