2023 has been a brutal year for ChargePoint Holdings (CHPT 0.79%). Despite growing sales, the electric vehicle (EV) charging infrastructure company has suffered big losses and burned through cash rapidly. The biggest blow, though, came in November when ChargePoint's CEO and CFO abruptly left the company, leaving investors worried about the company's future. ChargePoint stock crashed, plunging below $2 a share.
Since then, all eyes have been on ChargePoint's fiscal third-quarter earnings report, with impatient investors hoping the company will shed some light on its plans to turn around. Turns out, ChargePoint failed to execute in the third quarter by its own admission, although new CEO Rick Wilmer expects things to improve going forward. Since Wilmer was the chief operating officer at ChargePoint for 18 months before taking over as the CEO, he is familiar with the business and claims to have introduced several initiatives to revamp the company. Should investors then keep their faith alive and buy ChargePoint stock while it's still languishing?
ChargePoint's dual problem
ChargePoint had already warned investors that its third quarter will be a soft one. One look at this chart, and it is evident where the company is flailing.
Image source: The Motley Fool.
ChargePoint is facing a dual problem no young company would want to have: declining sales and rising costs.
As is evident from the chart, ChargePoint's revenue fell 12% year over year in Q3. Management blamed three factors for the decline: declining sales and deliveries of commercial vehicles, a fall in demand for chargers amid higher interest rates and economic uncertainty, and automotive labor disputes in the U.S. that hurt business at automotive original equipment manufacturers.
What's worrisome, though, is that even ChargePoint didn't expect its revenue to fall this much -- it had previously guided for Q3 revenue of at least $150 million. Moreover, its primary business of networked charging systems saw the biggest decline, with revenue falling 12% year over year to around $74 million. ChargePoint derives the remaining revenue from hardware and software subscriptions and other non-core professional services.
ChargePoint, however, continues to incur high fixed costs on units produced, which is why its cost of revenue rose and gross profit tanked. A noncash impairment charge primarily on inventory hit the company's bottom line further, driving its gross margin to negative 22% from positive 18% in the year-ago quarter. That's a dramatic fall, and its margin is one number investors should keep an eye on in the coming quarters as ChargePoint expects to wind down inventory in line with demand.
So is ChargePoint stock a buy for 2024?
To be fair, many of ChargePoint's challenges arise from external factors, and there's only so much the company can do about them. For instance, several of ChargePoint's customers are awaiting deliveries of their commercial vehicles and have, therefore, postponed investments in their charging infrastructure. During its third-quarter earnings call, ChargePoint revealed one customer to be waiting on more than 40 buses, another waiting on 500 vans, and yet another on 100 heavy-duty trucks.
One area that's within ChargePoint's control, though, is costs, and the company claims to be working on it so that it can achieve its financial goal of turning positive non-GAAP (adjusted) earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter of calendar year 2024. The company foresees modest revenue growth in the coming quarters, but it also expects margins to improve modestly quarter after quarter, which should help it achieve its goal.
Any improvement in margins could propel ChargePoint stock higher in 2024, but should you bet on that? I wouldn't, because ChargePoint has too many problems at hand to deal with. This chart, perhaps, reveals its biggest challenge and growth hurdle now.
CHPT Cash from Operations (TTM) data by YCharts
ChargePoint ended the third quarter with cash and cash equivalents of around $397 million. Given how rapidly ChargePoint is burning cash as evidenced in the chart above, that money should only last some quarters, which means the company could issue more stock to raise funds. Meanwhile, there's little or practically no scope left for ChargePoint to create a niche for itself in the EV charging market now that Tesla's North American Charging Standard could potentially become the overall standard in the U.S. Long story short, ChargePoint's latest earnings report has given investors nothing new to look forward to.
