ChargePoint Holdings (CHPT 0.79%) reported its Q3 fiscal 2024 results on Dec. 6, and the results were, well, terrible. But this was not within the context of low expectations and the stock's 79% year-to-date collapse heading into the earnings release.
Here's what you need to know from ChargePoint's recent quarter and whether the growth stock is a buy now.
Low expectations
On Nov. 16, ChargePoint published two unexpected press releases. The first said that its COO, Rick Wilmer, would replace 12-year CEO Pasquale Romano as the new CEO. And CFO Rex Jackson would be replaced by interim CFO Mansi Khetani, the senior vice president of financial planning and analysis. Two major leadership changes at once are a sign that change is needed to turn a business around and that the board has lost confidence in management's ability to execute.
ChargePoint also revised its expectations for Q3 fiscal 2024, calling for $108 million to $113 million in revenue compared to $150 million to $165 million as previously expected. It also called for a non-GAAP (generally accepted accounting principles) gross margin of -19% to -17% due to a noncash impairment charge. But even without factoring in the impairment charge, ChargePoint still forecast a non-GAAP gross margin of just 19% to 21% compared to its prior guidance of 22% to 25%.
Going into the Q3 fiscal 2024 earnings call, investors were already bracing for arguably the worst quarter in ChargePoint's history as a public company, and for the earnings call to be led by two new executives.
Stopping the bleeding
ChargePoint stock rose as much as 11.7% on Thursday. And a big reason for that was ChargePoint's results and management commentary, which indicated the company has stopped the bleeding, at least for now.
ChargePoint booked $110 million in revenue, within its updated guidance range. Non-GAAP gross margin, including the impairment charge, was -18%, also in line with the updated guidance.
Having the real results fall outside the expected range would have been strange, considering ChargePoint's recent quarter ended on Oct. 31, and the updated guidance came out on Nov. 16. So the new guidance should have been -- and was -- spot on. But any time a company lets down its investors to the extent that ChargePoint has, there's no reason to give the company the benefit of the doubt until the real results are published.
Arguably the most important line item from ChargePoint's release was that it reaffirmed its plan to reach positive non-GAAP adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by Q4 of calendar year 2024, which corresponds to Q4 of fiscal 2025. Non-GAAP adjusted EBITDA is a far cry from positive net income. But considering ChargePoint booked a GAAP loss of $158.2 million in this recent quarter, any improvement in narrowing such a steep loss would be welcome.
Changing of the guard
This ChargePoint earnings call sounded far different from past calls. The tone of Wilmer and Khetani was serious, accountable, and competent, which is different from the tone of the former CEO and CFO, which was more upbeat and optimistic even in the face of poor results. Instead of discussing the total addressable market, megatrends, and the sweeping ripple effects from the electric vehicle revolution, this earnings call focused mainly on calendar year 2024 and what the company needs to do to steer ChargePoint in a new direction.
Many analyst questions centered around asking specifics about what ChargePoint needs to do to reach its positive EBITDA goal by the end of fiscal 2025. ChargePoint management did a good job of not overly blaming market conditions, which, to be fair, have been poor.
To justify building charging infrastructure, ChargePoint's customers want to see increased consumer and fleet adoption and be able to fund investments inexpensively (which hasn't been possible in a high interest rate environment). The short-term cycle is working against ChargePoint, and that's certainly a big factor in its poor results. But management was accountable for addressing that the company can do a much better job managing costs, its supply chain, and working through its inventory.
Despite all the headwinds, ChargePoint is guiding for modest revenue growth in calendar year 2024, particularly in the second half of the year. The company failed to provide Q4 fiscal 2024 guidance and didn't provide a specific revenue target for fiscal 2025. But if the company cuts costs and still posts even a little top-line growth next year, it would be a sign that the worst may be over for ChargePoint.
Where to go from here
Even after Thursday's rebound, ChargePoint still has a market cap below $1 billion, compared to nearly $11 billion at its peak. This is a far less valuable company now, but the market opportunity is still great.
A big risk with investing in ChargePoint is that its business model remains unproven. Its "land and expand" strategy, which focused on gaining as many customers as possible, even at the expense of steep losses, was capital intensive and too aggressive in hindsight. Now, ChargePoint is reeling it in and trying to build a more sustainable business model that can support organic growth with cash flow instead of relying on the capital marks for debt or equity financing. Debt financing is unattractive due to high interest rates, while equity financing is also no longer a good option due to the company's compressed valuation.
ChargePoint seems to be in the early stages of gaining its footing. But it's not smooth sailing from here, as the already vulnerable company could get hammered by a prolonged downturn or if interest rates stay high for longer than expected.
Most investors are probably better off watching ChargePoint from the sidelines to ensure it executes its positive EBITDA goal before buying the stock. But investors with have a high risk tolerance and are confident in the long-term trends of the EV charging industry and ChargePoint's ability to turn things around could consider the stock now. However, this should only be done with a small position and the knowledge that the value could go to zero if ChargePoint fails to execute.
