Bloom Energy Earnings: Revenue and Guidance Soar, While Cash Flow Conversion Is Lackluster

Key Morningstar Metrics for Bloom Energy

• Fair Value Estimate
  : $97
• Morningstar Rating
  : ★★
• Morningstar Economic Moat Rating
  : None
• Morningstar Uncertainty Rating
  : Extreme

What We Thought of Bloom Energy’s Earnings

Bloom Energy’s BE third-quarter revenue rose 138% year on year to $1.24 billion. The company raised revenue guidance to a midpoint of $4.5 billion, while non-GAAP gross margin guidance remained at 34% due to scaling costs. Operating cash flow was negative due to large increases in working capital.

Why it matters: How quickly Bloom can deliver onsite power generation remains an illustrious differentiator as its earnings continue to grow. Delivering in as little as two months, as it did for Oracle a year ago, is invaluable compared with legacy grid systems that take years to deliver.

• However, we do think this speed-of-delivery benefit will diminish as grid-connection time constraints reduce for certain gas turbine providers. The timing of this reduction is unclear and depends largely on the manufacturing capacity of turbine manufacturers.
• The negative operating cash flow reported in the third quarter is notable, as it’s largely driven by an over $400 million increase in contract assets. Management did not provide sufficient clarity on the timing of collections. We see working capital management as something to watch as Bloom scales.

The bottom line: We are placing shares under review as we reassess our long-term thesis. Revenue guidance and backlog growth are promising, but we see share prices as heavily weighted on optimistic expectations. We expect to raise our fair value estimate materially.

• We maintain our Extreme Uncertainty Rating, as questions regarding Bloom’s supply chain, backlog, and working capital management remain unanswered. What hurts Bloom here is management’s lack of clarity regarding market concerns.
• We expect to remain at the lower end of valuations, as we believe this stock is, at worst, priced with extreme optimism and, at best, priced to perfection.