- ChargePoint reported a big miss for FQ4 numbers.
- The charging station company guided FQ1'23 sales $31 million below analyst estimates.
- CHPT stock trades at 40x subscription revenues with the market applying valuations to charging station revenues sold virtually at cost.
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After the close, ChargePoint Holdings (NYSE:CHPT) appears to have reset the expectations for charging station growth in the year ahead. The company continues to face supply and shipment challenges and the financials never seem to improve with surging revenue growth. My investment thesis remains ultra Bearish on the stock with the company burning cash at an alarming rate and already raising additional capital.
Not Prepared For Misses
ChargePoint reported a huge miss for FQ4 and guided down analyst expectations for the start of FY24. Investors aren't prepared for the booming charging station business to suddenly start cutting estimates far prior to being profitable:
The company still reported impressive revenue growth at nearly 90% for the quarter, but the problem is the financial structure can't handle misses. ChargePoint only produced 23% gross margins in the biggest quarter of the year, dipping from 24% last year.
The charging station company supposedly ran into supply chain and shipping issues in meeting the surging demand for charging stations. The problem is that this is where the company runs into problems chasing unprofitable business in the charging station land grab.
The revenue mixture remains a huge problem for the business with the product sales in Networked charging systems surging the most, but those revenues have limited 16% gross margins. The crucial Subscriptions business only topped the $100 million annualized rate last quarter.
ChargePoint spends $444 million in annualized GAAP operating expenses in order to capture these limited Subscription revenues. The company isn't very efficient in capturing those new subscribers with a 50% growth rate far below the over 100% growth in Networked systems.
The charging station company has to change this gap before the stock is worth an investment. The company has to spend far too much on the charging stations sold at nearly cost while obtaining limited revenues for the subscription business.
The stock is sliding due primarily to the very weak guidance for the current quarter. ChargePoint usually faces a sequential flat to down revenue scenario for the April quarter, but the company guided to a massive dip this year.
ChargePoint forecast revenues for FQ1'24 will slip back to $122 to $132 million versus analyst estimates up at nearly $157 million. The company guided midpoint revenues $31 million below consensus analyst estimates.
A highly profitable company might be able to handle a big revenue miss, but ChargePoint is very unprofitable. The company lost an adjusted $46 million in FQ4'23. Back in FQ3'23 when ChargePoint reported a similar $125 million, the company lost $56 million in the quarter.
Since the company doesn't generate meaningful gross margins on the lost charging stations revenues, the lost revenues aren't very harmful to the bottom line. Though, the biggest issue is that ChargePoint is just farther away from turning profitable needing to recapture those low margin revenues, nonetheless.
The management team already decided to sell $50 million worth of shares in the last quarter to start raising capital to fund the ongoing capital losses. ChargePoint burned $267 million from operations in the last fiscal year and another $19 million from capital spending in a sign of how fast the current cash balance of $400 million could disappear.
Under normal circumstances, a business will face a downward spiral where sales fail to hit targets leaving the company with a mismatch with operating expenses forcing cuts to operations. These cuts end up leading to more sales reductions, as the company no longer has the people to support the original sales levels.
Amazingly, ChargePoint entered the quarterly report with a market cap of nearly $4 billion. The company only has a Subscription business of $100 million placing the stock valuation at 40x the only valuable portion of the business. Until the company shifts the business model to where charging stations are sold at practical gross margins in the 30% to 40% range in order to generate a profit, investors shouldn't apply these sales to valuation multiples.
Possibly the worse part about guidance is that ChargePoint didn't provide the typical yearly guidance or details on operating expenses for the year. A company retrenching from providing yearly numbers is never a good sign.
The key investor takeaway is that ChargePoint reported horrible numbers leading to only pain for shareholders. The charging station company needs to restructure operations or adjust the business model to make the stock appealing to shareholders.
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This article was written by
Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.
Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020.Invest with Stone Fox Capital's model Net Payout Yields portfolio on Interactive Advisors as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here:
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