ChargePoint: Only Pain Ahead
Summary
- 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:
Source: Seeking Alpha
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.
Source: ChargePoint FQ4'23 presentation
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.
Source: ChargePoint FQ4'23 presentation
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.
Guidance Hurts
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.
Takeaway
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.
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Comments (54)
Segment is drastically underfunded, all these companies need at least 4x more cash reserves than what they currently have. The promised growth is all dependent on the EV manufacturers growth and launch schedules, typical chicken and egg situation. These companies need to get tens of thousands of chargers installed and then basically wait for the consumer to buy EV’s which will be very slow due to high prices and lack of EV Education. Overall this segment will go through a massive consolidation within the next 2 years as companies run out of cash, my guess is that major oil companies and utilities companies will buy these companies up at very low prices and then wait for growth
Great summary, one doesn't want to invest in companies playing the chicken and egg game with no benefits. It works for $TSLA building SuperChargers b/c it helps them sell more EVs, but $CHPT is wasting millions and billions with no guaranteed return. They just help more EVs be sold. Always look to invest in a business that has customers lining up when a new store or charging station is opened, not one where they hope customers show up in a few years.
Investing 101... keep it simple. This was my exact first thought about charging stations and my thesis didn't change one bit once researching the stocks.
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Agree, he is consistently invested in richly valued stocks playing the momentum game.
How does hooking up to a coal or natural gas plant help much? Besides, being anti EV charging station business models isn't the same as being anti EVs. Why do you want to fund losses?
How about the world come up with the sustainable sources of energy than transition to EVs? Kinda getting the cart in front of the horse. Are charging stations here for good? Won't we get to 1,000+ mile battery charges or solar panels on cars that are self charging so that public chargers become dinosaurs.
It's like identity politics.... you aren't picking the best candidate or business model, you are just picking a politician and business that fits into a bucket.
Why do they take all? Why can't a well capitalized company come along in 2025 with better software and a cheaper subscription model?
The lack of margin improvement says it all. $CHPT has no cushion for supply chain issues when burning $50+ million per quarter.
Don't see any of these companies having a happy ending until the business model changes. All of these charging station companies are wildly spending hoping customers arrive. Imagine a retailer putting up a store in a location where very few people live hoping the population will double and triple in the next 5 years in order to support the store. No, they wait for the population to arrive first versus bleeding cash for years.
False by a mile, they never open in an area without the population to cover the store.
EVs are likely the future, but not 100% convinced they should be the future. The world is investing far too much for very little climate benefits. Charging station demand is in the 1st inning, but will these charging station companies make it to the 9th inning? Reminds me of the Canadian cannabis companies.
