Wednesday, April 7, 2021

"The Story of Amazon’s Fuel-Cell Supplier Explains This Crazy Market"

Although we had dozens (hundreds?) of posts on hydrogen in 2020 we deliberately refrained from touting the smaller players: Ballard, Bloom and the subject of this story, Plug Power. I think we had four links in 15 months that mentioned PLUG.
In some ways, these manias are like sex, you never know how much fun you're going to have or how long it's going to last.

And without earnings there is no safety net to catch you should your exuberance cause you to fall out of bed. 

From the Wall Street Journal, March 28:

Plug Power’s soaring stock price—up 2,000% in the past year—led to an unusual accounting result: negative sales 
If one stock captures the bizarro world of finance in the past year, it is for Plug Power.

The story involves wacky financial engineering, a company that started the year flirting with penny-share status and became one of the country’s 200 most valuable, a bet on clean transportation that has terrible environmental ratings, and a multi-hundred-million-dollar profit for Amazon. It is so now. To top it all, this is the second time in two decades that Plug stock has gone full-bubble.

The wackiest part is that Plug Power reported negative revenue last year, a hard-to-accomplish feat. Sales less than zero is something normally reserved for a clutch of mortgage funds that have odd accounting. Cruise line Carnival had negative revenue for one quarter last year for boring reasons: huge refunds for canceled trips.

Plug Power’s sales were negative for a truly audacious reason: The share price went up. Yes, you read that right. The company structured some sales so that when customers bought enough forklift power units, they got a discount in the form of warrants, the right to buy shares at a set price in the future.

It is a great idea in principle, rewarding customer loyalty and aligning their interests with shareholders. But it works out badly in practice when the share price goes up 2,000% just as the customer needs lots more warehouses and forklifts to satisfy lockdown demand.

That customer was Amazon. In return for spending $600 million on fuel cells and other kit to meet pandemic demand, it gained the right to buy Plug Power shares for approximately $900 million less than they were worth when vested. Plug only took a paper charge related to the cost of issuing the stock of $438 million, but that was still enough to more than wipe out revenue from all sources last year.

I am of two minds about whether investors should be upset about this.

Sure, it isn’t great for investors that Amazon gets stock on the cheap, or that three years’ worth of sales of Plug Power’s core product to one of its most important customers were essentially giveaways.

But it is absolutely in line with investor zeitgeist: Hot stocks have zero or close to zero earnings (think Tesla); hotter stocks have zero or close to zero revenues (think space-exploration companies and electric-vehicle startups being snapped up by SPACs). So negative revenue ought to be even more appealing, right?....

....MUCH MORE

 The posts that referenced PLUG over the last five quarters:

August 2, 2020
 
January 12, 2020

January 6, 2020
Hydrogen: Bezos Backed Plug Power Jumps 18% On $172 Million Contract (PLUG)
In last month's mention* of PLUG we said the company is too small for our tastes and it still is.
But it is getting bigger.
Those last two were posted with the stock around $4.00. It went to $75.49.
$34.72 last, up a nickel pre-market. 
December 9, 2019
....The forklifts are Plug Power, the company is too small for our tastes, and they're floating more stock, but Amazon has an option to buy a chunk of the company as well as the forklifts.
Probably not a Kiva Systems (robots) set-up but who knows.
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