Bloom Energy: Limited Business Potentials Despite Rising Hydrogen Demands (NYSE:BE)

Khaosai Wongnatthakan

Bloom Energy (NYSE:BE) is a hydrogen technology company with a mission to produce clean, reliable, and affordable energy. The company has two core technological offerings with diverse applications. The first is the Bloom Energy Server™, also commonly known as the Bloom Box. It uses biogas, hydrogen, natural gas, or a blend of fuels to generate power on-site or power the connected community through a microgrid outside of the main grid. Complementing this is the second core product, the Bloom Electrolyzer™ which uses electricity to create hydrogen through its core solid oxide electrolysis cell (SOEC) technology.

Against the backdrop of the global transition into a net-zero economy and the rising investment in energy innovation, Bloom is seemingly riding on robust business tailwinds. However, upon closer inspection, the company seems to be merely picking at the breadcrumbs of the expanding pie. Therefore, this article will act as a detailed analysis of the market trend and business prospects of the company.

This topic triggers intense debates, and it is important to acknowledge that this analysis will not and is not intended to conclusively settle the matter - but I would be happy to see more technical discussions on hydrogen in the comment sections!

It all starts with hydrogen production. While hydrogen is abundant in the universe-an attribute often touted for its potential as an "energy source"-it rarely exists in its purest form. Consequently, production becomes imperative to isolate hydrogen from other atoms: from coal (black hydrogen) or natural gas (blue hydrogen) by steam reforming, from electrolysis of water by nuclear energy (pink hydrogen) or by renewable energies (green hydrogen). Among these, green hydrogen stands as the "Holy Grail," free from emissions and other by-products, albeit it bears the highest cost.

Acciona Energia

Then the rest of the journey is more straight-forward. Following production, the hydrogen undergoes compression, storage, and transportation to reach its destination (which all consumes energy) - such as fuel cells like the Bloom Boxes or refueling stations for hydrogen-powered vehicles. Ultimately, the hydrogen undergoes a reverse transformation, converting back into electricity through electrolysis.

By now, you likely get my argument regarding hydrogen's inefficiency in electricity generation. This inefficiency stems from the various conversions and processes that result in energy outputs less than inputs, not to mention the costs. But if you are still not convinced, the illustration below provides a clear comparison of efficiency between direct electrification and the utilization of hydrogen.

RMI

Hydrogen is one of the many tools in the decarbonization toolbox. However, just because it could be used in certain aspect does not mean it should. Inevitably, the world will gravitate toward the most efficient and cost-effective avenues for electricity generation. Thus, hydrogen is likely to assume a role in filling gaps rather than emerging as the predominant power generation method.

Bloom Energy's cornerstone, the Bloom Box, is built on the foundation of the company's exclusive solid oxide technology, capable of converting fuels like natural gas and biogas into electricity. Yet, this trajectory encounters a significant roadblock - its efficiency lags behind the direct electrification approach. This deficiency arises from the energy conversions inherent in this process, as depicted in the graph below.

Therefore, Bloom Energy's potential market centers on those seeking to ensure uninterrupted power supply in the face of main grid disruptions. This aligns with their existing strategy - targeting regions where they can offer power at a lower cost than the grid alternative or catering to customers reliant on continuous electricity flow even during grid outages.

Ulf Bossel

The management has indicated that the total addressable market for its power generation products is $2,000 billion by 2030. However, this figure encompasses a broad spectrum, ranging from commercial, industrial, and institutional sectors to various energy markets and types.

Therefore, despite Bloom's optimistic projections presented during its recent investor conference regarding the expansive total addressable market over the next 5 to 10 years, the realistic number could be much smaller. To put this into context, the global backup power market size is merely expected to be US$ 4.33 billion by 2030. Nevertheless, it is important to acknowledge that the company likely has other markets in its crosshairs to pursue.

Bloom Energy

Comparing the Price-to-Sales (PS) ratio of Bloom Energy with its peers has shown a pattern that reinforces my view on Bloom: the market is presently valuing the company in closer alignment with traditional industrial counterparts and backup power generator peers, such as Cummins (CMI) and Generac (GNRC). This distinction is noteworthy, as it sets Bloom Energy apart from hydrogen-focused peers like Plug Power (PLUG) and Ballard Power (BLDP). This is in line with my argument that the company's current pricing does not reflect, nor should it, a classification as a hydrogen company in the current context.

As a result, given the PS ratio span of 0.9 to 1.6 and Bloom Energy's revenue projections of $1.4 to $1.5 billion for 2023, along with a forecast of $4 to $5 billion for 2024, a reasonable one-year price target emerges within the $14 to $18 range. However, it is crucial to bear in mind that the company has encountered challenges in meeting earnings expectations, having missed 8 out of the last 10 results announcements.

Bloom Energy

I am an investor who values the opportunities to learn as much as the opportunities to earn. This is particularly important in the era of hard tech and advanced technologies - there are hypes around certain industries and the associate companies, even with the slightest connection, will benefit. Like ESG, or AI.

Therefore, in this analysis, I hope I portrayed an objective, informative, and useful picture of Bloom Energy's business prospects from the angle of the energy transition and science. I do not think the company is and will be the biggest winner amongst other hydrogen stocks under the current business trajectory.

But the market is irrational. It will continue to be recommended as "one of the winners in the hydrogen economy" as we have seen in other analyses.

This article was written by

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.