Plug Power(NASDAQ: PLUG), a developer of hydrogen-powered residential systems, seemed like a promising green energy play when it went public in 1999. But its ambitious plan flopped because producing hydrogen is more expensive than producing oil or natural gas, and it was cheaper to expand existing electrical grids than to build new hydrogen infrastructure.
In the two decades following the dot-com bust, Plug Power eventually pivoted toward selling hydrogen fuel cells and charging services for forklifts in warehouses and fulfillment centers. That new business grew as it gained some big customers, but some major accounting errors -- which forced it to revise all of its financial statements from 2018 to 2020 -- drove away a lot of its investors.
Rising interest rates also crushed its valuations and cast a harsh light on its persistent losses.
Image source: Getty Images.
Today, Plug's stock trades about 99% below its IPO price. It also slumped about 10% over the past 12 months as investors shunned the market's more speculative stocks. Let's see if it could head higher or lower over the next year.
Plug Power's two largest customers are Amazon(NASDAQ: AMZN) and Walmart(NYSE: WMT). It locked in those two retail giants by subsidizing fuel cell sales with stock warrants -- options to buy more of its shares at a discount.
That unusual arrangement turned Amazon and Walmart into Plug's biggest investors, but the company didn't properly disclose how those incentives actually eclipsed its other customer payments. That's why Plug needed to restate all of its financials from 2018 to 2020. After those restatements, its revenue actually turned negative in 2020.
Plug's revenue turned positive again in 2021 and grew over the following two years, but most of that growth was driven by two acquisitions that expanded its smaller cryogenic equipment unit instead of its main hydrogen fuel cell and charging systems business -- which still struggled as the macro headwinds curbed the market's appetite for expensive new hydrogen projects. That slowdown, along with the high costs of integrating its new acquisitions, caused its net losses to widen at an alarming rate.
Metric
2021
2022
2023
9M 2024
Revenue (in millions)
$502
$701
$891
$437
Operating margin
(87%)
(97%)
(151%)
(165%)
Net income / loss (in millions)
($460)
($724)
($1,370)
($769)
Data source: Plug Power.
That pressure worsened in the first nine months of 2024. For the full year, analysts expect Plug's revenue to decline 20% to $714 million. However, they expect it to narrow its net loss to $953 million as it prunes its workforce, cuts costs, and sells some of its equipment (in leaseback deals) to stabilize its cash flows.
Plug Power is still the leader of the niche hydrogen infrastructure market. It's already deployed over 69,000 fuel cell systems and more than 250 fueling stations across the world, and it's the largest single buyer of liquid hydrogen. Amazon and Walmart's orders should support its near-term growth, and it could attract more attention from other warehouse and fulfillment center operators as the macro environment improves.
However, the company remains deeply unprofitable and is still issuing more shares to raise cash and cover its stock-based compensation. It's already increased its share count by nearly 426% over the past 10 years, and it ended the third quarter of 2024 with just $94 million in cash and equivalents as it shouldered $1.7 billion in total liabilities.
Yet it probably won't go bankrupt anytime soon. The U.S. Department of Energy (DOE) tossed it a lifeline last year with a new $1.66 billion loan guarantee to build up to six new green hydrogen energy production facilities. Norges Bank, the central bank of Norway, also increased its stake in Plug Power to nearly 8% last October.
Analysts expect Plug's revenue to rise 36% to $969 million in 2025 and another 36% to $1.32 billion in 2026. With an enterprise value of $3 billion, it might seem reasonably valued at just three times this year's sales. But those estimates might be a bit too optimistic, and the company still won't come close to breaking even over the next few years.
Assuming Plug Power matches Wall Street's expectations and trades at 3 times its forward sales, its enterprise value could grow to nearly $4 billion by the end of 2025. That would be a decent rally of more than 30%, but it could struggle to achieve that gain if interest rates stay elevated and the hydrogen market stays chilly.
Its constant dilution could also limit its near-term gains even though its insiders bought 12 times as many shares as they sold over the past 12 months.
I personally expect Plug Power to grow slower than expected in 2025 as the macro environment remains challenging for green energy companies. It might bottom out and head a little higher over the next 12 months, but I don't expect it to beat analysts' rosy estimates or stay ahead of the broader market.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Walmart. The Motley Fool has a disclosure policy.
