Bloom Energy S-1 Filing: Why This Fuel Cell Startup Took 4 Years to IPO

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Bloom Energy Submits S-1 Filing

There’s good news for initial public offering (IPO) watchers this week as Silicon Valley darling Bloom Energy Corporation declared its intention to go public. Although we don’t yet have a Bloom Energy IPO date, there are plenty of questions we can answer by looking at the Bloom Energy S-1 filing.

For example, what exactly does Bloom Energy do?

The short answer: Bloom Energy manufactures “next-generation” fuel cells.

There is a longer version to that story, of course, one that involves NASA’s Mars Program and 17 years of research and development. But we’ll get to that a little later.

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For now, let me just say that some of the smartest minds in Silicon Valley are betting on this fuel cell startup.

Half of Menlo Park—which, for those who don’t know, is the worldwide hub for venture capital—are betting that Bloom Energy can transform the world’s energy infrastructure.

Just look at the names that own Bloom Energy stock. You’ll find the best and brightest there, including Bay Area titans like Kleiner, Perkins, Caufield & Byers (KPCB).

All told, Bloom Energy has raised $2.5 billion of equity and debt from major venture capitalists (VCs). However, it’s overstayed its welcome in private markets, which is why it’s now looking to raise $100.0 million on the public stock markets.

Bloom Energy’s Weird Financial History

To understand the Bloom Energy IPO, you have to understand that Silicon Valley investors are like people anywhere else, subject to groupthink and irrational exuberance. They often make huge mistakes.

What makes Silicon Valley such a special place, though, is that no one seems to care about the mistakes. The investment horizon is so flexible, so changeable, that it doesn’t seem to matter if the company loses tens of millions. All you do is extend the horizon forward.

This is how Bloom Energy survived for 17 years without ever turning a profit.

The company lost more than $2.3 billion in its lifespan. Worse still, it doesn’t know if it can reach profitability any time soon, which is a problem given the firm’s long-term debt. There is more than $977.0 million worth of obligations on the liabilities side. (Source: “Form S-1  Registration Statement,” Nasdaq, June 12, 2018.)

The cash position is also weak. Bloom Energy only has $88.2 million in cash or cash equivalents. By contrast, its annual interest is $108.0 million, meaning the company could sink underwater unless it raises more money.

I see a small silver lining in the company’s gross margins and operating margins, which leaned positive for the first time ever last quarter. The $376.0 million in sales is also encouraging.

However, the fact remains that Bloom Energy simply cannot survive without a long leash from investors and heavy government subsidies.

In fact, government subsidies help explain why Bloom Energy took four years to go public.

The firm reportedly submitted an S-1 filing with the U.S. Securities & Exchange Commission (SEC) back in 2016. It was ready to go public. Everyone accepted that a lower valuation was in order, but then the Trump administration announced extensions to crucial tax credits.

To Bloom Energy, these tax credits are essentially steroids. They bulk up the valuation. So, in order to let the credits inflate the company’s market value, Bloom Energy executives postponed their IPO to 2018.

How Bloom Energy Fuel Cell Technology Works

Like most fuel cells, Bloom Energy uses an electrochemical reaction to produce electricity. The by-product is usually water, which cycles back into the beginning of the process, thereby creating a closed loop of electricity generation.

More specifically, the company uses a solid oxide fuel cell. These tend to be inexpensive, highly efficient, stable fuel cells with only one side effect: massive amounts of heat. Apparently, Bloom has proprietary tech that optimizes for coolness.

What truly sets the firm apart, though, are the invention of energy servers. These installations, roughly half the size of a 30-foot shipping container, generate enough electricity to power a small city or large university campus.

The best part about them is you’re not connected to a broader system. Bloom Energy servers are standalone pieces of technology, meaning they can distribute energy generation across the world.

Bloom Energy Customer Base

But who wants their own energy server? I hear this a lot from investors. It’s like they completely forget that energy costs are one of the most pressing issues for technology companies, big and small alike.

Firms like Alphabet Inc (NASDAQ:GOOG) and Amazon.com, Inc. (NASDAQ:AMZN)—each with dozens of data centers around the world—have an enormous need for distributed energy sources.

Think about it: data centers work best in cold, remote locations. Why run power cables out there if you can simply build your own energy server? Especially when Bloom Energy promises to take care of the installation and upkeep. It’s a no-brainer.

Universities. Townships. Hospitals. Island-cities. I can think of nearly half a dozen groups that Bloom Energy can sell to.

And you should take these sales opportunities seriously, because Bloom deployed its first commercial solution in 2008, meaning it’s well beyond the proof-of-concept stage.

Analyst Take

Bloom Energy is highly leveraged. It carries nearly $1.0 billion in debt, which, in today’s rising-interest-rate environment, looks like a ticking time bomb. And the company lost $260.0 million last year.

But this bonfire of a cash burn has been happening for years, one might argue. So why did VCs continue to shower the company with funds? Because fuel cells are miraculous, dear reader.

They are everlasting sources of energy with little to no effect on the environment.

Even at 20-to-one odds, most VCs would take that bet.

They know the firm’s chances of success improve over time, and that the market potential of fuel cells is immense. It’s a gamble, to be sure, but one that could pay off big-time. You have to come to terms with that trade-off if you want to get in bed with Bloom Energy stock.