BLNK - Blink Charging: Surprising Shift (Rating Upgrade)

2023-12-28 12:50:15 ET

Summary

• Blink Charging Co. has seen a rally in its stock after billionaire investor Ken Griffin bought shares, boosting interest in the company.
• The EV charging station business model is struggling due to low-margin product sales and high expense bases.
• While Blink has made improvements in its business model, it is still far from being profitable and faces major demand issues in the U.S. EV sector.

After a disastrous few years, Blink Charging Co. ( BLNK ) started rallying in the last couple of months. The EV charging station company has seen the business model under pressure, but famed investor Ken Griffin bought shares, boosting the interest in the stock. My investment thesis is more Neutral on the stock, though Blink could rally in the short term with the positive trends in the business.

Tough Business Model

The EV charging station business models continue struggling due to focuses on trying to ramp up high margin services when EV owners and fleet operators utilize the charging station networks. The problem for Blink and other operators is that the vast majority of the revenues accrue from low-margin product sales, while expense bases soar.

In essence, the SG&A operating model is built on the gross revenues and not the much lower gross profits. Blink has seen a vast shift in this business model since Brendan Jones took over as CEO back in May

The EV charging station company recently reported Q3'23 revenues soared 152%, but the company continued to report large losses. The vast improvements in the business came due to a huge boost in equipment sales.

The key Service revenues were only $6.7 million in the quarter and have shown limited relative growth during 2023 after starting off at $4.8 million in the March quarter. Service revenues are up 119% in the quarter, but the base was so small in 2022.

Blink only has a 30% gross margin target, with a goal of just reaching adjusted EBITDA profits by December 2024. The Q3'23 adjusted EBITDA loss was $11.7 million, down from $17.6 million last year.

The shocking shift in the business model is that the new CEO was able to optimize costs to the point where Blink key Q3 operating expenses were in the $29 million range, flat YoY.

The problem here is that the U.S. EV market isn't growing as expected outside of Tesla's ( TSLA ) Supercharger network . EV monthly sales in the U.S. peaked months ago and is no longer showing any sequential growth, while the YoY metrics still show 42% growth in November.

Auto dealers are even facing over 60 days to sell an EV on their lots, while gas vehicles are just above 40 days. Blink could face a path to EBITDA profits far more complicated than thought when the company provided guidance after the Q3'23 earnings report.

Lurking Investor

Ken Griffin's Citadel hedge fund has taken a small passive stake in Blink. According to an SEC filing, the hedge fund owns a combined 610K shares for a small 0.9% stake.

The move is interesting considering the tough business model and the limited cash balance of $66 million. Though, Blink Charging only has a market cap of $250 million.

If the company has finally figured out the financials, the stock could factor into a long-term investment thesis due to the ultimate shift to EVs. The U.S. is only selling EVs at an 8.1% clip of new vehicles sales, compared to the rest of the world at double to triple the pace of the U.S.

The problem with all of the EV charging station business models is massive cash burn while awaiting for EV sales to turn material to drive utilization. A bleeding edge model doesn't work very well for shareholders, getting massively diluted in the process.

Blink has a large ATM the company could utilize, so obtaining additional funds isn't a major risk. The biggest issue is dilution from ongoing cash burn. Despite all of the improvements in the business model over the last year, gross margins in the 30% range don't provide a quick boost to gross profits.

Takeaway

The key investor takeaway is that Blink Charging has made a shocking shift in the business model. The company has been able to more than double revenue while restraining costs. Unfortunately, the Blink Charging Co. business is still far away from being profitable and the U.S. EV sector faces major demand issues. The investment thesis is no longer Bearish, but the business dynamics still make being Bullish too difficult.

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