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

Plug Power had negative revenue last year, caused by its share price going up drastically. Investors don’t seem to care much.
A reach truck powered by Plug Power; Amazon is a big Plug Power customer. Photo: Plug Power
By
James Mackintosh
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March 28, 2021 9:00 am ET

If one stock captures the bizarro world of finance in the past year, it is forklift fuel-cell maker Plug Power. PLUG -0.21%

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. AMZN 0.19% 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?

Plug Power’s hydrogen delivery truck; A lot of Plug Power’s big rise is tied to investors piling into anything connected to clean transport. Photo: Plug Power

It sort of was. Plug Power laid out the details of Amazon’s right to buy its shares at a mix of $1.19 and $13.81 in a regulatory filing on New Year’s Eve, when the stock closed at $33.91. The shares promptly soared to a peak of $73.18 by late January. Amazon declined to comment, but it hasn’t disclosed a stake, which it would need to do had it kept the shares.

As Andy Marsh, Plug CEO, told me: “It was an extraordinary payday for them.”

The stock gains were really about investor belief in the prospects for Plug Power, of course, not about last year’s revenue. Mr. Marsh argues that investors woke up to the changes he has been making over the past decade, its increased customer base in retail warehouses, a move into clean generation of hydrogen, and plans for a fuel-cell “gigafactory,” as well as new partnerships with Renault and South Korea’s SK Group.

“I think we’re more like Amazon in 2000, 2001, rather than dogfood.com,” he said.

This is where the story broadens out. A big part of why Amazon was popular in 2000 was because it was part of the general rush into dot-coms. A lot of Plug Power’s big rise is tied to investors piling into anything connected to clean transport and green power.

Other hydrogen stocks also soared, though Plug Power rose more, then fell back in unison from the peaks last month.

The nature of the bet is shown in Plug Power’s shareholder register. Two BlackRock ETFs that track clean-energy stocks are, added together, the third-biggest shareholder in Plug, according to FactSet data. Investors in these ETFs are buying into the hydrogen-economy thesis, not Plug Power’s skill at powering indoor forklifts.

The irony is that for Plug Power, the future may be green, but the present isn’t, at least according to S&P’s environmental, social and governance rating, known as its ESG score. Plug scores a dismal two out of 100 for environment, zero for social and 13 for governance. The poor governance perhaps shows up in this month’s admission that the past three years of accounts need to be restated and the annual report will be late.

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Mr. Marsh says the company plans to do a better job of communicating with the ESG rating agencies.

“People are checking boxes. We have just got to do a better job of making sure that people understand how that box should be checked,” he said.

But ultimately, why should investors care? The bet is that other people will be enthused about the hydrogen economy and want to buy the stock, whatever its price. As with so much else in the past year, today’s business fundamentals don’t matter much.

The end of the story remains to be written, but the stock market is helping to create its own reality. Plug took advantage of the high share price to raise $1.3 billion from stock sales last year and garnered another $1.6 billion from SK last month, so it no longer needs to scrabble around for cash to expand. Plug now needs to grow very quickly to please the investors who liked it even when revenue was less than nothing.

Write to James Mackintosh at James.Mackintosh@wsj.com

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Appeared in the March 29, 2021, print edition as 'Amazon Supplier’s Story Explains Crazy Market.'

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