Enphase Q2 Earnings

[stocknovice]

@intjudo

Going forward, a CEO expressing frustration (…even nuanced frustration) with Sales personnel and/or Partners they rely critically on (…to get Sales closed) is a big red flag for me. It probably usually means demand for their product is waning.

This statement is a HUGE takeaway for me the last few quarters.

In my opinion recent growth durability numbers for SNOW, NET, and ENPH didn’t quite add up, yet each CEO stated the softness was only temporary. In all three cases, the weakening trends were indeed the reality.

In the infamous April thread where Matthew Prince either did or did not unnecessarily throw 100 salespeople under the bus for NET’s stumble I wrote:

@stocknovice

Finally, nowhere did I state management was negligent. I also made no accusations of lying. In my opinion, this is more about my standards for competence and integrity from the business leaders I entrust with our money. You can put them in three buckets:

1. Underpromise and overdeliver
2. Do what they say
3. Overpromise and underdeliver

I prefer to own companies doing #1 or #2 and have no problem pointing out when I believe they have done #3. For example, I used the same standards when OKTA switched from the CEO’s “we love our internal SIEM product” and CFO’s “we’ve never had a stronger pipeline” to “we bought Auth0 because their SIEM was better, we apparently didn’t invest enough during COVID, and the CFO is retiring” just two quarters later (March 2021 Portfolio Review - TheStockNovice ). I sold immediately and have never looked back. Similarly, I held FSLY to the same account in the second message here (Here’s what I did about Fastly ) and full post here (Figuring Out Portfolio Fit - TheStockNovice ).

For what it’s worth, Enphase’s CEO is next on my personal clock. I believe ENPH’s report fell into category 2. It did what the CEO said it would out of Q4. At the same time, he remains adamant any first-half softness is temporary and we’ll see a bounce in the second. Everyone owning ENPH should now reasonably expect that outcome. Why? Because the head of the company has told us so. He didn’t say he wasn’t sure. He didn’t say they were building in extra caution. He didn’t imply more patience would be required. Instead, he doubled down on his temporary and second half comments of last quarter. If it doesn’t happen, ENPH’s management falls to category 3 (and those who sold already will be justified because my guess is they don’t believe him in the first place). That will undoubtedly cause another wave of exiting shareholders, and I will likely be one of them in search of an alternative falling in one of the first two categories above.

Regardless of market conditions, I don’t believe it an unfair standard to expect a management team to at least do what it says.

Staying true to my word, ENPH and CEO Badri Kothandaraman have been kicked to the curb. One more chance is one more chance, and that’s it.

We have other companies issuing sunnier outlooks into easier comps. I’m happy to focus on those while ENPH works through its current issues.