Solar Wars: Enphase Vs. SolarEdge And The Easter Bunny
• The PV solar market has produced two clear leaders in the intelligent solar inverter market, Enphase Energy and SolarEdge Technologies.
• Each of these Companies has been in business since 2006 and each has grown to produce similar revenues, at present.
• Both companies have broad global market reach and yet one of these leaders has emerged more profitable.
• This article discusses possible reasons why one is the profit leader and how those same factors may provide higher growth potential moving forward.
SolarEdge Technologies (NASDAQ:SEDG) and Enphase Energy (NASDAQ:ENPH) have each established leadership positions in the solar inverter industry. The recent financial results reported by SolarEdge are impossible to ignore and likely difficult to sustain. However, while I do not expect a sustained long-term year-on-year revenue growth rate in the 190 % range for SolarEdge, I do foresee catalysts for impressive growth and sustained profit margins moving forward.
Much of the growth displayed in the recent quarter was startup distribution for large contracts with SolarCity (NASDAQ:SCTY) and then Vivint Solar (NYSE:VSLR). Critics of SolarEdge will argue that continued growth moving forward will be less robust once contract sales are well established and installation incentives begin to dissolve. Critics of Enphase will claim that SolarEdge will take over the market due to a paradigm level improvement in system architecture. My argument is that system architecture will have little influence on growth compared to other factors. Instead, the same factor that kept expenses lower for SolarEdge during this robust growth will also be the primary catalyst for stronger than expected growth beyond contract sales.
When I can walk down the isle of Home Depot and hear someone talking about the coming revolution of home energy storage with the Tesla Powerwall, I can rest assured that there is, in fact, such thing as the Easter Bunny. But in the energy world, Elon Musk is the celebrity figure that now outshines the big rabbit. The public awareness for Tesla (NASDAQ:TSLA), and to some degree SolarCity, is indeed thundering.
When you align yourself with the Easter Bunny of the Energy world, you get a few golden eggs. SolarEdge has done just that with their collaborations and distributions with these energy deities. It doesn’t matter what I personally think of SolarCity’s debt obligations or their business model or that I may not want to shell out over $100,000 for a Tesla vehicle. The noise everyone has heard is that the Powerwall will be cheap, they’re backordered into 2016, and they will be distributed through SolarEdge.
Spending Disciplines and Growth
After listening to both the Enphase and SolarEdge conferences, I’m very impressed with SolarEdge CEO Guy Sella as he doesn’t need his CFO to tell him how to trim expenses and run a tight ship. He conceived the Tesla and SolarCity strategy and appreciates the value of a profit margin. Sella has also, perhaps incidentally but likely by design, instantly put his underdog company on a dominant trajectory for brand recognition. He further impressed by stacking up high leverage with the March IPO by building his cash and investments from $12.9 million a year ago to $138.8 million in March 2015.
Meanwhile, Paul Nahi, CEO of Enphase Energy, burned an entire third of his cash during the same quarter. Even worse was to hear his CFO, Kris Sennesael, forced to admit at the conference that much of the cash was consumed by bonuses. This could be justified if the growth of revenues from bonused sales adequately outpaced expenses. Enphase expenses, however, climbed to a record $33.5 million. As a result, in spite of showing an impressive better than 50% YOY revenue growth; Enphase had losses at $6.153 million that were higher than the same year-ago quarter….(and more)