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Solar Installer Vivint’s IPO: Opportunity and Risks

Why is it that everybody has heard of SolarCity but few outside the solar industry have heard of Vivint Solar? That changed on October 1 when the New York Stock Exchange welcomed Vivint to the ranks of publicly-traded companies. Vivint Solar is the second largest installer of solar panels in the United States. The initial public offering was at $16 per share, valuing the Blackstone Group LP -backed company at $1.68 billion. Don’t you wish you had some of the action? Now that the share price has dropped to 12, maybe not. What happened and is there some defect in Vivint’s business model?

While Vivint Solar’s biggest competitor, the behemoth SolarCity, focuses on Western markets, Vivint is putting much emphasis on the Mid-Atlantic and Northeast. Although nationally it has a market share of 7%, it has more than 12% of the market in Massachusetts, New Jersey and Maryland.

This significant event brings much excitement as we see sustainable energy is getting onto the market to compete with traditional sources of energy. According to Nancy Pfund of DBL Investors (an early SolarCity investor) quoted in Greentech Media , “the stock market will welcome this IPO, as a growing number of people want to build solar portfolios…We need several strong companies to transform the energy market from one that is fossil-based to one that fits our planet’s need for a low-carbon future…There is ample room for companies like SolarCity, Vivint, and others to thrive as we pass the energy torch from the 20th to the 21st century.”

However, up until now, we did not see very much interest from investors. You will remember that just a few years ago, some of the major solar energy manufacturing companies lost 70, 80 and even 90% of their value. So investors have been lukewarm about getting back into the solar market.

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Vivint Solar has lost about a quarter of its value since the initial public offering, it is still worth over a billion dollars. Yahoo Finance. Compared with other solar program, this strategy sounds more inviting because it totally avoids the risk of default from the property owner.

However, as BIDNESS ETC reported, “Some experts believe business models of the solar installers’ lease or purchasing power agreements (PPAs) to be faulty. Solar panel installation companies believe that the retained value at the end of a 20-year PPA is mainly delusionary as it is based on the assumption that cost of energy will keep rising, while the cost of solar energy will keep falling. This might not hold true for the long term, as price of solar energy will stabilize after a certain period of time. ”

Apart from the business model, another reason comes from Vivint’s marketing strategy. Currently, Vivint is running its business with a quite simple, traditional sales strategy–door-to-door soliciting. This model could become success in small, focused area with a high concentration of sales support, but it also impedes a large spreading into different states due to a lack of strong sales teams. These naysayers suggest that to compete with SolarCity, Vivint should re-consider its marketing strategy, to develop long-term relationship with trustable local dealers, so that it could have enough resources to support its quickly growing business.

Now that Vivint sees a quite disappointing public offering, it could take some actions to build up more confidence from the public, from adjusting its business model, to building competitive advantage on technology, marketing and supply chain. As more solar energy companies go to the public markets, Vivint may be a cautionary tale or may be viewed as a great investment opportunity.

Oct 13th 2014

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