I continue my earnings reviews this week with taking a look at Enphase. I know some of you would expect me to review Cyan this week. But with the buyout in the news, I want to wait a week to let that settle down and see how that proceeds. So, that will be next week.
Enphase is still experiencing rather massive growth. Top line Revenue in Q1 was $86.7M and is about 50% year over year growth. The company experienced a loss in Q1 of $3.2M. Both of these numbers are worse than Q4 numbers. That is to be expected and if you take a look back at Enphase you will see this dip in Q1 each year.
In Financial Language, this is called Seasonality. What this means is that there is a normal rhythm to the purchasing of products. Many businesses go through this and Enphase does do to Winter. If you are tracking a stock for a company with Seasonality, it is often best to do Year over Year comparisons not Quarter over Quarter. In this case, you will learn more comparing to Q1 2014 than Q4 2014. The best way to see if a stock has Seasonality is to look at results from the past and see if there is a pattern to Revenue that repeats annually.
Now the company took quite a hit in the market today and we need to explore why. The most likely reason is a downgrade by Merrill-Lynch. I do not have access to their notes behind the change, but ML did downgrade Enphase to Underperform.
On a more macro level, there are ongoing challenges in the Solar Business. These challenges are not new but there are some changes in the Solar Market itself. In general, there is a lot of investment in various forms of Cleaner and Renewable energy. This means that there is a lot of pressure on different kinds of solutions and there is significant downward price pressure. This means that Enphase must continue to reduce product costs on a regular basis. But none of this is new and should not be a new issue for investors.
If there is anything new, it is new competitors entering the new businesses that Enphase is just going into. In fact, Tesla is going to be a competitor in the Solar Energy Storage business. People are unsure of how reception of these new initiatives. One of the mistakes that the Enphase Executives make on the call is to use the same words all the time to describe the reception of these new products (they are being well received). It sounds to the ear as if these are perfunctory statements and not genuine representations of the reality. I am not saying that the company is not being truthful. I am saying that it sounds wrong and investors are detecting risk that may or may not be real.
Anyway, Enphase looks to be prepared for ongoing growth. They are still matching expenses to profit to maximize growth in a break even business. This strategy is a market share land grab and is normal for this kind of company.
I hope to see many of you tomorrow at the Santa Rosa Business Showcase at the Wells Fargo Center.
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