Sunrun Inc. (tendencies, Monetary) was based in 2007 to convey photo voltaic power on to US houses, making clear power extra accessible to these with out business clear power choices. The corporate made photo voltaic obtainable at little or no price initially, and as photo voltaic power gained widespread adoption, the know-how proved cheaper in the long term as properly, serving to to develop Sunrun’s enterprise.
Throughout its 15-year historical past, Sunrun has grown itself because the main residential photo voltaic firm within the US with over 760,000 prospects, providing photo voltaic companies in 22 states, Washington DC and Puerto Rico. Nevertheless, there’s a big runway for progress. On this two-part collection, we’ll take a more in-depth take a look at Sunrun’s product choices, enterprise mannequin, monetary construction, market alternative, provide chain and headwinds to see if it may well ship a compelling long-term funding alternative.
Product choices
Sunrun makes most of its income from photo voltaic panel and battery programs, which it installs on rooftops.
The corporate’s photo voltaic panels are usually not prime of the road – it is tough to scale that manner, as a result of most prospects need their photo voltaic service to be cheaper than fossil fuels relatively than costlier. Nevertheless, they’re nonetheless among the many finest photo voltaic rooftop panels available on the market.
The method of getting rooftop photo voltaic panels is just not so simple as simply shopping for them, as a result of it includes getting the best permits upfront after which ensuring all the pieces is in correct working order all through the lifetime of the system. Subsequently, Sunrun’s service choices are important to enterprise. It helps prospects via the method of getting all the best paperwork and permits accomplished for his or her native and state legal guidelines and checks for web metering packages to see for those who qualify to promote extra. power again to the grid.
In terms of sustaining programs after their set up, Sunrun provides a 10-year complete guarantee to prospects who lease their photo voltaic panels, protecting all the pieces from gear substitute to labor, components and repairs. Those that purchase their programs instantly, alternatively, get their guarantee protection via the producer of the particular panels they purchase (manufacturing facility guarantee), which might fluctuate from about 12 to 25 years.
Along with its photo voltaic panels, Sunrun additionally provides battery storage programs so prospects can retailer any extra power generated to be used later at night time or throughout energy outages. It has partnered with Tesla (TSLA, Monetary) to supply the Tesla Powerwall, a wise dwelling battery, as a part of the Brightbox photo voltaic battery storage service. The Tesla Powerwall not solely has a few of the finest specs available on the market, it additionally provides good monitoring and administration, making it an incredible addition to Sunrun’s rooftop photo voltaic panels.
The most recent addition to Sunrun’s product choices is its at-home charging port for Ford (F, Monetary) F-150 Lightning. Ford Clever Backup Energy ensures optimum placement and charging capabilities in addition to syncing with the Residence Integration System to accompany the Ford Cost Station Professional. This method additionally permits the F-150 to energy the house, serving as a backup battery within the occasion of an influence outage. The partnership with Ford represents an vital step within the evolution of Sunrun’s enterprise mannequin, and the corporate continues to actively search comparable partnerships with different EV makers.
Enterprise mannequin
Sunrun primarily operates a subscription-based enterprise mannequin, and it plans to proceed so as to add further subscription choices via partnerships and new product developments to extend alternatives for cross -selling.
Its hottest supply to prospects is the month-to-month subscription, which Sunrun has designed to be extra enticing to the vast majority of its prospects in order that it may well maximize its subscription-based income. The month-to-month subscription requires little or nothing by way of down cost, and prospects then lease the panels on a month-to-month foundation.
The subscription mannequin is the place Sunrun actually shines as it’s thought of one of the best inexpensive worth providing obtainable in most of its service areas. It faces fierce competitors in its complete system gross sales, as prospects seeking to purchase an entire system usually have sufficient wealth to go for a extra premium system. if they need.
The corporate could enhance its aggressive place for full programs in the long term with its purpose to offer further connectivity reminiscent of vehicle-specific EV charging programs.
It is also working to enhance the client expertise of getting residential photo voltaic within the first place, an illustration of the corporate’s dedication to creating photo voltaic extra accessible. Sunrun is among the founders of a coalition to develop an industry-wide allowing software referred to as SolarAPP+, which ought to streamline the method of acquiring residential and interconnection photo voltaic permits.
We are able to get extra perception into how Sunrun’s enterprise mannequin could evolve sooner or later by inspecting its funding in Lunar Vitality, which got here out of hiding in August 2022. Lunar was based in 2020, and is underneath the management of former Tesla Vitality govt Kunal Giotra, it plans to show “owners into energetic members of the power financial system by giving them the liberty to generate, retailer and management their very own clear power and share it with their group,” in response to Sunrun. Sunrun has a 37% possession stake in Lunar in addition to most well-liked entry to know-how developed by the startup.
Lunar’s enterprise mission performs properly with Sunrun’s advertising pitch that residential photo voltaic is the way in which to go to guard customers from the growing older and faltering US power grid. .
Monetary construction
Whereas buyers are inclined to affiliate with subscription fashions with better income due to the likes of Adobe (ADBE, Financially), Sunrun remains to be an asset-heavy enterprise, which complicates issues. Its fundamental providing is a rooftop photo voltaic system with little or no down cost, which is a vital step in buying new prospects and reaching Sunrun’s long-term targets, nevertheless it doesn’t lend to personal at a excessive margin.
Beneath is a GuruFocus breakdown of Sunrun’s 2021 earnings assertion. As we have now seen, the corporate is not worthwhile. Its largest expense is price of products offered, adopted by promoting, normal and administrative. SG&A bills are essential for a corporation in progress mode, as a result of it must deal with getting as many new prospects as attainable. The excessive price of products offered is considerably extra worrisome, accounting for $1.4 billion of the corporate’s $1.6 billion in income for the total fiscal 2021.
As Sunrun’s put in buyer base grows, COGS will finally start to say no as a result of further subscription income (from buyer agreements on the revenue assertion) will proceed to return from long-term prospects who require solely occasional upkeep for his or her programs relatively than a full one. system set up. The tipping level in the direction of profitability must be when the subscription income is enough to offset all the brand new programs put in by the corporate (in addition to different prices reminiscent of upkeep, repairs, and so forth.).
The shortage of profitability means Sunrun depends on steady debt issuance, which has develop into extra of a setback in as we speak’s rising rates of interest. Within the fiscal quarter that ended on Sept. 30, 2022, the corporate had money and money equivalents of $672 million in comparison with short-term debt of $244 million and long-term debt of $8.1 billion, leading to a cash-debt ratio of 0.08.
A portion of the corporate’s present debt is said to fairness investments reminiscent of Lunar. I think about such investments half and parcel of the corporate itself, since Sunrun has determined to tie its future to them.
Sunrun additionally raises funds by issuing new shares, as proven by the three-year common share buyback ratio of -22.5%. Nearly all of latest share issuance occurred within the fourth quarter of 2020, so such excessive ranges of shareholder dilution could also be reserved for occasions of financial misery. There may be all the time the chance of shareholders being diluted on the subject of unprofitable firms.
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Now that we all know how Sunrun’s enterprise works, the second a part of this evaluation will deal with how exterior components have an effect on the enterprise, reminiscent of the general market alternative obtainable, construction of Sunrun’s provide chain and the adjustments the corporate is dealing with or could face sooner or later. Be careful!
