Sunrun Inc. (traits, Monetary) was based in 2007 to carry photo voltaic vitality on to US properties, making clear vitality extra accessible to these with out industrial clear vitality choices. The corporate made photo voltaic accessible at little or no price initially, and as photo voltaic vitality gained widespread adoption, the expertise 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. Nonetheless, there’s a large runway for development. 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 could possibly 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 aren’t high of the road – it is tough to scale that method, as a result of most prospects need their photo voltaic service to be cheaper than fossil fuels somewhat than costlier. Nonetheless, they’re nonetheless among the many greatest 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 in the event you qualify to promote extra. vitality again to the grid.
In terms of sustaining programs after their set up, Sunrun affords a 10-year complete guarantee to prospects who lease their photo voltaic panels, overlaying all the pieces from tools substitute to labor, elements and repairs. Those that purchase their programs straight, however, get their guarantee protection via the producer of the precise panels they purchase (manufacturing facility guarantee), which might range from about 12 to 25 years.
Along with its photo voltaic panels, Sunrun additionally affords battery storage programs so prospects can retailer any extra vitality generated to be used later at evening or throughout energy outages. It has partnered with Tesla (TSLA, Monetary) to supply the Tesla Powerwall, a wise residence battery, as a part of the Brightbox photo voltaic battery storage service. The Tesla Powerwall not solely has a few of the greatest specs available on the market, it additionally affords sensible monitoring and administration, making it a terrific addition to Sunrun’s rooftop photo voltaic panels.
The newest 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 Dwelling Integration System to accompany the Ford Cost Station Professional. This technique 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 essential step within the evolution of Sunrun’s enterprise mannequin, and the corporate continues to actively search related 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 could possibly maximize its subscription-based income. The month-to-month subscription requires little or nothing by way of down cost, and prospects then hire 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 reasonably priced value providing accessible in most of its service areas. It faces fierce competitors in its complete system gross sales, as prospects trying to purchase an entire system typically have sufficient wealth to go for a extra premium system. if they need.
The corporate might enhance its aggressive place for full programs in the long term with its purpose to offer further connectivity akin to vehicle-specific EV charging programs.
It is also working to enhance the shopper 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 without doubt one of 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 might evolve sooner or later by analyzing its funding in Lunar Power, which got here out of hiding in August 2022. Lunar was based in 2020, and is beneath the management of former Tesla Power govt Kunal Giotra, it plans to show “owners into energetic members of the vitality financial system by giving them the liberty to generate, retailer and management their very own clear vitality 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 expertise 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 shoppers from the growing old and faltering US vitality grid. .
Monetary construction
Whereas buyers are inclined to affiliate with subscription fashions with higher income because of the likes of Adobe (ADBE, Financially), Sunrun continues to be an asset-heavy enterprise, which complicates issues. Its principal providing is a rooftop photo voltaic system with little or no down cost, which is a crucial step in buying new prospects and attaining Sunrun’s long-term objectives, but it surely doesn’t lend to personal a excessive margin.
Beneath is a GuruFocus breakdown of Sunrun’s 2021 earnings assertion. As we’ve got seen, the corporate is not worthwhile. Its largest expense is price of products bought, adopted by promoting, basic and administrative. SG&A bills are mandatory for an organization in development mode, as a result of it must give attention to getting as many new prospects as potential. The excessive price of products bought 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 ultimately start to lower as a result of further subscription income (from buyer agreements on the earnings assertion) will proceed to return from long-term prospects who solely require occasional upkeep of their programs somewhat than a full one. system set up. The tipping level in direction of profitability needs to be when the subscription income is enough to offset all the brand new programs put in by the corporate (in addition to different prices akin to upkeep, repairs, and many others.).
The shortage of profitability means Sunrun depends on steady debt issuance, which has grow to be extra of a setback in at this time’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 expounded to fairness investments akin to Lunar. I take into account 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%. The vast majority of current 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’s at all times the danger of shareholders being diluted in terms of unprofitable corporations.
watch
Now that we all know how Sunrun’s enterprise works, the second a part of this evaluation will give attention to how exterior components have an effect on the enterprise, akin to the general market alternative accessible, construction of Sunrun’s provide chain and the modifications the corporate is going through or might face sooner or later. Be careful!
