Opower Hits the Street: Here's What You Need to Know

Energy efficiency company Opower (NYSE: OPWR  ) debuted on the New York Stock Exchange this morning. Priced at $19, shares began trading at $26 before falling to $22 later in the day. Despite some positive buzz, this is not a company that has generated the hype of some other recent IPOs, so we've put together a basic Opower primer.

The IPO
Opower put 6.1 million shares on the market at $19 per share. It will take home $107.8 million from the IPO, and its underwriters will receive $8.1 million.

After today's offering, there will be 47,459,839 Opower shares outstanding.

What does Opower do?
The company provides utilities with software and analysis of their customers' energy consumption patterns, with the end goals being reduced energy usage and improved customer perception of the utility. It has four core aspects to its business, dubbed "solutions."

  • Energy Efficiency -- Uses data analytics and behavioral science to reduce energy consumption.
  • Customer Engagement -- Provides a web app for utilities to engage their customers. User-friendly design helps consumers understand their energy usage and billing info.
  • Thermostat Management -- Engages with utilities and consumers to monitor and control smart thermostats.
  • Demand Response -- Works with utilities to reduce energy consumption at peak hours.

Thermostat management and demand response are the newest solutions and have yet to generate meaningful revenue, though management believes they both offer significant growth potential.

How does it make money?
More than 90% of Opower's revenue is derived from selling multi-year subscriptions to its software platform. Here are its revenue figures from the past three years:

  • 2011: $28.7 million
  • 2012: $51.8 million
  • 2013: $88.7 million

Revenue is growing at a fantastic clip, but so are operating costs. The company posted a net loss of $0.67 per share for 2013.

Who are its customers?
The company has 93 utility customers in eight countries. Twenty-seven of the 50 largest electric utilities in the U.S. work with Opower, including National Grid, PG&E, and Exelon.

What is its growth outlook?
Management estimates that its "addressable market" consists of 1,300 electric and gas utilities worldwide, serving 650 million households. Right now, Opower serves roughly 32.1 million households. That means there's plenty of room for growth (but also competition).

What are the risks?
As with any business, there are risks. Here are some of the big ones investors should be aware of:

  • Management expects negative operating cash flow for the foreseeable future.
  • 10 clients represent 62% of revenue; losing one would be a big deal.
  • The utility industry is heavily regulated and in flux right now, many question marks going forward
  • Competition exists, and will grow.
  • Security breach could damage brand beyond repair.

Who are its competitors?
Opower's biggest competition comes from other software solutions providers, including but not limited to: Google/Nest Labs, Oracle, SAP, Aclara, C3 Energy.

Who runs Opower?
Daniel Yates and Alex Laskey founded Opower in 2007. They are currently serving as the company's CEO and president, respectively. Prior to founding Opower, Yates built another software company called Edusoft, which he sold to Houghton Mifflin for $20 million in 2004. Laskey has a background in public policy and is mainly responsible for the company's business strategy, public profile, and culture. He also gave a great TED Talk last year that you can view here.

The company is headquartered in Arlington, Virginia, and has additional offices in San Francisco, Singapore, London, and Tokyo. Opower has roughly 500 employees.

Bottom line
Energy efficiency is a big business, and it's only going to get bigger. If Opower strikes your fancy, dig a little deeper. You can read the company's full prospectus posted online with the SEC here.

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Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2014, at 12:05 PM, willberr22 wrote:

    nice summary, but there is one problem with this story.

    Why is "efficiency a big business" for utilities and thus OPower? How are utilities paid for encouraging their customers to use LESS (and thus why would they buy Opower software?)

  • Report this Comment On April 15, 2014, at 10:31 PM, milleriv wrote:

    "two-fold: on the utility side, it helps companies capture and analyze large datasets to create business value; on the consumer side, it offers various platforms for engagement. In the process, Opower makes it easier for customers to understand their energy bills and encourages them to conserve energy, save money and reduce their carbon emissions."

    http://www.theguardian.com/sustainable-business/change-custo...

  • Report this Comment On April 17, 2014, at 3:05 PM, willberr22 wrote:

    But the customer benefits (conserving energy, saving money), again, would seem to work at cross purposes with the utility's--that reduced energy usage and saved money comes out of where? Right, the utility's bottom line. And thus utilities would seem unlikely to hire a company (Opower) to encourage that.

    But they are, and it is because state regulators have set up "decoupling" programs to utilities and customers share, in various complicated ways, in energy efficiency and to other wise allow utilities to recoup money for what looks like a money-losing effort. So my point is that it's all very dependent on regulators and regulatory treatments...not a good thing or a bad thing, but an important thing.

    I do not know what "create business value" means, specifically.

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