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How Vivint Solar Can Turn Its Business Around

By Travis Hoium – Oct 25, 2016 at 5:09PM

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Vivint Solar needs a new strategic vision to be a success in solar, but is management ready to make those changes today? Time will tell.

Image source: Getty Images.

The last year has been just about as bad as it could have for Vivint Solar Inc (VSLR). The company was supposed to be acquired by SunEdison, only to see that deal fall through and SunEdison go bankrupt. In the midst of the deal, financiers began to back away from Vivint Solar and residential solar more broadly. Sales costs rose and national installers began to lose market share to local installers. All of this led to a 73% decline in the stock. In spite of all this, Vivint solar is still standing. Which of course begs the question: what does Vivint Solar have to do to get back on top? 

VSLR Chart

VSLR data by YCharts


Vivint Solar recently announced a management shakeup and new priorities, which include "building a sustainable business and delighting our customers." But for Vivint Solar to succeed long-term it's going to need to make concrete changes to its business. Here are three that would build on industry trends and turn around some of the company's biggest problems. 

Cleaning up the sales mess

Vivint Solar was founded on a sales model of going door to door selling solar panels. SolarCity (SCTY.DL) has used a similar strategy, but the model is quickly becoming stale. I recently wrote that the residential solar industry's sales tactics need to enter the 21st century, and Vivint Solar should start the trend by moving from door-to-door to a digital sales model. 

You can see below the inherent problem with this model. Instead of becoming more efficient over time, sales and marketing costs have actually risen over the last two years. 

Image source: Vivint Solar second quarter 2016 earnings presentation

To cut costs, Vivint Solar should move its sales to online education, quoting, and tracking. This will lower costs and delight customers, who don't need to see another door-to-door solar salesperson. 

Offering loans, not leases

The big trend in 2016 is that loans are taking market share from leases and power purchase agreements, a trend that will likely continue long-term. Vivint Solar has brought in solar financier Mosaic to offer loans, but the company didn't even mention it in the second quarter earnings release. But it should hit this financing trend hard. 

Loans would bring in cash immediately, rather than requiring financing over 20 years as leases do, and would bring a product to market that customers desire. Both would be an advantage for building a sustainable business. 

Focusing on efficiency

One of the best ways for a solar installer to differentiate itself is to install more efficient solar panels than its competitors. Vivint Solar should move in that direction by partnering with a manufacturer like LG or Kyocera, which is making higher efficiency modules than competitors. Given the drop in solar panel prices in recent months, this could be a time to buy more efficient panels for less than in the past. 

More efficiency can also lead to lower energy costs long-term, something I highlighted here. This could leverage sales and installation costs, making the company more competitive in the future. 

Bold moves are needed for Vivint Solar

Residential solar companies that don't adapt to the market's realities will be left in the dust, and Vivint Solar has an opportunity to get out in front of industry changes before competitors like SolarCity. That would be a big step toward building value for shareholders long-term -- and if the company misses this opportunity, the downward trend in the stock could continue. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends SolarCity. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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