Energy efficiency company Opower (UNKNOWN:OPWR.DL) 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.
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.
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.
Aimee Duffy has no position in any stocks mentioned. The Motley Fool recommends Exelon and Google (A shares). The Motley Fool owns shares of Google (A shares) and Oracle. Try any of our Foolish newsletter services free for 30 days. 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.