There is no way in HELL we people renew their contact with Sunrun. This is one of the worst companies to deal with not just a solar company!! We can only hope that they go out of business.
Great click-bait. While the analysis is understandable, this isn't anything more than an opinion that should not be used as future investment factors anymore than SunRun's assumption of the future. If anything, it's easier to assume that no one will return to other forms of electricty production after having solar for 25 years, nor will they change companies given how uncomfortable that becomes for the consumer. Unless Sunrun's customer service becomes horrid there is no reason NOT to assume that they'll see a renewal rate between 80 to 100%. There needs to be a line drawn between financial analysis and actual operational realities. Going from 100% to 0% in renewal is absolutely impossible, no matter how often one says "ignore this this might as well be zero". This same ideology can be used for any subscription based company. Based on this analysis, netflix, spotify, disney are all worth nothing because there is no clear evidence that customers will keep their subscription.
In the last 10 years, solar panel efficiency has improved from about 14% to 18% and on top of that degredation is 1-2% per year. So, a system installed in 2013 will be 10%-11% efficient after 25 years and customers are going to renew at the same rate when they could install panels that would produce 2x the energy? I doubt it. SaaS is a different business model. If Netflix or Spotify stop delivering value then customers cancel. But they aren't making a $30,000 upfront investment in every single customer. They also report CAC and churn and revenue per user, metrics we can use to value the company and the likelihood of ongoing revenue continuing. Nothing is under a 25 year contract. Here's another analogy for the way renewals are valued. Sunrun argues that there's value at the end of the contract for having the customer relationship, which is probably true. But Apple has a relationship with iPhone users and iPhones are replaced every 2-4 years. So, does Apple say they have $3 trillion of future iPhone sale? No. It's insane to assume we know anything about what the solar industry will look like in 25-30 years. Maybe there will be solar paint? Maybe we will be able to self-install? Who knows!
@@asymmetricinvesting Understandable way of thinking but this also a bit one-sided in my opinion. No one ever expected customers to accept lower quality pannels after 25 years but also nobody assumed that SunRun expects that of their customers. The options are limiteless, they can replace the pannels for more recent designs at reduced costs and make it still much more affordable for their customers. You mentioned upfront costs, customers would have to pay those too, whatever they choose as their future company. Continuing a current contract will always be more advantegous. While my analogy isn't completely correct it is also true that electricity and stability in each household is a primal need whereas spotify, apple or netflix are luxury needs. When you have chosen for solar your options are limited. If you dislike Netflix, changing to Disney, Amazon, Hulu or whatever can happen almost instantly and won't influence your life. You also have the option to go for nothing at all, watch cable or just RUclips. The options after the 25 years with SunRun are only: Sunrun, other company(extra costs and no certainity as you don't know this other company, you'd know SunRun for 25 years) or return to gas. Which would be a horrible ROI for any customers. Let alone moral reasons and uncertainity of prices with gas being so unreliable these days.
@@VERUMCHESS Bottom line, neither of us know what interest rates/electricity rates/panel prices/storage/etc is going to look like 25 years from now. IMO, the best strategy is assume zero value after the initial contract and just hope its a low cost sales funnel.
@@asymmetricinvesting Good discussions above, but I would add this: You mentioned in your video that Sunrun is somewhat similar to a bank, where they are both exposed to interest rate risks; I prefer to compare Sunrun to an insurance company, where they both: 1. Rely on getting more new subscribers to sign on, thus perpetuating the "25 year" horizon in terms of recurring revenue 2. Like the above user mentioned, both Sunrun and insurance companies alike provide is a "peace of mind," where a customer pays for insurance to mitigate risks, whereas a Sunrun customer pays to mitigate power consumption issues (especially if you participate in the virtual power plant offerings) But, unlike an insurance company, where their recurring revenue is at risk of having much higher probability of paying out for natural disasters (ie. Hurricanes, floods, earthquakes), Sunrun has minimal risks on that front, barring if there was a gigantic earthquake in CA. Each recurring revenue stream from solar systems will keep going until it sunsets. Anyways, I think it's instructive to look back on the history of how big, modern insurance companies were built. If you look closely, Sunrun is essentially following the business model as insurance agencies back in the early days between World War II and 1970s, when interest rates were high. I think those companies turned out ok !!
Addendum: One should also consider Sunrun's TAM in the space of virtual power plants (VPPs). The reason Sunrun invested so much into Lunar Energies (startup) is they want to eventually dominate the VPP space by using AI software to manage distributed power control systems. The fact that PG&E allowed Sunrun to enroll 8500 homes for a big VPP run this summer is telling. Right now, no other solar companies has either the bandwidth or relationship with utility companies to do as large of a scale of a VPP as Sunrun (The CEO Mary Powell herself was the head of Green Mountain Power in VT not so long ago). Here in the Northeast, Sunrun has already done multi-state VPP experiments last year, and that's why you see solar installations in MA, CT, NH, and VT on the uptick this year. This data is corroborated by other solar companies like Sunnova and Sunpower. Companies like Sunnova are way behind the ball on the VPP, and that's exacerbated by the fact that Sunnova is based in Houston, Tx - a state with an uber-fragmented utility grid, and with utility companies that can't agree on anything. And I should know - I grew up in Tx !! VPP is the next big space to be in. Europe (especially in Germany) already has it. Australia too. China will have it soon. Why not the US ?... If you listened to the earnings conference call last week, multiple analysts asked about VPP.
Sunrun installed a defective roof on my house with undocumented workers. As it turned out there was extensive damage all over the roof. Two years later my roof is still damaged and leaking, and Sunrun refuses to repair it. I'm out $7800.
Like other companies, Sunrun (and its new customers) will adapt to the new rate environment and gradually modify the model to be balance sheet positive. As the rates have increased so the business model will evolve. Currently if there is only 4% penetration in the market, imagine all the new growth will be based on higher interest rates, so would their profits as the interest rate cycle will reverse. Your theory can work in both directions.
We have very similar business models in Canada in the residential hvac industry. You are definitely correct on the risk to asset valuations on the balance sheet but you need to understand that as in these business models, at some point in time, the business becomes self sufficient and no longer needs to borrow for 100% of their deals and that time depends on their actual growth rate. Growth rates in sales adjust based on seasonality, economic factors and so on. In weaker economic conditions and when consumers are strapped for cash, they tend to choose to rent as opposed to buy. So their growth rate could change if the economy weakens. Their growth rate could also change to the negative side if the rates comes down. So basically you will have to take into account account growth rate. Check their contracts to see if they are inflation adjusted contracts or not. In Canada they are mostly inflation adjusted contracts. Also you need to know at what point in time, they will have the asset paid off. For example in our hvac industry, it takes 7 years before the system is paid off using 8.99% interest model. But our contracts are 15 years. I would be interested to see what the numbers look like once you build in the above assumptions into a valuation model.
i think you are directionally correct with your analysis. as you pointed out, RUNs assumption of $3K of present value from lease renewals at year 20+ is laughable. all the lease monkey companies starting with SCTY installed the cheapest polysilicon modules available at the time. the degradation is far greater that .5% annually and at 20 years old I'd guesstimate those mods put out 50% of their original rated capacity - which was probably 230-250 watts to start. why have such old, ugly, inefficient crap on your roof when you could lease a new system with modules that deliver 2x that much power. The kicker for SunRun is that this "asset" is actually a liability as they are contractually obligated to remove the system, which probably will cost them $0.80/w labor to remove plus the sizable cost of disposing of the used equipment.
You don’t value long term assets using only current borrowing costs. You have to estimate the longer term average of that cost. The entire yield curve has risen but is currently inverted, which is why they did need to increase the discount rate, but that discount rate is still lower than their cost of capital. I do agree with eliminating the assumed renewal assets. Helpful video!
True, but it's the best proxy. The correct discount rate for net assets is probably an equity discount rate, which would be in the range of 9% to 12% today for Sunrun.
Sunrun is not well positioned for the long term. Even the VPP idea mentioned below will only make sense until customers get V2G on their EV's and then it's game over for batteries.
Absolutely not... the whole reason for VPP is that you want a reliable source of distributed power to tap from at any time (ie. Not when your Ford F150 lightning is still parked on the Bay Bridge at 5:30 pm late in the afternoon). If a customer signs up for VPP, you must have a stationary battery at your house. In the future, I'm sure that will be an absolute requirement for PG & E, or any other power company that even tries to implement a large-scale VPP. No utility companies is going take the risk otherwise. Incidentally, if you do have an EV like a Ford F150 lightning, you'll only have enough juice to power your own house for 3 days, but a VPP network during peak hours will draw way more watt-hours out of your truck battery than that. Specifically, if you enroll in the PG & E VPP program, Sunrun is allowed to drain your main home battery down to a 20% reserve every night.
There is no way in HELL we people renew their contact with Sunrun. This is one of the worst companies to deal with not just a solar company!! We can only hope that they go out of business.
Great click-bait. While the analysis is understandable, this isn't anything more than an opinion that should not be used as future investment factors anymore than SunRun's assumption of the future. If anything, it's easier to assume that no one will return to other forms of electricty production after having solar for 25 years, nor will they change companies given how uncomfortable that becomes for the consumer.
Unless Sunrun's customer service becomes horrid there is no reason NOT to assume that they'll see a renewal rate between 80 to 100%.
There needs to be a line drawn between financial analysis and actual operational realities. Going from 100% to 0% in renewal is absolutely impossible, no matter how often one says "ignore this this might as well be zero".
This same ideology can be used for any subscription based company. Based on this analysis, netflix, spotify, disney are all worth nothing because there is no clear evidence that customers will keep their subscription.
In the last 10 years, solar panel efficiency has improved from about 14% to 18% and on top of that degredation is 1-2% per year. So, a system installed in 2013 will be 10%-11% efficient after 25 years and customers are going to renew at the same rate when they could install panels that would produce 2x the energy? I doubt it.
SaaS is a different business model. If Netflix or Spotify stop delivering value then customers cancel. But they aren't making a $30,000 upfront investment in every single customer. They also report CAC and churn and revenue per user, metrics we can use to value the company and the likelihood of ongoing revenue continuing. Nothing is under a 25 year contract.
Here's another analogy for the way renewals are valued. Sunrun argues that there's value at the end of the contract for having the customer relationship, which is probably true. But Apple has a relationship with iPhone users and iPhones are replaced every 2-4 years. So, does Apple say they have $3 trillion of future iPhone sale? No.
It's insane to assume we know anything about what the solar industry will look like in 25-30 years. Maybe there will be solar paint? Maybe we will be able to self-install? Who knows!
@@asymmetricinvesting Understandable way of thinking but this also a bit one-sided in my opinion. No one ever expected customers to accept lower quality pannels after 25 years but also nobody assumed that SunRun expects that of their customers. The options are limiteless, they can replace the pannels for more recent designs at reduced costs and make it still much more affordable for their customers.
You mentioned upfront costs, customers would have to pay those too, whatever they choose as their future company. Continuing a current contract will always be more advantegous. While my analogy isn't completely correct it is also true that electricity and stability in each household is a primal need whereas spotify, apple or netflix are luxury needs. When you have chosen for solar your options are limited. If you dislike Netflix, changing to Disney, Amazon, Hulu or whatever can happen almost instantly and won't influence your life. You also have the option to go for nothing at all, watch cable or just RUclips.
The options after the 25 years with SunRun are only: Sunrun, other company(extra costs and no certainity as you don't know this other company, you'd know SunRun for 25 years) or return to gas. Which would be a horrible ROI for any customers. Let alone moral reasons and uncertainity of prices with gas being so unreliable these days.
@@VERUMCHESS Bottom line, neither of us know what interest rates/electricity rates/panel prices/storage/etc is going to look like 25 years from now. IMO, the best strategy is assume zero value after the initial contract and just hope its a low cost sales funnel.
@@asymmetricinvesting Good discussions above, but I would add this: You mentioned in your video that Sunrun is somewhat similar to a bank, where they are both exposed to interest rate risks; I prefer to compare Sunrun to an insurance company, where they both:
1. Rely on getting more new subscribers to sign on, thus perpetuating the "25 year" horizon in terms of recurring revenue
2. Like the above user mentioned, both Sunrun and insurance companies alike provide is a "peace of mind," where a customer pays for insurance to mitigate risks, whereas a Sunrun customer pays to mitigate power consumption issues (especially if you participate in the virtual power plant offerings)
But, unlike an insurance company, where their recurring revenue is at risk of having much higher probability of paying out for natural disasters (ie. Hurricanes, floods, earthquakes), Sunrun has minimal risks on that front, barring if there was a gigantic earthquake in CA. Each recurring revenue stream from solar systems will keep going until it sunsets.
Anyways, I think it's instructive to look back on the history of how big, modern insurance companies were built. If you look closely, Sunrun is essentially following the business model as insurance agencies back in the early days between World War II and 1970s, when interest rates were high. I think those companies turned out ok !!
Addendum: One should also consider Sunrun's TAM in the space of virtual power plants (VPPs). The reason Sunrun invested so much into Lunar Energies (startup) is they want to eventually dominate the VPP space by using AI software to manage distributed power control systems. The fact that PG&E allowed Sunrun to enroll 8500 homes for a big VPP run this summer is telling.
Right now, no other solar companies has either the bandwidth or relationship with utility companies to do as large of a scale of a VPP as Sunrun (The CEO Mary Powell herself was the head of Green Mountain Power in VT not so long ago). Here in the Northeast, Sunrun has already done multi-state VPP experiments last year, and that's why you see solar installations in MA, CT, NH, and VT on the uptick this year. This data is corroborated by other solar companies like Sunnova and Sunpower.
Companies like Sunnova are way behind the ball on the VPP, and that's exacerbated by the fact that Sunnova is based in Houston, Tx - a state with an uber-fragmented utility grid, and with utility companies that can't agree on anything. And I should know - I grew up in Tx !!
VPP is the next big space to be in. Europe (especially in Germany) already has it. Australia too. China will have it soon. Why not the US ?... If you listened to the earnings conference call last week, multiple analysts asked about VPP.
Sunrun installed a defective roof on my house with undocumented workers. As it turned out there was extensive damage all over the roof. Two years later my roof is still damaged and leaking, and Sunrun refuses to repair it. I'm out $7800.
What’s discounted rate?
Like other companies, Sunrun (and its new customers) will adapt to the new rate environment and gradually modify the model to be balance sheet positive. As the rates have increased so the business model will evolve. Currently if there is only 4% penetration in the market, imagine all the new growth will be based on higher interest rates, so would their profits as the interest rate cycle will reverse. Your theory can work in both directions.
We have very similar business models in Canada in the residential hvac industry. You are definitely correct on the risk to asset valuations on the balance sheet but you need to understand that as in these business models, at some point in time, the business becomes self sufficient and no longer needs to borrow for 100% of their deals and that time depends on their actual growth rate. Growth rates in sales adjust based on seasonality, economic factors and so on. In weaker economic conditions and when consumers are strapped for cash, they tend to choose to rent as opposed to buy. So their growth rate could change if the economy weakens. Their growth rate could also change to the negative side if the rates comes down. So basically you will have to take into account account growth rate. Check their contracts to see if they are inflation adjusted contracts or not. In Canada they are mostly inflation adjusted contracts. Also you need to know at what point in time, they will have the asset paid off. For example in our hvac industry, it takes 7 years before the system is paid off using 8.99% interest model. But our contracts are 15 years.
I would be interested to see what the numbers look like once you build in the above assumptions into a valuation model.
i think you are directionally correct with your analysis. as you pointed out, RUNs assumption of $3K of present value from lease renewals at year 20+ is laughable. all the lease monkey companies starting with SCTY installed the cheapest polysilicon modules available at the time. the degradation is far greater that .5% annually and at 20 years old I'd guesstimate those mods put out 50% of their original rated capacity - which was probably 230-250 watts to start. why have such old, ugly, inefficient crap on your roof when you could lease a new system with modules that deliver 2x that much power.
The kicker for SunRun is that this "asset" is actually a liability as they are contractually obligated to remove the system, which probably will cost them $0.80/w labor to remove plus the sizable cost of disposing of the used equipment.
You don’t value long term assets using only current borrowing costs. You have to estimate the longer term average of that cost. The entire yield curve has risen but is currently inverted, which is why they did need to increase the discount rate, but that discount rate is still lower than their cost of capital. I do agree with eliminating the assumed renewal assets. Helpful video!
True, but it's the best proxy. The correct discount rate for net assets is probably an equity discount rate, which would be in the range of 9% to 12% today for Sunrun.
I live in Northern IL and they came and told us theyd install solar panels with NO cost to us ever.
One of the most gross oversimplifications of how to value a company and imo very ridiculous and incorrect
Very interesting I own their stock
Sunrun is not well positioned for the long term. Even the VPP idea mentioned below will only make sense until customers get V2G on their EV's and then it's game over for batteries.
Absolutely not... the whole reason for VPP is that you want a reliable source of distributed power to tap from at any time (ie. Not when your Ford F150 lightning is still parked on the Bay Bridge at 5:30 pm late in the afternoon). If a customer signs up for VPP, you must have a stationary battery at your house. In the future, I'm sure that will be an absolute requirement for PG & E, or any other power company that even tries to implement a large-scale VPP. No utility companies is going take the risk otherwise.
Incidentally, if you do have an EV like a Ford F150 lightning, you'll only have enough juice to power your own house for 3 days, but a VPP network during peak hours will draw way more watt-hours out of your truck battery than that. Specifically, if you enroll in the PG & E VPP program, Sunrun is allowed to drain your main home battery down to a 20% reserve every night.
@@1fanabananaspot on ☝️
Pelase call me todas.
Si me visitan se lo.agradezco.Bendiciones