{"id":3473,"date":"2012-12-13T22:57:06","date_gmt":"2012-12-13T22:57:06","guid":{"rendered":"http:\/\/blogs.edf.org\/energyexchange\/?p=3473"},"modified":"2012-12-13T23:04:43","modified_gmt":"2012-12-13T23:04:43","slug":"a-tale-of-two-ipos","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/energyexchange\/2012\/12\/13\/a-tale-of-two-ipos\/","title":{"rendered":"A Tale Of Two IPOs"},"content":{"rendered":"

\"\"This morning two energy initial public offerings (IPOs) made their debut.\u00a0 One of them was green and one of them was brown.\u00a0 Unfortunately, the mainstream media missed the boat<\/a> by characterizing the brown company as successful and the green one as a miss. We don\u2019t see it that way.<\/p>\n

The brown company is PBF Energy<\/a>, a Blackstone-backed rollup of three refiners that were divested by Valero and Sunoco.\u00a0 The company, like many refiners, is having its day in the sun as refining margins are currently wide due to technical market issues relating to the relative prices of Brent and WTI crudes.\u00a0 The bottom line, however, is that demand for\u00a0gasoline and diesel\u00a0is unlikely to grow as CAFE fuel economy standards<\/a> continue to tighten.<\/p>\n

The second company, SolarCity<\/a>, has been posting over 100% annual growth in solar installations since 2009.\u00a0 Additionally, the company has been a leader in residential energy efficiency and EV charging stations, and has even begun to roll out a residential energy storage solution.<\/p>\n

Unfortunately, SolarCity\u2019s business model requires some complex accounting that ultimately hurt their valuation.\u00a0 The vast majority of their solar photovoltaic (PV) installations are executed as leases or similar structures to take advantage of various tax incentives.\u00a0 This reduces the accountants\u2019 formulation of revenue, and also makes the business unprofitable.\u00a0 As an example, imagine a solar company can construct a solar system for $16k and sell it for $20k, with $3k of overhead.\u00a0 They would result in $20k of revenue, $4k of gross profit and $1k of net income.\u00a0 Do that enough times and you have a pretty good business.<\/p>\n

As a lease, however, they only recognize revenue as it is received through annual lease payments, which might be around $1500.\u00a0 Assuming the $3k of overhead remains, then the company would post a loss of $1500 in year one.\u00a0 Economically, this might be the same or better business, but through the eyes of an accountant, this is a harder pill to swallow as the profits must be realized over the long term of the lease.<\/p>\n

SolarCity is a new concept for the public market: it is essentially the first high-growth cleantech company that relies on an equipment leasing model. Despite projected revenue growth, the solar IPO struggled to generate demand due to this complex accounting and priced well below the expected range. On the other hand, PBF priced at the middle of its range, and sold more shares than originally expected. Longer term, however, my money would be on the company with the meteoric growth rate.\u00a0 So far today, the market seems to agree.\u00a0 SolarCity is up 48% from its pricing while PBF Energy has gained less than 1%.<\/p>\n","protected":false},"excerpt":{"rendered":"

This morning two energy initial public offerings (IPOs) made their debut.\u00a0 One of them was green and one of them was brown.\u00a0 Unfortunately, the mainstream media missed the boat by characterizing the brown company as successful and the green one as a miss. We don\u2019t see it that way. The brown company is PBF Energy, …<\/p>\n","protected":false},"author":6407,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"coauthors":[],"class_list":["post-3473","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"yoast_head":"\nA Tale Of Two IPOs - Energy Exchange<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.edf.org\/energyexchange\/2012\/12\/13\/a-tale-of-two-ipos\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"A Tale Of Two IPOs - Energy Exchange\" \/>\n<meta property=\"og:description\" content=\"This morning two energy initial public offerings (IPOs) made their debut.\u00a0 One of them was green and one of them was brown.\u00a0 Unfortunately, the mainstream media missed the boat by characterizing the brown company as successful and the green one as a miss. We don\u2019t see it that way. 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