Adam Demuyakor's Profile

I know TOM Challenge is over everyone but wanted to send this out! ITC tax credit extension in play now. Major potential win for Solar names

http://www.bidnessetc.com/59425-sunedison-inc-solarcity-corp-heres-why-solar-stocks-are-up-today/

Thanks Liam. Amazon is truly a virtuous cycle and I’m increasingly fascinated by their story. I am really surprised to hear that they are able to effectively cover the globe with just 109 fulfillment centers! My key questions about this business that remain are two-fold. A) I know Amazon would like to paint this as a total win for everyone and it certainly is for them and their consumers, however what about the sellers? Are they truly winning as Amazon is able to increasingly able negotiate tougher and tougher deals given their place in the value chain? I know that we can claim they have higher sales volumes but what happens when this is not necessarily the case. And B) which is kind of related, of course this is a virtuous cycle when things are going well and the economy is headed towards new peaks once again, but what happens the next time the orange circle in Figure 2 changes into “Decline?” Does this then reverse and turn into a vicious cycle? And if not, which piece of the puzzle is the key that stops it from doing so? This is well written, I’m glad someone in our section did Amazon. Thank you.

Adam

Thanks L (whoever you are as Azeem said). So I actually did some work on SUNE in my last job. Sunedison is a sum of the parts play that works very much like the Real Estate Investment Trust (or REIT) model. They have a main development business that then sells to an affiliated YieldCo (at a fair value price) – in the case of Sunedison the YieldCo is TerraForm Power, Inc (or NASDAQ: TERP) . This is an effective business model because it generally allows investors to divorce the different types of risks and return (i.e. one which is a capex intensive development business and succeeds by finding and executing on high quality projects and the other being a less risky play that allows investors to enjoy dividends from the relatively safe, long term utility contracts once these solar plants have already been built).

The issue with Sunedison is that it’s all jumbled together within the parent. SUNE owns 50% of TERP (and a similar emerging markets YieldCo) so you are buying both when you invest in just the parent. TERP’s success all depends on taking advantage of the total potential market out there for solar (solar still only makes up less than 0.5% of total global electricity generation!) and soak up as many projects as possible to maximize its dividend. I think this is where the Vivint comes in. Many believe ITC tax credit that is ceasing at end of 2016 is expected to disproportionately impact the utility sector of solar versus residential. Vivint is a leader in door-to-door residential (hence the operational differences L alluded to) I’m sure SUNE felt that combining the companies could help alleviate some of these tax credit concerns. In this case you saw them sacrificing the operational model in the face of business model pressures. However, I’m not sure if it’s a bad idea given the circumstances. Like Nishika and Mepossi mentioned the writing has been on the wall for some time in relation to this tax credit reduction and I’m sure SUNE felt like they had to do something – relying on these “large high-margin” utility projects alone may not have been a long-term feasible option for them either.

For everyone, here’s an article that I think helps breakdown some of the things I mentioned: http://www.forbes.com/sites/joecornell/2015/09/25/re-look-at-sunedison-sune-terraform-power-terp-terraform-global-glbl-valuations/

L thanks for this, shoot me an email if you can. I have a feeling that SUNE could be cheap now (and thus a worthy investment) but definitely would appreciate another perspective.

Nora this is great, thank you for this post. I knew very little about this space beforehand and am very intrigued now. I’m especially interested about some of the standardization choices that Webb and her team have chosen to make in their operating model. In this day and age companies are always looking to squeeze an extra dollar out of their customers, thus it certainly is a bold gesture on Drybar’s part to not focus on throughput time and to have a single price regardless of type of hair and the time it takes to finish a blowout (even if it’s an hour plus!). As this space gets increasingly competitive (I bet they make a killing on margins now), I wonder how loyal the current customer base will remain. If a “Drybar copy” opens up in the neighborhood and offers a similarly nice atmosphere and $25 blowouts will we see the incumbent’s business get undercut? I guess time will tell. Thanks a lot for this.

Adam