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Summary

  • OPWR, a provider of cloud-based software, designed to allow utility companies to better engage with customers and conserve utility usage, plans to raise $109.8 million in its upcoming IPO.
  • OPWR will offer 6.1 million shares at an expected price range of $17-$19 per share, aiming for a $993 million market value.
  • While demand for OPWR’s services will likely continue to grow along with demand for energy-efficient solutions, OPWR has yet to be profitable. We recommend investor caution.

Opower Inc (NYSE:OPWR), provider of cloud-based software designed to allow utility companies to better engage with customers and conserve utility usage, plans to raise $109.8 million in its upcoming IPO.

The Arlington, Virginia-based firm will offer 6.1 million shares at an expected price range of $17-$19 per share. If the IPO can reach the midpoint of that range, OPWR will command a market value of $993 million.

OPWR filed on March 3, 2014

Lead Underwriter: Goldman Sachs & Co, Morgan Stanley & Co LLC

Underwriter: Allen & Company LLC, Canaccord Genuity Inc, Cowen and Company LLC, Pacific Crest Securities LLC

Overview of Opower

OPWR offers cloud-based software to the utility industry, providing customer-facing applications that both reduce consumers' demand for energy and improve their view of the utility by presenting customized information to consumers to help motivate decreased energy use. This information is delivered to customers through emails, texts, automated calls, and mail.

OPWR seeks to take advantage of the pressure on utility companies to reduce environmental impact and minimize power plants by offering a product that leads to the more efficient use of available energy resources. The firm's has improved customer satisfaction measurements by a median 6%, and the firm's software allowed utilities to save over 1900 gigawatt hours of energy in 2013.

Valuation

OPWR offers the following figures in its S-11 balance sheet for the year ended December 31, 2013:

Revenue: $88,703,000.00

Net Loss: ($14,161,000.00)

Total Assets: $63,135,000.00

Total Liabilities: $69,398,000.00

Stockholders' Equity: ($6,263,000.00)

OPWR has increased the number of households it serves via utility companies from 1.4 million in 2010 to 32.1 million in 2013. Its revenue has also expanded quickly over the past few years; for the years ended December 31, 2011, 2012 and 2013, the firm posted revenues of $28.7 million, $51.8 million and $88.7 million, respectively. Continued growth investment has led OPWR to generate net losses of $21.3, $12.3 million and $14.2 million in 2011, 2012 and 2013, respectively.

Powerful Competitors

OPWR competes with numerous other firms that supply software to utility companies, some of which have far greater financial or technical capacities than OPWR. Critical competitors include C3 Energy, Aclara, Google (NASDAQ:GOOG), Oracle (NYSE:ORCL), Tendril, and SAP (NYSE:SAP).

Entrepreneurial Management

Co-founder Daniel Yates has served as OPWR's CEO since 2007; he was also appointed Chairman of the board on February 14. He previously founded and served as the CEO of Edusoft, which was eventually purchase by Houghton Mifflin Company. He holds a B.A. in computer science from Harvard University.

Why Should Investors Hesitate?

Despite the company's impressive revenue expansion and the consistent, high demand for services (as issues of energy efficiency and cost-savings come into the limelight)-the firm has not proven that it can turn a profit, yet is already paying its executives princely compensation packages. (CEO Daniel Yates' total compensation for 2013 exceeded $8.1 million, while President Alexander Laskey's total compensation was north of $5.8 million.)

OPWR has a rapidly expanding customer base, and the firm may be able to eventually convert its revenue expansion into profits; however, investors should be cautious approaching this IPO at this time.

We are neutral on OPWR's IPO.

Source: Despite High Demand For Opower's Services, Investors Should Be Cautious With IPO