By Eric Wesoff
Is Enphase (NASDAQ:ENPH) destined to be acquired?
Enphase, the Petaluma-based solar microinverter firm, announced solid third-quarter financial results with a record revenue of $60.8 million, up 36% year over year, at a record gross margin of 26.8%. Despite record highs in quarterly revenue and margin, the price of Enphase shares has dropped to historic lows. The stock is trading at $2.66 per share today, down from highs earlier this year of $9.57. The market cap of the company is a bit above $100 million, which gives the company a ratio of market cap to annual sales (~$200 million in 2012) of roughly 0.5.
Enphase has done most everything a VC-funded startup is supposed to do. The company innovated and essentially created the microinverter marker, ramped fast, and sharply gained market share along with growing margins, counter to the rest of the solar industry. The firm was able to make it to public markets (albeit at a lower than expected price) unlike other solar firms, which have had to pull their IPOs, go bankrupt, or sell themselves to Asian conglomerates at fire sale prices (BrightSource, Solyndra, Q.Cells, MiaSole, HelioVolt, Ascent, Solibro, etc.).
Central inverter firms like SMA and Power-One have announced layoffs, while SatCon, one of the North American market leaders, just declared bankruptcy. Microinverter aspirant Enecsys just had some layoffs according to comments yesterday from the firm's CEO.
Despite Enphase being more electronics company than solar cell firm and despite having some Moore's Law forces on its side, the market treats it like any other solar firm (brutally) and leaves it weighed down by the current malaise of the overcapacity solar industry. Enphase sold 431,000 of its microinverters in the third quarter, but lost $8.9 million. Losses in the second quarter were $11.4 million. Enphase looks for Q4 to be between $52 million and $57 million and for gross margin to be 26.5% to 28.0%. Enphase also announced that it was accessing new and larger credit facilities.
MJ Shiao, GTM Research's inverter analyst, notes that Enphase continues to push costs down incrementally while keeping its ASP from falling as much as central inverter prices. But Q4 guidance is down from Q3 and Q1 tends to be seasonally low. So timing for profiability is still, optimistically, a few quarters away. That means the stock price may stay in its current range. And it might make Enphase a potential acquisition target that can be bought below book price and be accruable to the bottom line within a few quarters.
So who has the wallet and will to buy Enphase?
Solar module firms, such as Yingli (NYSE:YGE) or Hanwha (HSOL), looking to move downstream?
An Asian conglomerate or inverter manufacturer -- such as Chint, Samsung, AUO, SunGrow, or LG -- looking to enter the U.S. market?
Who are we missing as potential acquirer for this young, growing, but beleaguered solar firm?