Vivint Solar's Smart Business Model And The Solar Opportunity Make It A Good Buy

| About: Vivint Solar (VSLR)

Summary

The solar installation market is growing at a fast pace in the U.S., presenting a big opportunity for Vivint Solar to grow its business.

Vivint's installations are growing rapidly due to the low cost of ownership and maintenance of its products.

Vivint is looking to expand into more markets, which should help it continue growing at a faster rate than the overall industry.

Vivint does not rely on government subsidies.

Vivint Solar (NYSE:VSLR), a U.S.-based distributed solar energy provider to residential customers in more than half a dozen states in the U.S., installs and owns the system through long-term customer contracts. This is a different business model as compared to most solar installers in the U.S., as the company owns and maintains the installations, and customers pay little to no money upfront while reaping the benefits of "guaranteed energy prices over the 20-year term of their contracts."

Plying its trade in a fast-growing market

The potential of solar power is enormous. For example, in the U.S. alone, during the first half of the current year, solar installations grew at a clip of one new installation every 3.2 minutes. Additionally, the third quarter of the current year was the second-largest quarter in history for solar growth in the U.S. Hence, Vivint Solar is plying its trade in a fast-growing market.

Although solar bears may have an entirely different take on the subject, they cannot ignore that as of the third quarter, solar accounted for around 36% of new electricity generation capacity added during the year in the U.S., and solar power has grown a whopping 418% from 2010-2014, according to data from the EIA.

Vivint is gaining traction

Vivint has made good use of the growing opportunities in the solar energy market in the U.S. During the third quarter, the first as a public company, Vivint installed 49 megawatts (MW) at 6,935 customers' houses, representing a 196% year-over-year growth. This took the total installation to 105 MW during the current fiscal with 28,856 systems in place. These systems are expected to generate $842 million in nominal contract payments over the lifetime of the contracts, representing an increase of 175% versus the comparable period last year, and a sequential gain of $195 million.

The distributed solar energy provider is making rapid strides in gaining residential market share. In barely three years from 2011, Vivint now commands 15% of the residential solar market. On an average, the company is seeing about one installation per crew per day. While the solar market in the U.S. is growing at a CAGR of around 37%, Vivint is growing at a rate of 264%. All this has been due to the rapid expansion of its geographic reach within the domestic market.

A bright forecast

Currently, solar energy stands at around 1% of U.S. power generation, despite the astronomical growth in recent years. This leaves significant potential for growth going forward. Statista predicts that by 2016, the residential solar market alone will be valued at $4.7 billion, with the growth trajectory as shown in the chart below:

Source: Residential solar PV: U.S. market value 2016

Planning for the future

Going forward, to make the most of this projected opportunity, Vivint is planning to open 20 new offices into existing as well as new markets. The company expects to install 45 MW to 47 MW during the fourth quarter, and reach the projected mark of 150 MW in the current fiscal. At the mid-point of the guidance, this represents a whopping 167% year-over-year growth going forward.

With Solar at around 1% penetration in the market, the company sees huge potential ahead, also because it has almost no pricing pressure due to the absence of competitors with the same business model. For fiscal 2015, the company shall be providing guidance during the fourth quarter earnings call. However, the company will keep increasing its domestic reach, and Greg Butterfield, CEO of Vivint Solar said:

We believe Vivint Solar is well positioned for expansion as more homeowners are choosing solar to reduce energy costs. The industry is growing rapidly and we will continue to open new offices strategically to meet demand.

The company is not reliant on any government subsidies, so that's another point in its favor as it does not include any federal subsidies in its business model.

Conclusion

Hence, it is evident that Vivint is making impressive moves to bring more customers into its fold. On the back of its smart business model, the company is installing solar panels at a fast pace, and it is growing at a faster pace than the overall industry. Finally, looking at the moves that it is making and the market's prospects, Vivint looks poised to deliver upside going forward.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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