The share price of SolarEdge Technologies Inc.(Nasdaq:SEDG) continued its upward path, climbing 3.2% on Nasdaq to a record $47.45 and pushing the Herzliya-based company's market cap above the $2 billion mark, less than three years after SolarEdge held its IPO at a company value of $685 million.
SolarEdge develops and manufactures solar energy optimization and monitoring systems. The company's system facilitates better utilization of energy in solar collectors by optimizing the functioning of each one of the collectors, while providing real time information about their output.
SolarEdge published its expanded K10 report for 2017, reflecting the company's good performance in that year. The company's share price more than tripled in 2017, after finishing 2016 with a minus 56% return.
Several SolarEdge executives, including founder, chairperson, and CEO Guy Sella, exercised options and sold shares in the company this week. Sella exercised options he received before the company went public at a strike price of $1.50-5, and sold shares at an $8.5 million profit.
Key figures
The rise in SolarEdge's share price is also reflected in the exercising of options by the company's employees. According to the expanded report, SolarEdge employees exercised options for 1.6 million shares in 2017 at an average strike price of only $2.70 per share, while the average price during the years was $22.85, putting the benefit gained by exercising the options at $35.4 million. Only 134,000 options were exercised in 2016, representing a $2.3 million benefit.
At the end of 2017, when SolarEdge's share price was $37.60, SolarEdge's employees held 2.4 million options that were immediately exercisable and were in the money. The average strike price for these options is only $5.58, meaning that they reflect a value of $77 million (based on the share price at the end of 2017). SolarEdge allocated 4.8 million options in 2017 at an average strike price of $16.80.
SolarEdge's expanded report shows a large increase in its personnel from 718 at the end of 2016 to 1,007 at the end of 2017, a 40.3% rise in one year.
SolarEdge had 606 employees in Israel at the end of 2017, 167 more than at the end of 2016, a 38% increase. The company increased the number of its employees in every geographic area in which it is active. The number of its employees rose 26.5% to 143 in the US, 33.9% to 83 in China, and 44.1% to 49 in Germany. The steepest rise in the company's personnel was for the rest of the world - 80% to 126.
Decline in revenue in North America
SolarEdge is expanding its business outside the US. In a conference call by the company following the publication of its recent reports, Sella stated that its revenue would fall 50% in 2018, compared with 57.5% in 2017 and 66.8% in the second half of 2016.
According to Sella, the company's long-term model sets a target of equal revenue in North America, Europe, and Asia, and he predicted that the company would achieve this target in 2019-2020. "We’re in the right direction for this revenue composition,"Sella said at the conference call.
Meanwhile revenue from Europe accounted for 21.1% of the company's total 2017 revenue, while revenue from the Netherlands, reported separately, accounted for another 11.5%. Revenue from the rest of the world totaled $59.7 million, 9.5% of total revenue, up from 7.9% in the second half of 2016.
"Since we started doing business in 2010, our strategy has focused on markets in which electricity prices and government policy make installing photovoltaic solar energy systems economically worthwhile. Our products are currently installed in over 120 countries," the report states.
With respect to the US, the company cites a possible risk that 30% customs duties could be imposed on solar energy equipment, as was determined last month. According to SolarEdge, customs duties do not directly affect its products, but whether they will lead to a rise in prices for solar energy systems in the US is uncertain, and such a rise could detract from the demand there for SolarEdge's systems.
Another risk cited by SolarEdge as affecting its business is "the rapidly developing competitive situation," which is complicating the company's efforts to make future projections. One of SolarEdge's competitors is Chinese giants Huawei.
The report indicates that SolarEdge reduced its dependence on large customers over the past year. Its three largest customers now account for $181 million in revenue, 29.9% of the total, down from 32.5% a year before. On the other hand, revenue from US company CED, SolarEdge's largest customer, grew 11.2% in 2016 and 14.8% in 2017.
With the publication of SolarEdge's reports last week, Sella said that the company overcame a challenging year with respect to the availability of the components necessary for the industry, and had bolstered its production capacity. In its expanded report, the company stated that it had rented 10,000 square meters in Israel for a production facility, in which a prototype of the product and testing equipment would be manufactured. The facility is currently in development. SolarEdge added that its existing production lines were enough to produce over 4,000 optimizers daily per machine.
Positive analysts consensus
Even after the recent surge in SolarEdge's share price, which includes a 26.4% rise in 2018, most analysts are favorably disposed towards the company and give positive recommendations for it. For example, Oppeheimer wrote last week that SolarEdge was increasing its market share and improving its gross profit margins, and boosted its target price for the share from $38 to $50.
At Goldman Sachs, however, the attitude is different. Analyst Brian Lee recommends "Sell" for the share with a $27 target price, 43% lower than the current share price. He raised his forecasts for the company by 12% after the publication of its results, but retained his negative recommendation.
"We still take issue with the consensus, believing that competition will intensify and generate risk of a downside in net profit per share, starting in the second half of 2018," Goldman Sach's wrote in its recommendation. Lee added that SolarEdge had confirmed that Huawei was in the market, and that investors were ignoring the risk to SolarEdge's profit margins and market share.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 25, 2018
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