- Plug Power and Opower are two energy companies that are trying to revolutionize the energy sector.
- Both companies are remarkably similar in terms of their financial profiles.
- PlugPower, however, sports a much better top line growth rate than Opower.
- Plug Power appears to have better growth runways that Opower and is thus a better long-term bet for investors.
Plug Power (NASDAQ:PLUG) and Opower (NYSE:OPWR) are two energy companies that are trying to revolutionize the way people consume energy. Plug Power manufactures hydrogen fuel cells, a small market but one with lots of potential. Opower, on the hand, is a company that makes software that helps people consume less energy. Opower basically makes money by, ironically, selling its multiyear subscriptions to energy utilities.
On the surface, both companies seem to be in potentially long-term growth areas since the subject of renewable and green energy is evergreen, as it were. But alas, investors don’t quite share the same opinion. The investing world has remained skeptical about the long-term prospects of either company, and their shares have suffered: Plug Power shares are down 38.8% YTD while Opower shares are down 30.6% YTD. Plug Power has gone through it roughest patch lately with its shares plunging close to 36% after its Q3 2015 earnings miss.
Plug Power Stock Returns - 1 Month
Plug Power delivered Q3 earnings that managed to beat on the top line but slightly missed on the bottom line. Plug Power’s revenue of $31.43 million was up a healthy 58.1% Y/Y, comfortably beating analysts’ as well as its own estimates. This marked the first quarter that Plug Power exceeded top line estimates.
Despite the healthy beat, investors were more concerned about the company’s bottom line miss after posting EPS of -$0.06 against expectations of -$0.05. Plug Power has never been consistently profitable, though investors have usually paid more attention to top line performance.
Meanwhile, Opower reported Q3 2015 revenue of $38.93 million, good for 15.3% Y/Y growth and $0.76 million better than consensus estimates. Meanwhile EPS of $-0.06 was $0.08 better than estimates.
Looking at the two companies’ latest results, one thing that immediately strikes you is just how remarkably similar the two companies are--they sport quarterly revenue in the $30 million-$40 million range, both are growing their top lines in double-digits, and both are unprofitable.
Yet for all the surface similarities, the biggest and most significant difference is that Plug Power is growing its top line at a much more rapid clip than Opower, at 58% vs. 15%. Plug Power is growing much faster because of the company’s expanding customer base. Although Walmart (NYSE:WMT) remains Plug Power’s biggest customer accounting for 57% of sales, Plug Power has managed to nab other customers including Kroger, Mercedes-Benz, BMW, CVS Caremark, Procter& Gamble, FedEx. Plug Power’s sales are mostly tied to selling fuel cell power systems for forklifts and other warehouse vehicles. But things could get more interesting if hydrogen fuel cell vehicles really take off.
Hydrogen fuel cell vehicles have over the years encountered a lot of criticism, mostly from EV proponents who argue they are not as efficient as electric vehicles. But what these naysayers fail to mention is that fuel cell technology carries some distinct advantages over electric powered vehicles including the fact that they have a driving range comparable to conventional gas-powered vehicles (the best EVs can achieve maybe 270 miles tops driving range), they take about the same time to recharge as it takes to fill up a gas tank (EVs need anywhere from 2-8 hours to fully recharge), and they are far less polluting to the environment than EVs.
The biggest challenge for fuel cell vehicles going mainstream remains the high cost of building recharging stations and the high cost of hydrogen extraction. Hydrogen fuel cell technology is, however, making faster advances than electric battery technology which should help to bring down costs. And the government is beginning to commit to building fuel cell recharging stations. The state of California pledged $200 million in 2014 to build new hydrogen fuel charging stations becoming the first federal government to do so. It won’t come as a surprise if other states soon follow suit.
While hydrogen fuel cell vehicles may not replace electric powered counterparts, it remains a very viable technology for long-distance vehicles that require long range. The technology can therefore become an important compliment for EV technology rather than a competitor.
Plug Power has been responsible for building 45 of the 55 hydrogen fueling stations in the U.S. With automakers such as Toyota, Hyundai, BMW, and Mercedes-Benz planning to increase their production of hydrogen-powered vehicles, the demand for recharging infrastructure is bound to get much bigger.
Meanwhile, Plug Power’s ongoing revival is being driven by production of more efficient GenDrive units. Earlier units had been plagued by frequent breakages and short lifespans. More reliable GenDrive units should help Plug Power to progressively lower its service costs and eventually become profitable. You can read more about that in this article.
Opower’s limited growth runways
While Plug Power’s growth opportunities appears sizable, the same can hardly be said for Opower. The company’s selling opportunities are limited to utilities operating in competitive markets, vertically-integrated utilities, utilities with lost revenue adjustment mechanisms, and utilities operating in decoupled environments. Not every utility will be eager to buy Opower’s products, and this limits how fast the company can grow. The company can, however, still make some progress by expanding into international markets.
But as things stand now, I’m more willing to pick Plug Power over Opower as the better long-term bet for investors.