SolarEdge Technologies (NASDAQ: $SEDG), founded in 2006, developed the first commercially successful DC-optimized power inverters. The company, which is based in Herzliya, Israel, is responsible for many revolutionary innovations in the solar industry.
SolarEdge’s innovations include game-changing power optimizers, all-in-one inverters, and unique solutions designed to address the needs of specific commercial and residential markets. The company’s inverters are renowned for being productive, dependable, and cost-efficient compared to conventional string inverters.
SolarEdge’s inverters offer users a 99% efficiency rating, which is higher than the 93%-96% efficiency offered by traditional string inverters. Higher efficiency leads to bigger savings and a quicker payback period for the solar system.
An Overview of the Solar Industry
The solar energy industry is geared towards harnessing energy from the sun and converting it to electric and thermal energy. It is the world’s most significant source of renewable energy, and the US has some of the biggest solar resources globally.
Solar technology harnesses solar energy for various uses, including providing lighting, heating interior spaces, heating water for domestic, commercial, and industrial use, and utility-scale electricity generation.
Solar technology exists in three main categories. These are photovoltaics, solar cooling and heating, and solar concentrators. Photovoltaics use solar energy to generate electricity. Solar cooling and heating and solar concentrators use the sun’s heat energy to provide space and water heating. The heat energy can also be used to run electric turbines for power plants.
In the US, there is over 162.8 gigawatts (GW) of installed solar energy capacity. That is enough to run 29.6 million homes. In the past ten years, the US solar industry has grown by an average of 24% annually. There are over 4 million solar installations in the US, which include rooftop solar systems and utility-scale systems that can supply clean power to the grid.
SolarEdge Announces Layoffs
On Sunday, January 21, 2024, SolarEdge announced that it was laying off 16% of its workforce. The layoffs are part of a wider restructuring plan to reduce operating expenses while aligning the cost structure to existing market dynamics.
Its 16% workforce reduction will see SolarEdge let go of around 900 employees, with about 500 of them being from their manufacturing sites. These cuts are part of measures the company is taking to align operations with existing market conditions.
Previously, they shut down manufacturing in Mexico, cut back manufacturing in China, and terminated their light commercial vehicle e-mobility department. The company stated that it would provide more details in the Q423 earnings report set for release in late February 2024.
Commenting on the layoffs, Zvi Lando, the SolarEdge CEO, said that the decision had been difficult but necessary. He added that the company remained confident in the long-term growth of the solar market. Lando said, “These changes do not impact our strategic direction and priorities and we remain committed to continue to drive the renewable energy transformation, while providing best in class technology and support to our customers.”
SolarEdge’s Recent Performance
In its Q323 earnings report, SolarEdge reported a 13.3% Y/Y decline in revenue to $725.31 million. Gross profits also fell, dropping to $142.82 million, which was a 35.7% Y/Y decline and a 55% decline Q/Q. The quarter also saw a massive decline in the number of optimizers shipped to 3,266,487, a nearly 50% drop from the 6,123,479 shipped in the same quarter in 2022.
In Q323, the company reported a net loss of $61.18 million. That represented a 347.2% decline Y/ Y decline compared to the net income of $24.74 million reported in Q322. Additionally, the company’s gross margin fell by 25.8% Y/Y in Q323.
In its guidance section, SolarEdge forecasted revenues for Q4 of $300-$350 million, which would be a 63.52% decline in revenue Y/Y at the $325 million midpoint.
SolarEdge (SEDG) Stock Performance
In the past 12 months, SEDG stock has plummeted by 77.65% in value. The stock fell from a high of $345.80 at the start of 2023 to a low of $93 per share by the end of the year. Since the beginning of 2024, the stock has lost 24.63% of its value.
It closed trading on Friday, January 19, 2024, at $69.11 per share. The continuing decline led to its removal from the S&P 500 in 2023, where it was listed since 2021. SolarEdge has a market cap of $3.92 billion, a huge decline from the high of $19.64 billion at the start of 2023.
SolarEdge Revenue Decline
A major factor in SolarEdge’s revenue decline is the slowed growth in the European solar market due to falling demand and excess inventories. In the US, rising interest rates have meant that homeowners are less willing to finance their solar systems. Additionally, changes to net metering in California, the biggest solar market in the US, have reduced demand for solar installations.
SolarEdge (SEDG) Stock Forecast
Stock analysts give SEDG stock an overall ‘Hold’ rating. They predict a broad target for the stock, with a high of $384 and a low of $33.46. Their median target for SEDG is $89, a 28.82% upside.
Should You Add SEDG Stock To Your Portfolio?
The solar industry has faced unprecedented headwinds over the past year after over a decade of double-digit growth. Its slowdown can be attributed to two main factors. First is the high-interest rate environment, which has reduced demand, as most solar systems are financed. Second is the change to net metering rules in European countries and California, which makes solar systems less lucrative.
However, the company’s fortunes could soon turn around, as there are strong signals the Fed could start lowering interest rates. Additionally, SolarEdge has substantial cash reserves, which would allow it to scale up fast when demand comes back. However, that may still be months away. Consequently, the analyst’s advice that potential investors adopt a wait-and-see strategy is sound.
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