Hate is not a word I use very often, but in general I HATE buzzwords, particularly those that take hold in business. The first time I heard “reach out” used on a conference call I was sick of the phrase even by the end of that first call, and I was longing for somebody to say “call” or “e-mail” just once when that was what they meant. That encapsulates the problem. To a writer, which I guess I am, anything that has the amazing ability to become a cliché in 15 minutes is a dangerous and distinctly unappealing thing.
When it comes to investment decisions, however, I have a theory that makes me a fan of the dreaded buzzword. If a company, particularly a young one, offers “solutions” (there’s another one!) in a market that has itself morphed into a buzzword, then, for a while they will have no problems finding buyers for their stock. When an IPO comes along for a company that hits multiple buzzwords, therefore, it pays to take notice.
Opower (OPWR) will debut today and if my theory is correct the stock will do fine in the coming months, whatever the valuation. Opower, you see, offers solutions to energy conservation and demand management problems through cloud based, smart grid software. Wow! That really makes me want to reach out to them!
Joking aside, it is likely that OPWR will continue the run of successful IPOs, particularly if viewed with a three to six month time span. I add this caveat for a reason. OPWR will price, surprise, surprise, at the top of its forecast $17-19 range. Grubhub (GRUB), which will also debut today, raised their target range just this week but still priced at just above that higher $23-25 range, at $26. In the current environment, GRUB will probably open higher than the issue price, but it looks a little expensive for what is a very easy platform and business to replicate.
I’m not saying that this is indicative of a bubble about to burst, but sooner or later the great conditions for initial offerings will result in some degree of over-supply and those ever higher initial prices will start to look expensive and the focus will shift back to fundamentals This is just in the natural, self-correcting nature of markets.
In the case of Opower, however, a well run company with a solid, proven business model, the fluctuations of the IPO market or the trendiness of the buzzwords will not have any long term effect on the ability of the company to make money; the products they offer will. Their suite of products enables utility customers to make smart decisions about energy efficiency by breaking down the bill to show where power was used. The aforementioned demand management capabilities allow the utilities themselves to compensate for peaks in demand, potentially reducing the need for investment in new capacity.
What you will notice is that the primary customers of Opower are utilities. Now, power companies are not known for their reckless pursuit of fads as they surface. They are inherently conservative corporations, so the fact that the first 100 or so customers of Opower have remained loyal tells me that the company is doing more than just hitting buzzwords.
There is one thing that I don’t like about the OPWR IPO and regular readers will be familiar with this complaint. I am an old fashioned type, so I prefer my company founders and private owners to demonstrate their ability to perform the most basic function of a corporation, making money, before going public. If Opower were a one trick pony and investing involved betting on them turning a profit in an unproven market then I would probably pass, but there are examples of profitable companies in each same field.
Enernoc (ENOC), a demand management specialist, for example has been a rollercoaster ride for investors for a few years, but has a solid looking EPS of $0.74. The presence of established competitors who already make money could be considered a downside for the stock, but the loyalty of existing companies and the range of products offered and envisioned by Opower are enough to convince me that they can at least get their share of a growing market.
The thing is, nothing is ever simple. Investing always involves weighing both positives and negatives and, therefore, some type of compromise. Similarly, despite my visceral dislike of anything that becomes a buzzword and distrust of IPOs of companies that lose money, I still have to recognize the potential of something like OPWR.