Is Small Cap Cloud Stock Opower Inc (OPWR) Better Than Smart Meter or Grid Stocks? ITRI, ELON & ENOC

Small cap cloud stock Opower Inc (NYSE: OPWR), a cloud solutions provider to the utility sector, IPO'd at $19 on Friday to close at $23 a share, meaning its worth taking a closer look at the stock plus take a look at the performance of smart meter or smart grid stocks like Itron, Inc (NASDAQ: ITRI), Echelon Corporation (NASDAQ: ELON) and EnerNOC, Inc (NASDAQ: ENOC).

What is Opower Inc?

Small cap Opower Inc combines a cloud-based platform, big data and behavioral science to help utilities around the world reduce energy consumption and improve their relationship with their customers. Opower Inc partnered with its first utility client in 2007 from a rented desk in San Francisco and now works with 93 utility partners to reach more than 32 million households and businesses across eight countries. This includes 27 out of the 50 largest utilities in the United States, including Commonwealth Edison, Duke, First Energy, National Grid, PG&E, Southern California Edison and Southern Company, as well as E.ON, EDF and Energy Australia internationally.

As for smart meter or smart grid stocks that investors could consider as an alternative, Itron, Inc provides comprehensive solutions that measure, manage and analyze energy and water; Echelon Corporation develops, markets and supports open standard, multi-application energy control networking platform; and EnerNOC, Inc is a leading provider of Energy Intelligence Software (EIS) and technology.

What You Need to Know or Be Warned About Opower, Inc  

Opower Inc was priced at $19 a share, at the top of its $17.00 to $19.00 per share range, selling 6.1 million shares in the IPO (underwriters have the option of buying another 915,000 shares) to raise $116 million. On Friday, the stock opened at $25 per share before closing at $23.

Moreover, Opower Inc has gotten its share of positive coverage with one Wall Street Journal article (How Energy Upstart Opower Bested Google and Microsoft) pointing out that consumers in the company's programs had saved $234 million on their utility bills last year and took 1,900 gigawatt-hours off the grid - roughly enough to power 190,000 US homes for a year. Another WSJ article about The Wall Street Journal's ECO:nomics conference noted that at last year's conference, attendees vetted six startup companies and voted Opower Inc as the one most likely to succeed.

However and while Opower Inc's prospectus (available here) notes that the company has reported revenues of $10,636k (2010), $28,746k (2011), $51,756k (2012) and $88,703k (2013) along with net losses of $13,663k (2010), $21,297k (2011), $12,332k (2012) and $14,161k (2013) due in part to the following risk factor:

We also anticipate negative operating cash flow for the foreseeable future, as we expect to incur significant operating expenses in connection with the continued development and expansion of our business. Many of these expenses relate to prospective customers that may never contract with us, as well as products that may not be introduced, that we may choose to discontinue, that may fail to achieve desired results or that may not generate revenue until later periods, if at all. We may not achieve or sustain profitability on a quarterly or annual basis.

In addition, the prospectus noted:

For the year ended December 31, 2012, our ten largest customers by revenue represented 61% of our total revenue, with two clients, National Grid and Pacific Gas and Electric Company ("PG&E"), representing more than 10% of our total revenue at 15% and 14%, respectively. For the year ended December 31, 2013 our ten largest customers by revenue represented 62% of our total revenue, with three clients, National Grid, PG&E and Exelon each representing more than 10% of our total revenue at 14%, 13% and 11%, respectively. Many of our fees are not due until we have actually begun to deliver our solutions and, as a result, are subject to delay.

And that:

Sales cycles for our products tend to be long and unpredictable. Even after we have convinced prospective customers of the need for, and value of, our products and solutions, our customers are large organizations that frequently have extensive budgeting, procurement, competitive bidding, technical and performance reviews and regulatory approval processes that can slow down the sales process by months or even years. Utilities may choose, and many historically have chosen, to follow industry trends rather than be early adopters of new products or solutions, which can extend the lead time for or prevent acceptance of more recently introduced products or solutions such as ours.

It was further noted that Opower Inc's typical sales cycle across contracts sold in 2013 was 6 to 24 months which makes it "difficult to forecast new customer implementations and deployments, as well as the volume and timing of future agreements" plus the company's customers, products and solutions are subject to many federal, state, local and foreign laws and regulations.

Share Performance: Opower, Inc vs. ITRI, ELON & ENOC

On Tuesday, small cap Opower Inc fell 1.1% to $21.51 (OPWR has a 52 week trading range of $21.00 to $26.00 a share) for a market cap of $1.02 billion. Here is a look at the performance of small cap smart meter or smart grid stocks Itron, Inc, Echelon Corporation and EnerNOC, Inc:

As you can see from the above performance chart, the performance of all three stocks has been rather flat since the beginning of 2013 after trending downward since early 2010.

Finally, here is a look at the latest technical charts for all three small cap smart meter or smart grid stocks:  

The Bottom Line. Small cap Opower Inc may have been voted the most likely to succeed at last year's Wall Street Journal's ECO:nomics conference, but the performance of smart meter or smart grid stocks in general should have conservative investors treading more cautiously.