STEM INC. DL-,0001

Stem's Athena PowerBidder Pro has been awarded with the 2023 New Product Innovation Award in the North American power equipment performance optimization industry by Frost & Sullivan, a leading global research and growth consulting firm.

Frost & Sullivan evaluated independently based on the following criteria: New product attributes (match to needs, reliability, quality, positioning, design) and Customer impact (price/performance value, customer purchase, ownership and service experience and brand equity).

The report states that, “Stem’s new PowerBidder Pro software sets it apart from its competitors, with superior design, reliability, and quality. This groundbreaking bidding software helps directly manage energy storage assets (standalone, co-located with solar, or hybrid), and optimize trading performance in a simple, secure, and scalable way.”

Source:

Stem - Investor News

Stem is currently the worst-performing position in this Wikifolio. I would like to point out that the market capitalization does not reflect the company’s solid financial data. Stem is currently one of the most shorted stocks, with 30 percent of all outstanding shares being shorted. For comparison, Beyond Meat has a short interest rate of 40 percent, but their business performance justifies this. Beyond Meat's second-quarter revenue was down 30 percent year over year. In my opinion, Stem's valuation is too low, and in this post I want to highlight some fundamentals for Stem.

Recent Business Highlights

• Stem and SB Energy have entered a multi-year technology and commercial alliance, where Stem will provide its AI-driven power management software for 10 GWh of SB Energy’s energy storage pipeline across North America.
• EDP Renewables (“EDPR”) announced a 23 MW Solar plus 60 MWh Storage Project for Mohave Electric Cooperative (“MEC”), a not-for-profit distribution cooperative in Arizona. EDPR’s energy storage system will be operated by Stem’s AI Software Athena, to monitor and dispatch into high-demand time periods. In addition, MEC will be using Stem’s PowerTrack solar management application within Athena for AI-driven solar forecasting.
• NineDot Energy selects Stem’s AI-Software Athena for the first battery energy storage site in Bronx, New York (anticipated 700MWh) to maximize the value of their renewable energy assets. NineDot Energy owns and operates a 3 MW battery energy storage system, a solar canopy, and infrastructure ready for bi-directional electric vehicle chargers

Operating Highlights

• Bookings of $676.4 million, up from $222.9 million (+203%) in Q3 2022 and up from $236.4 million(+186%) in Q2 2023.
• Contracted backlog of $1.84 billion at end of Q3 2023, up from $817.2 million (+125%) at end of Q3 2022 and up from $1.36 billion (+35%) at end of Q2 2023.
• Revenue of $133.7 million, up from $99.5 million (+34%) in Q3 2022 and up from $93.0 million (+43%) in Q2 2023.

Contracted Backlog is defined as Total value of bookings in dollars, as of a specific date. The Backlog increases as new contracts are executed (bookings) and the Backlog decreases as integrated storage systems are delivered and recognized as revenue. Stem’ Revenue is $294 million for nine month ended 2023, that means there contracted backlog ($1.84 billion) is 6 times the company’s revenue. In terms of the ratio of revenue to contracted backlog, Stem is undervalued compared to its competitor Fluence Energy. As of June 2023, Fluence had a total backlog of approximately $2.9 billion 2023 and Revenue was $1.5 billion, resulting in a R/B Ratio of 1.9. Their total Backlog increased 38 percent in Q3 2023, up from $2.1 billion as of June 30, 2022.

Personally, I think that a significant portion of revenue in the renewable energy sector will be generated by software, especially Artificial Intelligence. The battery storage market is highly competitive, and energy software companies have a competitive advantage here. Furthermore, the profit margins in software are higher than in hardware. Both Companies make most of their Revenue with Battery Storage, but Stem’s Software Revenue is larger than that of its competitor.

Stems Service nine-month revenue increased to $47.6 million, up from $36.1 million a year ago. Service revenue as percentage of total revenue is 16.1%.

Fluence Energy’s nine-month revenue from digital applications and solutions increased to $3 million, up from $1.5 million a year ago. Digital applications and solutions revenue as percentage of total revenue is 0.2%.

Despite inflation and interest rates are at record highs and companies facing macroeconomic uncertainty that hindering investment decisions, the data from both companies show strong demand for battery.

Sources

Stem - Investor Relations

Fluence Energy - Financial Information

Marketbeat - STEM Short interest

Marketbeat - Beyond Meat Short Interest

Yahoo Finance - Most shorted stocks

The quarterly Clean Power Report, published by the national American Clean Power Association (ACP) shows a significant increase in large-scale battery energy storage system (BESS) deployments during Q2 2023, totaling 1,510MW. In Q1 ACP reported 554MW of grid-scale installations, while installations in Q4 2022 were 848MW. This notable growth in the energy storage pipeline can be attributed in part to the impact of the Inflation Reduction Act (IRA), which, for the first time, includes investment tax credit (ITC) incentives for standalone energy storage, according to ACP.

The United States has now surpassed 11GW of cumulative installed grid-scale battery storage. By the end of 2022, these numbers, as reported by ACP, stood at 9GW. While both solar and wind installation figures declined year-on-year compared to Q2 2022, with solar decreasing by 1% and wind by 24%, grid-scale battery storage installations experienced 32% growth during this period.

At the end of 2022, hybrid projects, primarily combining solar and batteries, constituted 70% of the total energy storage development pipeline. However, by Q2 2023, this percentage had decreased to 56%. ACP also noted that more than 60% of the 3GW of new storage projects introduced to the pipeline in the past quarter are standalone storage assets.

Sources:

Energy Storage News - Grid Scale quarterly report