Strange Beasts: Making Sense of PAYGo Solar Business Models
This paper focuses on the financial analysis of pay-as-you-go (PAYGo) companies that span multiple sectors and fuse manufacturing, retail, and finance operations. Engaging across business areas that require distinct competencies can be distracting for the management of any company. PAYGo companies also face challenges because a large chunk of their core activities (financial and to a lesser extent energy) are in highly regulated areas. In addition to the management complexities, this existential murkiness poses an important challenge for investors tasked with evaluating integrated businesses with constituent parts that cannot be easily analyzed. At the same time, disaggregating PAYGo lenders entails risks and benefits.
With the emerging prominence of a logical, but complex, business model (vertically integrated, lease-to-own) that fills a gap in the market, there is an opportunity to address two key questions:
- What are the operational implications of vertical integration in the PAYGo business model?
- How can companies and investors assess the financial performance of PAYGo lenders?
This business model presents several challenges: large general and administrative expenses, slowing growth in core markets, and high cash burn rates. This paper explores whether these and other issues could be the result of a mismatch between activities and competencies. As such, the paper outlines the beginnings of an analytical framework that could help the companies themselves and the investment community differentiate between good and bad performance. It is based on dialogue with PAYGo providers, is built on sound theories, uses financial models grounded in real-life companies, and draws parallels from case studies in other sectors.