Enphase Energy (ENPH) shares plummeted 13.62% in pre-market trading on Wednesday, following the company's release of its third-quarter earnings report and disappointing fourth-quarter guidance. Despite posting better-than-expected Q3 results, investors focused on the company's weak outlook and ongoing challenges.
The solar technology company reported robust Q3 performance with revenue of $410.43 million, surpassing the consensus estimate of $365.81 million. Adjusted earnings per share came in at $0.90, significantly beating the expected $0.65. However, Enphase's projection for Q4 revenue in the range of $310 million to $350 million fell well short of analyst expectations of $381.44 million, sparking concerns about the company's near-term growth prospects.
Several factors contributed to the sharp decline in Enphase's stock price:
1. Weak Q4 Guidance: The company's fourth-quarter revenue forecast was significantly below Wall Street estimates, raising concerns about slowing growth.
2. Tariff Impact: Enphase reported that tariffs had negatively impacted its third-quarter margins by 4.9 percentage points, with a similar impact expected in the fourth quarter. The company currently pays over 40% tariffs for cell packs imported from China, putting pressure on profitability.
3. European Market Softness: The company noted a significant softening of demand in the European market, with revenues from the region decreasing by approximately 38% quarter-over-quarter.
4. Tax Credit Expiration: The impending expiration of the U.S. 25D tax credit for homeowner-owned residential solar panels is expected to create a seasonal trough in early 2026, affecting demand in the coming quarters.
5. Competitive Pressures: Analysts expressed concerns about Enphase's ability to compete in the third-party-owned solar market, where it faces challenges from more established players.
Despite these headwinds, Enphase highlighted some positive developments, including a 29% quarter-over-quarter increase in U.S. revenue and plans to begin shipments of new products like the IQ9N-3P Commercial Microinverter and IQ EV Charger 2 in the fourth quarter. However, these potential growth drivers appear to have been overshadowed by the near-term challenges facing the company.
As Enphase navigates these obstacles, investors will be closely monitoring the company's ability to mitigate tariff impacts, stabilize European demand, and capitalize on growth opportunities in the U.S. market. The stock's sharp decline reflects the market's current skepticism about Enphase's ability to maintain its growth trajectory in the face of these headwinds.