STEM, INC. (STEM) stock intrinsic value fair value estimate & owner earnings analysis

Stem sells software and services that manage solar and battery-storage assets, and it used to sell large amounts of battery hardware as well. Its software platform covers about 36 gigawatts of operating solar and about 1.7 gigawatt-hours of operating energy storage. Annual recurring revenue from operating software and services subscriptions was $61.1 million at the end of 2025, up from $52.8 million a year earlier. Hardware is the shrinking, low-quality part of the business: hardware revenue fell 11% in 2025 to $68.6 million while services and other revenue rose 29% to $87.7 million, for total revenue of $156.3 million (revenue was $461.5 million in 2023, before the shift away from hardware). How we measured earnings. We start from cash generated by operations, remove swings in working capital such as receivables, payables and deferred revenue, subtract stock-based pay as a real cost, and subtract only the part of capital spending needed to maintain the business (mainly capitalized software development). On that basis the company has produced negative earnings in every year we could measure: minus $26.32 per share in 2020, minus $11.36 in 2021, minus $11.62 in 2022, minus $18.93 in 2023, minus $15.69 in 2024 and minus $4.67 in 2025 (all restated for the 1-for-20 reverse split in June 2025). Reported 2025 net income of $137.8 million is not earnings: it includes a $220.0 million non-cash gain from exchanging convertible notes for new secured notes and a $38.3 million non-cash write-off of accrued liabilities, and 2025 cash from operations of $6.9 million was helped by a $30.4 million release of working capital, which included $17.7 million of receivables collected and a $14.8 million reduction in project assets. We use 2025 ($39.6 million, or minus $4.67 per share) as the current level because the earlier years include the much larger hardware business that has since shrunk; the first half of 2026 supports it, with operating cash flow of minus $8.0 million versus minus $12.7 million a year earlier, on revenue that fell 12% to $62.7 million. Debt is the central issue. At the end of 2025 Stem owed $155.4 million of secured notes due 2030 at 11% to 12% interest, $118.7 million of convertible notes due 2030 and $68.2 million of convertible notes due 2028, against $48.9 million of cash. Interest expense of about $24 million in 2025 accounts for more than half of the roughly $40 million shortfall in owner earnings. Because owner earnings are already after interest, we do not subtract the debt again. Bear case (minus $12.47 per share). Earnings do not improve from the 2025 level of minus $39.6 million a year, as hardware revenue keeps falling. Cash of $48.9 million is used up, the $68.2 million of convertible notes due in 2028 cannot be repaid, and lenders take control. Three years of losses discounted at 6% total roughly $106 million, or about $12.47 per share. On this case the company owes more than the business is worth, by roughly that amount, and nothing is left for shareholders. Base case (minus $9.00 per share). Losses narrow from minus $35 million in 2026 to minus $28 million in 2027 and minus $22 million in 2028. We credit this because cost cuts are already made (2025 sales and marketing expense down 24% and research and development expense down 31%) and because $6.1 million of contracted subscription revenue is signed but not yet operating ($67.2 million contracted versus $61.1 million operating). Year 1 is a smaller improvement than the roughly $87 million gain in owner earnings the company achieved in 2025, so no reversal of a slowdown is being assumed. We do not credit any move to profit: nothing signed or demonstrated shows that owner earnings turn positive, and margin expansion is not something the company has yet done. The 2028 note maturity is treated as the end of the story for shareholders. Discounted losses of about $76 million equal minus $9.00 per share, meaning the company appears to owe more than it is worth by that amount. Bull case (plus $0.79 per share). The company's own levers work: subscription revenue keeps growing at about the 16% pace of 2025, cost cuts hold, and owner earnings move from minus $28 million in 2026 to minus $15 million in 2027, minus $5 million in 2028, then plus $5 million in 2029 and plus $12 million a year through 2035, at which point the ten-year horizon ends and nothing further is credited. That produces about $6.7 million of present value, or $0.79 per share. Even this favorable case is worth less than one dollar a share. What we left out and why. Battery hardware is treated as a business the company is moving away from, adding no growth. Artificial-intelligence software and edge-device launches are named in the filing but no revenue or contract backs them, so they add nothing. Market growth for solar and storage is not credited. Testing the case. We challenged the loss assumption against two specific facts: interest expense of $23.9 million in 2025 and the 2025 gross profit of $60.0 million against $115.6 million of operating expenses. Both confirm that operating costs still exceed gross profit, so a return to profit needs more than the cost cuts already made. Share counts use the 8.49 million weighted average and do not include shares that could be issued on conversion of the notes or exercise of warrants, which would dilute holders further if the shares gained value. What would make this wrong. If 2026 subscription growth and cost savings bring owner earnings to break-even faster than the base case, or if the noteholders agree to extend or convert the 2028 notes on terms that leave existing shareholders with a stake, the shares would be worth more than we estimate. Management states that cash and collections cover the next 12 months, and we found no reason to doubt that. Because none of the cases supports a meaningful positive value, no margin-of-safety price can be set.