As embarrassingly high-profile green company bankruptcies, in recent weeks, have reminded investors that governments may be poor at picking long-term winners, it is also worth repeating that it's not easy being green. Conventional methods of producing energy are cheap, easy and reliable, and those are high hurdles for new technologies to surmount. Nevertheless, while there is ample uncertainty left, Solazyme (NASDAQ: SZYM) is a green-tech company with technology well-worth a look from aggressive investors.
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Quarterly Results are Trivial
In the larger scheme of things, Solazyme's quarterly earnings reports don't matter much right now because, frankly, there are no earnings. Solazyme did announce that revenue rose 93% from last year, but with total revenue still below $9 million, it's not all that significant. Likewise the GAAP net loss of $14 million is not so significant.

What is more significant is the $251 million or so in cash, on the company's balance sheet. Solazyme is pursuing an asset-light model, but there are still going to be substantial costs involved in developing its products and marketing them, so investors would do well to watch this item and bake assumptions of future capital needs into their models. (To know more about balance sheet, check out: Reading The Balance Sheet.)

Up and Away with Solajet
Around the time of earnings, the company also announced that United Continental (NYSE: UAL) had made the first commercial flight, with a significant usage of the company's jet fuel, Solajet. This flight used a 40% mix of Solajet and was, by all accounts, successful. Unfortunately, the cost-per-gallon is still economically a non-starter and Solazyme and partners like Honeywell International (NYSE: HON) and Chevron (NYSE: CVX), have a lot of work left to do.

By the same token, you do not go from flying Estes model rockets to a Mars landing, so it is still a significant incremental step.

Future Needs Largely in Place
One of the keys for an early-stage company like Solazyme, is quality partnerships and the company has those largely in place. For starters, the company has committed feedstock agreements for about 90% of its anticipated 2015 needs; the first year where Solazyme might be fairly expected to produce positive cash flow. (To know more about early-stage company stocks, read: Venturing Into Early-Stage Growth Stocks.)

Elsewhere, the company has signed agreements with Unilever (NYSE: UL), Bunge (NYSE: BG) and Roquette, to design and produce oils for use as petroleum, edible oils and ingredients in personal care products. Solazyme also has agreements in place with LVMH (OTCBB: LVMUY)'s Sephora and Liberty Interactive's (NASDAQ: LINTA) QVC, for its Algenist skincare line. Though it's likely not prudent to expect much from this product, and sell side analysts don't, even a little success could encourage others to join Unilever in working with Solazyme, for personal care products.

Ample Competition, but Ample Demand
By no means is Solazyme looking to do something entirely unique. The company's microalgae-based approach for turning plant sugars into oil is certainly proprietary, but there are a host of companies looking at using yeasts, advanced catalytic processes, enzymes and whatnot, to produce oils, fuels and plastics from biological feedstocks.

Amyris (NASDAQ: AMRS), for instance, is focused on yeast-based fermentation and has Total SA (NYSE: TOT) on board as a partner. Gevo (NASDAQ: GEVO) is using biocatalysts and specialized separation technology to produce isobutanol. Codexis (NASDAQ: CDXS) has partnered with Royal Dutch Shell (NYSE: RDS.A) and Cosan (NYSE: CZZ) to develop its "directed evolution technology" and develop better biocatalysts, while KiOR (NASDAQ: KIOR) is focusing on new catalytic cracking approaches; and those are just the public companies! Remember too, that larger chemical companies like E.I. Du Pont De Nemours (NYSE: DD) and BASF (OTCBB:BASFY) are keenly interested in these markets, as well as large agribusinesses, like Archer-Daniels Midland (NYSE: ADM), and specialty chemical companies, like Novozymes A/S (OTCBB: NVZMF).

The Bottom Line
As Solazyme isn't likely to produce positive free cash flow for many years, and may need to raise money before then, valuation is really a guessing game. In other words, Solazyme is a binary stock; if the technology works and proves commercially viable (and Solazyme seems to have a multi-year lead on its rivals, in terms of cost per gallon/liter/ton), the stock is more than a double from here. If Solazyme can't "crack the code" and offer an economically logical alternative to traditional hydrocarbons, there's no point in owning the stock, at all.

Given how interesting the technology is and how far along the cost efficiency curve the company has already come, this one is worth a serious look from aggressive investors.

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At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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