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Why SolarCity Shares Plummeted

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Shares of SolarCity (NASDAQ: SCTY  ) opened down more than 11% this week after the company posted a wider-than-expected loss for its fourth quarter. Revenue for the period also came in below analysts' estimates, in what was SolarCity's first earnings report as a publicly traded company.

SolarCity, which leases solar panels to residential and commercial customers, entered the public market in December with an initial public offering price of $8 per share. Aside from this week's dip, the stock is up more than 61% year to date. That's impressive, considering that investors' confidence in the solar energy industry has deteriorated in recent years.

Nevertheless, SolarCity's fourth-quarter results proved that it's not immune to market volatility. The company posted a net loss of $1.10 per share, whereas analysts' were looking for a loss of $0.44 per share, according to Reuters. As far as revenue goes, SolarCity generated quarterly revenue of $25.3 million, which was markedly below analysts' forecasts for revenue of $36.67 million.

The company blamed the upsetting results on increases in its operating expenses during the quarter. Operating costs soared 70% to $37.9 million in the period, up from $22.3 million a year ago.

Lighting the way
However, it wasn't all bad news. SolarCity grew its customer base a whopping 243% last year, and installed more than $1 billion in solar energy systems, according to a company press release. If it can outshine this level of growth in the year ahead, current shareholders should be generously rewarded. The company also grabbed more energy contracts in 2012 with 26,327 contracts, or an increase of 269% over the prior year.

Looking ahead, new and ongoing partnerships with automakers including Honda and Tesla Motors (NASDAQ: TSLA  ) should help SolarCity further expand its customer base in the quarters to come. Together with Honda, SolarCity will finance $64 million in solar installations for Honda and Acura drivers. Separately, SolarCity is helping Tesla install its Supercharger network across the United States. Tesla's solar-powered carports let EV drivers charge their cars free in record time.

Unlike other solar stocks, SolarCity's business model offers consumers affordable solar energy options. Specifically, the company's lease model allows homeowners to reap the benefits of solar power simply by paying SolarCity a low monthly fee. This is also a plus for SolarCity, because it means the company can count on a continual stream of cash.

Given the company's solid business plan, growing customer base, and promising partnerships, I wouldn't count this energy company out just yet. One bad earnings report doesn't doom a stock for eternity.

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Read/Post Comments (3) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 09, 2013, at 10:17 AM, Burstedbladder wrote:

    How do these companies expect to stay in business and make profits is they raise the prices so high that the average homeowner and person cannot afford them. Making them is one thing, bit overpricing them to the point that you cannot sell them to the consumers is just nonsense.

    Only the rich can afford these solar panels, and in america, there aren't that many rich people, but if you lowered the prices of these solar panels, included install, these things would be selling like hotcakes.

  • Report this Comment On March 09, 2013, at 10:34 AM, 3drp wrote:

    Seems that Solar City will shortly encounter a temporary market saturation unless we see a huge increase in traditional electric costs. Too many think if you have rapid growth in one year, the next year will automatically be even better. That is not how things work in the real world.

  • Report this Comment On March 09, 2013, at 7:24 PM, ronwiserinvestor wrote:

    The solar lease sector will be facing some pretty stiff competition this year from the solar system ownership camp. Now that solar system pricing has dropped well below $1.75 a watt before incentives for a complete system, I don't see how the leasing companies will survive especially when their business model depends on them taking your 30% federal tax credit worth thousands of dollars. They will also take any and all other financial incentives such as cash rebates and REC credits. In exchange you'll typically only see a 10 to 15% reduction in your electric bill after you factor in the lease payments and you'll be stuck with 20 years’ worth of lease payments on forever ageing solar equipment that you can't sell because it won't belong to you. In fact after making 20 years’ worth of lease payments, if you want to keep the system, you'll have to buy it from the leasing company at fair market value. And good luck ever selling your home with a lease attached to it. What home buyer will want to assume your lease payment on used equipment when they can buy a brand new, state of the art system for as little as 1/3 the cost of your lease payments. Today you can buy a complete, name brand, grid tie solar system for only $1.66 a watt. And that's before any incentives. Instead of a solar lease why not get an FHA $0 down solar loan so you can keep the 30% federal tax credit and all the other financial incentives for a much better return on your investment. Oh, and that discount many of the solar leasing companies are offering you, who do you think is paying for that in the end? Right, how generous of you.

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