SolarCity (SCTY.DL) has made a habit of exceeding its own expectations this year, and it has done so again in the third quarter.
When SolarCity released its second-quarter numbers, it expected to install between 70 MW and 77 MW during the third quarter and about 270 MW for all of 2013. On Friday, the company said it actually installed 78 MW last quarter and will install 278 MW this year. To give the rally even more fuel, management predicted 475 MW to 525 MW of installations for 2014, up to 89% growth over this year.
This is big news, folks
A couple of weeks ago, I tried to put a value on SolarCity based on past installations and future growth. I projected a 50% growth rate next year and got a value of $5.7 billion for the company, but today's release blows that out of the water.
If I just change this year and next year's numbers and keep growth rates beyond that constant, I now get an $8.0 billion valuation, more than double today's market cap. That's how big a deal Friday's release was and why the stock was up 23% on the day.
The reason growth changes SolarCity's valuation so much is that growth and retained value per watt are really the two levers the company can pull to boost their value. Each installation is a small cash generator, and the faster you can build those generators, the more SolarCity is worth. By the same token, the more value you can generate from each cash generator, the better.
We didn't learn anything new about retained value per watt on Friday (that will come from the earnings report), but growth is going gangbusters, and that's half of the puzzle for SolarCity.
What does this mean for solar?
We now know about where SolarCity sits for the third quarter, but what does this mean for everyone else in the industry?
SunPower (SPWR -3.09%) will likely benefit from growth in residential and commercial installations as well, although not to the extent SolarCity is growing. SunPower's residential and commercial business in the U.S. is about half the size of SolarCity, and it isn't growing as quickly. I'll be watching what the company's management has to say about this business during the company's earnings conference call on Oct. 30, because this could be a major differentiator if SolarCity is taking even more share from SunPower.
The other winner from today's release is Trina Solar (NYSE: TSL), a major supplier to SolarCity and a company that makes panels that are Zep-compatible. Zep is the racking company SolarCity bought this week to standardize its own installations, and being compatible with Zep is a huge advantage for Trina Solar's partnership with SolarCity.
Foolish bottom line
It's almost mind-blowing how fast SolarCity is growing right now. Part of it has to do with acquisitions, some has to do with improved efficiency, and some of the growth comes from the competitiveness of solar power versus traditional energy. The bottom line is that SolarCity is one of the best ways to play the industry and is one of only a few solar companies even worth considering investing in. I think SolarCity could be worth double what it is now, but even that may be blown out of the water if it continues to grow this quickly.
