Why in the Heck Is SolarCity Offering a Groupon?

I get regular emails from SolarCity's (NASDAQ: SCTY  ) IR and PR groups, and I'm a Groupon  (NASDAQ: GRPN  ) subscriber as well. So when I got an email this morning that read, "SolarCity and Groupon offer first of its kind deal on solar power," I had to do a double-take. Was I awake yet? In all seriousness, it didn't really make a lot of sense at first. I expect Groupons to be half-off at the local Chinese buffet, or an 87% discount on an iPhone case.

But solar panels? 

In short, why in the heck is SolarCity running this promotion? Is it a smart decision, or should SolarCity investors take note, and think about an exit point? What does this say about Groupon? Will the next Groupon be for a new car? Let's take a closer look.


Source: Groupon website

What's the deal? 
The Groupon is worth a $400 discount, and costs $1. As of noon Eastern on May 28, more than 60 people had bought the Groupon, only a few hours after it was first announced. The Groupon is available for the next four and a half days, and must be used by August 27. Customers can only use one, but you can buy up to two more to give as gifts. In all, it's relatively typical of other Groupons, for those that aren't familiar with the service. 

Investing in marketing in the best way 
My initial reaction was, "this doesn't make much sense." But once I got beyond that, it's really a pretty brilliant move by SolarCity's marketing group. Think about it: SolarCity CEO Lyndon Rive made it very clear on the most recent earnings call that they were going to invest in marketing, and this is some of the best marketing you'll find. 

Essentially it's free, except for the $400 discount given to customers that buy, and commissions paid by SolarCity to Groupon when buyers purchase the Groupon. But that's just the tip of the iceberg. This is exactly the kind of marketing that goes viral. After all, this article is just more free publicity for SolarCity, and Groupon as well, right? Then maybe you'll share this article on Reddit or Facebook, or Tweet about it. SolarCity is paying probably less than it would cost to do a local radio spot in Los Angeles, and it's getting national media attention for it, and -- more importantly -- the kind of media that tech-savvy and more environmentally aware homeowners are likely to encounter. 

As P.T. Barnum supposedly said, "I don't care what they say about me, as long as they spell my name right." 

Groupon gets attention, too 
Groupon has really expanded its Groupon offerings over the past year, and is about much more than just the daily deal at your local pizzeria. Working with SolarCity on something that is a durable good -- SolarCity's contracts run as much as 20 years -- will bring as much attention to Groupon as it will to SolarCity. Groupon shares are down around 40% from late February, as the most recent earnings report showed a drop in profitability.

Investors are concerned that competition from peers like LivingSocial and search giant Google will continue to make it harder for Groupon to differentiate itself or offer a unique value versus the competition, and this will further erode the company's profitability. 

Final thoughts: smart marketing a sign of savvy leadership 
Even with growth targets that represent a near-doubling of the business in 2014, SolarCity isn't letting up on investing in further growth. Investors have their own fears about SolarCity's ability to generate profits. As solar prices fall in coming years, this could increase the number of cash buyers versus lease and PPA deals, which are an important part of SolarCity's business model. 

However, with only about 100,000 customers so far, and more than 40 million potential customers (business and residential) in the 15 states the company operates in today, there is a massive amount of opportunity out there. Savvy marketing like partnering with Groupon is a great way to get plenty of buzz about the company, and will expose potential customers to the company -- customers who might not otherwise have even considered going solar. 

It's these sort of savvy, "out-of-the-box" moves that set SolarCity apart from its competitors, and part of why I'm a shareholder. 

And by the way, another 30 or so have bought the Groupon while I was writing this article.

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Read/Post Comments (8) | Recommend This Article (9)

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 May 28, 2014, at 1:57 PM, ronwiserinvestor wrote:

    Pay to get a $400 discount ? A discount on what ?How about paying nothing and getting a discount that's tens of thousands of dollars lower by purchasing your system outright instead of signing an expensive solar lease contract.

    Add up those lease or PPA payments over its 20 year contract term and you'll find it to be at lease twice the cost of purchasing a system outright instead.

    So much more expensive in fact, that it is the homeowner who is "over paying" for their own system repairs and insurance many times over.

    A much better form of financing which is now beginning to sweep the nation, is $0 down solar FHA and PACE loans that offer tax deductible interest. Solar leases and PPAs don't offer tax deductible interest.

    In addition to these loans, there is now Mosaic, LightStream and Comerica bank which also offer nationwide $0 down solar loans. All of these $0 down financing options allow the homeowner to keep all of the financial incentives while the solar lease and PPA model takes all of these incentives.

    $0 down solar loans with tax deductible interest coupled with today's sub $2.25 a watt pricing after applying the ITC will dominate the solar financing industry moving forward. Not expensive solar leases and PPAs with gimmicky coupons.

  • Report this Comment On May 28, 2014, at 2:22 PM, TMFVelvetHammer wrote:

    ronwiserinvestor;

    It's $1 for the Groupon, so it's not like there's a lot of "paying" by the customer.

    I think it's also worth disclosing that you do work for a SolarCity competitor, right? You seem to put some version of the comment above on every solar article that is published on Fool.com

    You make some valid points about financing now being available, but your statements about the financial incentives is disingenuous at best.

    The reality is, the financial incentives you speak of are still factored into the pricing for PPAs and leases. It's semantics about whether the government is cutting the check to SolarCity, SunPower, NRG, or to the homeowner. What matters is whether the end pricing makes sense to the buyer, right?

    And if someone isn't willing or able to spend $20,000 to buy a solar system, and since a modern solar system will be much less viable in 20 years versus what will be available then, ownership isn't as valuable a thing as you purport.

    Yes: Financing options are changing the landscape, as will lower solar panel costs over the coming decade, but I think you're selling the PPA and solar leases a bit short.

    Foolishly,

    Jason Hall

    Article Author

  • Report this Comment On May 28, 2014, at 2:22 PM, flomop wrote:

    Great deal for someone wanting to convert, doesn't want any hassle, doesn't want to mess with installlation, maintenance, etc.

    SCTY has been a great option for alot of folks and with $400.00 gift out of the gate it should be a successful marketing campaign.

  • Report this Comment On May 28, 2014, at 3:30 PM, thaddeus wrote:

    Brilliant point about this partnership creating a viral marketing buzz. when I saw the Groupon partnership initially I thought, "why are they doing that?"

    But this is a very good move by Lyndon Rive and co.

  • Report this Comment On May 28, 2014, at 4:10 PM, ronwiserinvestor wrote:

    Jason,

    My primary point is the pricing, We obviously don't possess the buying power that the large lease/PPA players do, yet our pricing is substantially lower than theirs, (thousands, even tens of thousand lower)

    It no longer costs $20,000 to own a solar system. After applying the ITC, the cost of a modern, average sized 4.75 kW, installed system is right at $10,000.

    If the leasing/PPA companies offered the pricing that we do, coupled with their financing and added their Groupon offer, then it would be something to get excited about.

    But offering the equivalent of a 10 cent discount on a $6.00 soda, in my opinion simply doesn't make a whole lot of sense for the consumer.

  • Report this Comment On May 28, 2014, at 4:30 PM, 1492 wrote:

    Thank you for this great article Jason!

  • Report this Comment On May 28, 2014, at 4:30 PM, btc909 wrote:

    Groupon is a joke. My wife bought a Groupon for some Cake Pops in Redlands, CA. This offer was only valid one day a MONTH within certain hours. Of course my wife didn't bother to claim this offer.

    And lease or PPA is a scam & Solar City pushes you to lease or lock yourself into a PPA.

  • Report this Comment On May 28, 2014, at 10:44 PM, kdavis860 wrote:

    Before we decide SolarCity is smart and savvy, let's remember that its running a loss, not a profit

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