There are two words with four letters that many investors wish they never heard this week: "Elon" and "Musk." The chairman of SolarCity (NASDAQ:SCTY) and CEO of Tesla (NASDAQ:TSLA) isn't having a good week, as both companies' shares took a bath following their respective earnings reports.
In the week before its earnings report, shares of SolarCity were up more than 400% since its IPO earlier this year. Investors were hoping and betting on a blowout earnings report and further rally, like they saw with First Solar (NASDAQ:FSLR).
Shares of First Solar were already up around 100% to $50 over the last 12 months going into its third-quarter report. Its earnings came out after hours on Oct. 31 and blew the Street away. Shares of First Solar took off like a rocket, rising as much as 24% since.
First Solar net sales were up over 200% year over year, and even up 74% compared to the sequential quarter just prior. First Solar's adjusted EPS was $2.28, up an astonishing 516% compared to last year and 128% compared to its second quarter.
That was clearly a great report. Sometimes, when one company in an industry has fantastic results, investors speculate that its competitors will report similar and the stock price will make a similar move. That failed to happen with SolarCity, and shares got clipped following the results.
SolarCity reported its third-quarter results on Nov. 6. Its revenue was up 52% to $48.6 million, beating analysts by a good $6 million. It was also a tad higher than the upper-end of its guidance given in August. Adjusted net loss was $0.43 per share, a slight beat compared to analyst expectations, but in the mid-range of its guidance of $0.30 to $0.60 net loss.
Investors were hoping that since it was the first time SolarCity gas an EPS forecast that would was being conservative. SolarCity issued a press release after the quarter ended on Oct. 16 announcing that its solar panel deployments had beaten the upper range of its previous guidance, so naturally investors expected that revenue and income would beat as well. Their expectations weren't met.
SolarCity disappointed investors further with its fourth-quarter guidance. It expects revenue of between $40 million and $46 million or less than the third quarter. SolarCity expects a net loss of between $0.55 and $0.65 per share. The bright spot is that it reiterated its expectation for net positive cash flow.
Tesla reported its third-quarter results on Nov. 5. It had an 18% increase in sequential revenue over the second quarter, excluding federal zero emission vehicle (ZEV) credits. Gross profit margin was 21%, excluding ZEV credits, up from 13% and higher than the 19% originally forecasted by Tesla. Adjusted net income was $16 million or $0.12 per share.
Given how small the EPS is compared to the stock price, the Street is most focused on the top-line results -- hence its disappointment. Investors were hoping for and expecting a blowout report, even though Tesla beat its own guidance by 10%, with 5,500 vehicles delivered.
Tesla stated that battery production is the only thing holding it back from higher production and deliveries, and that's being fixed now. An interesting tidbit from the report stated, "Production in the quarter significantly exceeded deliveries in order to fill the pipeline of vehicles in transit to Europe and provide cars for service and marketing uses."
No further details were given. This suggests production may have actually been the blowout investors were hoping for, but it didn't translate into revenue because accounting rules require that only sold and physically delivered vehicles, not just those produced, can be included in the sales figures. Any produced but unsold cars would still be on the inventory line of Tesla's balance sheet. It is interesting to note that its inventory figure did indeed grow by $93 million, or 37%, from $255 million to $348 million.
Foolish final thoughts
Betting against Elon Musk companies, before this week, has generally resulted in financial disaster. If you believe in the future of Tesla or SolarCity, now may be a time to watch for a potential entry. Look for updated guidance and other milestones to be met, since both stocks have a lot of speculation priced into them. Failure in any one area can be brutal to their stock prices, so be careful to monitor all developments carefully.