What: Shares of the largest residential and commercial solar installer in the U.S. SolarCity (NASDAQ:SCTY.DL) are down 24.5% at 1:30 p.m. EDT on May 10, following the after-hours release of the company's first-quarter results on May 9.
So what: While SolarCity reported much stronger growth than anticipated, there wasn't much else for investors to be happy with in the first quarter.
The company had forecast it would deploy 180 MW in the quarter, good for 18% growth, but instead it delivered 214 MW, up 40% from last year. However, its sales and marketing team only booked 160 MW of new business in the quarter, as the company spent the first few months of the year navigating a number of challenges, including the loss of Nevada as a key growth market, as well as changing regulations in numerous key solar states and the extension of the federal solar tax incentive.
The uncertainty in the first quarter that drove weak bookings also meant the company's cost-per-watt -- the measure of how much its different expenses, such as sales/marketing, installation, and general/administrative, cost in on a per-watt basis each period -- jumped to its highest level in two years. The biggest driver by far was the company's sales expense, which, on a per-watt basis, nearly doubled to $0.97 per watt and was up 46% in total dollars. The biggest concern here is that management had committed only a few months back to start backing off on its sales/marketing expense growth.
While this increase is certainly concerning, the bigger catalyst behind today's drop was the reduced guidance for the full year. When SolarCity reported 2015 full-year earnings, management guidance for 2016 included 1.25 GW of capacity installed this year. Unfortunately, the very weak bookings in the first quarter led management to acknowledge that it will be difficult to "make up" for lost time before the end of the year. The updated guidance is for 1.0-1.1 GW for the full year.
Now what: Frankly, it was a mixed bag, and management has a lot of work to do if the company is going to achieve the goals it has lined out over the next year-plus, but things probably weren't as bad as they seem, despite the fodder the company gave to short-sellers in its weak bookings and increased per-watt costs.
For instance, the company did deliver slightly lower sales and marketing expenses sequentially, down 2% from the fourth quarter. CEO Lyndon Rive also said that after a very weak first two months of bookings (in the midst of the company's efforts to reposition itself in the aftermath of Nevada), bookings are up 25% in the past two months. On the earnings call, he also emphasized that its installation costs on a per-watt basis were actually down by segment, but a higher mix of commercial business skewed the total results in the first quarter.
Bottom line: It's important to remember that the first quarter was full of change and uncertainty, and there's a lot of context to the results that should be considered. But at the same time, SolarCity management has set some aggressive goals in terms of both growth and cost-containment, and its results this quarter were a step backward on some of those goals. Stay tuned for an in-depth look at SolarCity's quarterly results in the very near future.