SolarCity Corp. (SCTY, Financial), a popular name in the US solar energy service sector, recently reported its financial results for the fourth quarter and full fiscal year ended December 31, 2014. The company posted a net loss of $3.6 million translating to 4 cents per share for Q4 2014, compared to a profit of $26.7 million or 28 cents per share from the last fiscal. SolarCity has logged in losses in six of the last eight quarters since its IPO in December 2012, with the company directing most of its revenue into new systems that would prove profitable in the long-term. Following the announcement of results, the SolarCity stock dropped 6.9% to $54.10 per share during after-hours trading.
Infrastructure, Inventory Expenditure Drags Down Revenue
Although SolarCity’s 52% revenue growth to $71.8 million from $47.3 million if FY2013 is in-line with expert consensus estimates, the company missed on the earnings front. While the consensus estimates had predicted a loss of $1.26 in earnings per share, SolarCity logged in an EPS loss of $1.33 per share, excluding non-recurring items. The company attributed the loss to increased investments in its first panel manufacturing facility and new power systems for residences. SolarCity acquired solar panel manufacturer Silevo for $200 million in 2014, and plans to start work on a production facility in Buffalo, New York in September 2015. The new factory is expected to turn out around 1000 megawatts (MW) of panels a year.
Further, the company added 176MW in electric capacity in the fourth quarter, up from the prior-year quarter’s figure of 103MW, of which 147 megawatts were residential projects. However, the figure missed the company’s own forecast of installing 179-194MW of panels, owing to construction delays.
SolarCity also more than doubled its installations under contract to 206MW. The company raked in $5 billion in contracted customer payments in the fourth quarter, up $837 million from the prior quarter and translating to a 20% year-on-year growth.
The jump in panel installations in 2014 comes with an impending drop in solar-tax credit on commercial and residential properties from the current 30% to 10% in 2017. While the company saw a more than double growth in revenue from leases to $49.2 million, sales of its solar energy systems dropped 9% to $22.6 million.
Outlook for Q1 2015 and beyond
For the year 2015, SolarCity aims to nearly double the 502MW of panels installed in 2014 to 920-1,000MW, with 145MW of panels being installed in the first quarter. The company also foresees revenues from operating lease and solar energy system incentives in Q1 2015 to lie in the range of $47- $52 million, while revenues from the sales of solar energy systems and components are expected to bring in $6-8 million. With a projected operation expenditure of $148-$156 million in the first quarter, company estimates peg the non-GAAP earnings per share in the $1.65-$1.75 per share range.
In a bid to move away from the leasing model that has contributed a major portion of the company’s revenue, SolarCity started offering loans to customers preferring to own rooftop solar systems during the fourth quarter. Foreseeing these loans to comprise half of its business by mid-2015, the company secured a $200 million financing deal in January to support operations. Further, the company, which added 21,318 customers in Q4 2014 and 190,000 customers during the full year 2014, expects to enlist 1 million clients by mid-2018.
Final Thoughts
Although high demand for the installation of solar photovoltaic systems has been a key factor in SolarCity’s rapid growth in the last few years, the company has lately been under pressure from competition from other solar energy providers such as SunPower Corp (SPWR, Financial) and Vivint Solar Inc. (VSLR, Financial). Consequently, the sector has become a tough market to survive in for the short term. Experts foresee the company’s loss-making streak to continue, with SolarCity logging in negative earnings per share through the next couple of years. Consequently, the SolarCity stock currently carries ‘sell’ guidance from experts. Through the close of trading on Wednesday, the company's stock has dropped almost 29% over the last 12 months.
