Following a promising first quarter earnings report, shares of SolarCity Corp jumped yesterday. Unlike First Solar, which posted a strong first quarter only to have its shares drop in value the next day, SolarCity has sufficiently captivated investors with its potential for growth.
With a total of 649 MW of panels installed across 15 states, SolarCity has experienced a 107 percent growth over last year. Within the first quarter alone, it increased its bookings by 34 percent and more than doubled its revenue to $63.5 million.
Before we get into the revenue, though, we should concentrate on the growth of SolarCity's scale, because it is the figure that excited trading on Thursday. SolarCity expects to deploy 105 to 110 MW during the next quarter, and between 500 and 550 MW for the full year 2014. The company expects to be up to a gigawatt by the end of 2015.
The gigawatt has become a common target for solar projects. In March, the Saudi Arabian government announced its aspirations to sink over $100 billion into a gigawatt-sized solar footprint by the end of the year. At about the same time the Solar Energy Corporation of India said it planned to build a gigawatt factory in the Andhra Pradesh state within the year. Likewise, the UK's Department of Energy and Climate Change plans to build a gigawatt of rooftop solar on government buildings.
But with SolarCity, it isn't a grandiose goal set for corporate installations. Rather, it's an organic growth target among a growing residential customer base.
As I noted earlier, SolarCity's bookings grew by 34 percent in the quarter, and a whopping 80 percent of that belonged to residential customers. It closed out the quarter with a total of 100,609 energy contracts and 110,662 customers.
Still, it should be noted that operating expenses grew hugely year over year by 139 percent to $81.8 million. This exceeded expectations, and SolarCity blamed it on “an accelerated ramp in sales headcount throughout the quarter as well as higher than forecast stock compensation expense.”
So this raised operating cost can be viewed as fuel for the forecasted growth.
It was compounded by the fact that SolarCity actually experienced a sequential decline in sales volume, which drove up the per watt operating expense to $0.64/W during the quarter. This is blamed on the harsh and often unpredictable weather in the midwest and east coast markets during the winter.
Fortunately, we're heading into a hot and dry summer.
As the company's literature points out, “economics of scale are the primary driver of reduction in average cost per watt,” So when volume grows, the cost per Watt will drop. The company expects volumes to increase throughout the year, and costs should be expected to decline at the same time.
SolarCity expects to deploy 105 to 110 MW during the next quarter, with operating expenses ranging between $100 and $110 million. It also expects earnings per share to drop between $0.90 and $1.00 in the quarter.
Though there was a net decrease in cash of $57.53 million, SolarCity still closed out the quarter with a strong $520 million positive balance and $300.3 million owed in long-term debt.