SolarCity IPO Investment Opportunity

Only 8 Days Left!

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Friday, November 30th, 2012

The big news in modern energy next week will be the debut of SolarCity.

SolarCity is one of the largest solar installation and leasing companies in the nation, and on December 12 — just eight trading days from now — it will go public, trading under the symbol SCTY.

Those who have felt the sting of an imploding solar bubble this year, as well as those who never liked the idea of solar to begin with (and were quite vocal about it back in 2006 and 2007 when we were making money hand over fist), have already written off the IPO as a dud.

The reason: Who the hell would invest in a solar company these days?

Well, it's a little more complex than that.

You see, I agree that only a masochist with a steel set of cojones would take on the risk of most solar stocks these days. And without a doubt, solar panel and cell manufacturers will still tread water in 2013 as the global market continues to slowly eat through a glut of product.

This reality has crushed margins and given solar stocks the stink of a rotting durian fruit in bowl of Taleggio.

Aside from a few engineering firms that have been able to capitalize on efficiency gains and price reductions, we've stayed far away from solar this year.

Bottom line: 2012 was not a good year for solar manufacturers.

However, it was a banner year for installers...

This Isn't a Bit Player

Throughout 2012, we've been singing the praises of installation, particularly when it comes to installation companies that have adopted the solar leasing model.

You may remember a few months ago when I explained the leasing model...

“...with a leasing model, a homeowner can lease a system with little or no money down, and cut his electric bill while allowing the sun to produce his electrons. The leasing company takes care of pretty much everything; It covers the materials, panels, the installation, the inverters, the insurance, even cleaning and maintenance. Today, the three biggest companies in this leasing market — SunRun, SolarCity, and Sungevity — are insanely busy installing thousands of new solar power systems across the United States. In fact, last year solar leasing accounted for about 60% of residential installations in California, the hottest solar market in the U.S.

Much of SolarCity's claim to fame has been a result of its aggressive and highly successful leasing program. And a lot of folks are banking on its leadership role in this space to get it a lot of positive investor attention when it does finally go public.

Of course, while SolarCity's been crushing it on revenue — growing from $32.4 million in 2010 to $59.5 million in 2011— losses have been mounting. In 2011 the company showed a net loss in excess of $73.7 million.

I'm not saying such losses make it a dud, but for folks who are all kinds of giddy about this IPO, keep in mind this company is still in heavy growth mode — and is not the chest-pounding cash cow some have suggested.

Still, as far as installers go, SolarCity's footprint is not minor. And when it comes to marketing, I've seen no other installer this aggressive. It also doesn't hurt that the company landed a $1 billion deal with the DOD last year to install 300 megawatts of solar on military housing.

This isn't a bit player.

The question, however, is will the market treat SolarCity just like any other solar manufacturing company?

Or will it be able to differentiate between the installation market and the cell and panel manufacturing market?

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Wet Your Beak

Although I don't think most investors understand the difference here, I do believe the big dogs have enough skin in the installation game to make this an IPO to consider — even as a quick trade, if anything.

Don't let it go unnoticed that through tax equity investment funds and other financing mechanisms, the company has already raised in excess of $1.5 billion. That kind of scratch doesn't come from scrubs and chasers.

From PayPal Co-founder and CEO of Tesla Motors (NASDAQ: TSLA), Elon Musk... to Draper Fisher Jurvetson... to one of my favorite and most successful venture capitalists, DBL Investors... SolarCity's VIP club is no joke.

Of course, there is still considerable risk in this market. So, if you are able to wet your beak on this one, I would certainly be content with just that, and not stick around for a main course that may or may not come.  At least, not until the king's royal food taster comes around for seconds.

To a new way of life and a new generation of wealth...

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Jeff Siegel

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Jeff is the managing editor of Energy and Capital and contributing analyst for the Energy Investor, an independent investment research service focusing primarily on stocks in the oil & gas, modern energy and infrastructure markets.  He has been a featured guest on Fox, CNBC, and Bloomberg Asia, and is the author of the best-selling book, Investing in Renewable Energy: Making Money on Green Chip Stocks. For more on Jeff, go to his editor's page.


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