Back in February, I told investors that a deal with Honda Motor Company (HMC) was a game change for SolarCity (SCTY). Since that time, shares are up over 300%. A new acquisition by SolarCity is the newest game changer for the company and will prove to be an even more valuable one.
On Wednesday, SolarCity announced its acquisition of Common Assets LLC. Common Assets is the developer of a web-based investment platform that allows retail investors and small companies to provide debt-based financing for solar project. This is a huge deal for SolarCity as up until the deal, only major financial institutions could finance solar projects.
SolarCity CEO Lyndon Rive had this to say on the deal, "Previously, only institutional investors could participate in the financing of most solar assets. With our investment platform, we're hoping to allow far more individual and smaller organizations to participate in the transformation to a cleaner, more distributed infrastructure."
One of the most exciting things behind the Common Assets deal in my mind is the company's chief architect John Witchel. Prosper Marketplace, the first person to person online lending marketplace was made possible by Witchel. The design and development are credited to Witchel and Prosper continues to be one of the leaders in the peer to peer market. This bodes well for SolarCity as the platform should increase the amount of financing for potential customers and should improve the already extensive backlog for the company.
The Honda deal, which I highlighted in February, and a deal with Goldman Sachs, which I wrote about in May, have shown that SolarCity can get big companies to help finance projects. In fact, Goldman Sachs pledged $500 million in financing for homes and businesses. This figure represented 110 megawatts, which was over 66% of the figure put up by SolarCity in fiscal 2012.
Consumers who previously had thought about putting solar panels on their roof might re-consider with easier access to financing. Also, there should be an increase in the number of smaller businesses that start installing solar panels, as they might have been turned away from larger institutions in the past. This Common Assets platform is definitely game changing and should be a huge catalyst for SolarCity going forward.
In March, SolarCity will report fourth quarter earnings, which could provide more upside to shares. Analysts are expecting the company to post a loss of $1.78 per share for the fiscal year. Revenue is expected to hit $159.6 million, an increase of 24.0%. More importantly, investors and analysts will be looking to see what numbers are given by the company in terms of megawatts deployed, cumulative megawatts, and megawatts booked. SolarCity reports several useful non-GAAP numbers, as its revenue is received over lengthy contracts. SolarCity expects to see full year deployment of 475 to 525 megawatts.
In the third quarter reported November 6th, SolarCity hit new records with 78 megawatts deployed, including a 151% increase in the residential megawatts deployed with 60. The company ended the quarter with a cumulative total of 464 megawatts. SolarCity also saw 91 megawatts booked in the third quarter. Total customers grew 133% to 82,235.
SolarCity continues to be the leading solar provider in the United States, providing one of every three residential solar systems in the country. With installations only available in 14 states, SolarCity has a long ways to go in its growing market. With its long term deals, it is important to remember that the success is being laid out with strong numbers now. In fact, SolarCity reminded investors of this in the third quarter with this, "Each new energy contract, creates a recurring, predictable cash-flow stream."
Analysts continue to get behind SolarCity, raising price targets and confirming the company's guidance seems on par. Deutsche Bank recently upgraded shares to a buy with a $90 price target. The company believes SolarCity will see its install base double. A low market penetration of 0.2% in existing markets is another reason why Deutsche Bank is bullish on the solar play, as it believes that by 2016 the market share number could rise to 1%. The company was also named a top pick by Robert W. Baird with a price target of $81.
SolarCity continues to be one of the best ways to play the bullish solar market. In fact, SolarCity has helped several ETFs see big rises in their share prices. The Guggenheim Solar ETF (TAN) hit new highs on Thursday on the success of SolarCity. With SolarCity's 11% rise on Thursday, it is now the largest holding of the Solar ETF with a 6.9% weighting. Another ETF, Global Clean Energy Portfolio (PBD), saw new highs on Thursday. SolarCity represents 1.4% of the Global Clean Energy portfolio. Both of these ETFs represent a way to invest in SolarCity and the entire solar market, while spreading out the risk amongst other companies.
There will always be risks with an investment in SolarCity. The company has posted losses and GAAP reported numbers look bad. The company relies on long term deals for revenue and may not see profits for some time. SolarCity also operates in a solar market that is currently seeing strong demand, but that could change as other alternative options become available or existing ones are made cheaper. The company also faces competition from other solar companies, including several in China.
Despite a 300% increase in the company's share price since my last article 11 months ago, I continue to think shares have growth ahead and could hit triple digits by the end of 2014. The company has a goal to have solar panels on 1 million homes by 2018. With the new Common Assets platform, I see that number being hit prior to that goal. Let the sun in your portfolio by purchasing shares of SolarCity.