SolarCity — a residential solar energy company — is crashing in after-hours trading after posting weak guidance for Q1 and a greater than expected Q4 loss of $2.37 per share during its earnings announcement.
From the announcement [emphasis ours]:
"For Q1 2016, we also expect GAAP Operating Expenses of $230 million – $240 million (including between $30 million and $32 million in non-cash amortization of intangibles and stock compensation expense) and Non-GAAP Loss Per Share (before Income (Loss) Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interests)* between ($2.55) – ($2.65). "
The stock is down 28%.
On the call following the earnings announcement, CEO Lyndon Rive said that the losses were due mostly to construction delays and regulation in the state of Nevada that prompted some solar players in the state, including SolarCity, to halt construction. Last month the company announced that it would layoff 550 people in the state.
Rive said that he thinks that regulation will be overturned, and believes the policy environment on a global scale is very positive.
He also said that his company would grow 40% in 2016 and be cash flow positive by Q4. How? Mostly through cost cutting.
You may remember SolarCity for two reasons:
- Billionaire Elon Musk is a cofounder of SolarCity, and the largest shareholder in the company.
- Musk loaded up on the stock back in August, after Kynikos Associates founder Jim Chanos said he was shorting the company.
Chanos explained his position to CNBC, saying that SolarCity's business model was much like subprime housing, where the value of the asset — in this case solar panels on a house — decreases while consumers have to pay the same price.
"SolarCity is really a subprime financing company in effect. You basically lease the panels from SolarCity. They put them on your house and they collect the lease payments. So in effect, if you put on the panels you have a second mortgage on your home because you hope it's an asset, but in many cases it turns into a liability," Chanos said.
Lyndon Rive, the company's CEO, said that was "the first he'd ever heard" of Chanos. After the initial hit from Chanos, the company's stock got a slight bump after a $100 million investment from Silver Lake, a private equity firm.
So far in 2016 the stock is down 48%.
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