SolarCity Corporation (NASDAQ:SCTY) is the latest addition to the Nasdaq, and it’s off with a bang. Shares hit the market priced at $8 and were bid up as much as 50 percent before closing up 47 percent.
There are two general factors affecting SolarCity’s star IPO-day performance. As with any IPO, one is hype. SolarCity is chaired by Elon Musk, who is widely considered to be a pretty exciting guy because of his involvement in PayPal (NASDAQ:EBAY), Tesla Motors (NASDAQ:TSLA), and SpaceX. A noted entrepreneur and investor, he’s committed $15 million for shares of SolarCity and owns a 31 percent stake in the company.
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The other reason, which is perhaps more important, is that the IPO price of $8 per share is way below the $13 to $15 per share that the company initially tossed around. Even 50 percent gains put the stock around just $12 per share, and gives the company a valuation around $750 million compared to the nearly $1 billion it would have had under the initial pricing.
Reuters notes that SolarCity reported a net loss of $80 million on a revenue of $104.4 million for the nine months ended September 30.
SolarCity’s Place in the Industry
SolarCity’s IPO comes at a particularly interesting moment for the solar industry. Shares of American solar module manufacturer First Solar, Inc. (NASDAQ:FSLR) are on a six-month run, but the global industry is suffering from overcapacity and price collapses…
Chinese solar manufacturers have seen their shares hemorrhage value over the past year. Shares of Trina Solar Limited (NYSE:TSL) are down over 56 percent this year to date, and shares of Suntech Power Holdings Co. Ltd. (NYSE:STP) are down over 61 percent for the period. Investors who have been snubbed by the performance of these stocks rightfully eye SolarCity with suspicion, but there is an important distinction between SolarCity and these companies.
“We don’t manufacture equipment, we sell cheaper clean energy,” said SolarCity CEO Lyndon Rive in an interview with Reuters. “I thought that would be enough to convince investors to look at the fundamentals of the business.” SolarCity is in the business of leasing and installing panels, not building them. The leasing aspect of its business has been highly popular with residential customers.
The solar industry has been plagued by volatility, particularly among U.S.-listed Chinese companies. The sector saw a brief rally earlier this week after a positive third-quarter report from the Solar Industries Association and news that China would double its solar investments, but stable growth still looks like a fiction.