SolarCity soars on first day of trading
SolarCity Corp. stock surged 47% in its first day of trading, but analysts are skeptical that the Silicon Valley solar energy provider will be able to boost investor interest in the rest of the green-tech industry.
The San Mateo, Calif., company’s share price rose $3.79 to $11.79 after debuting Thursday. It raised $92 million by selling 11.5 million shares at $8 each, valuing the company at $584.6 million.
But the path to the initial public offering was rocky, complicated by Wall Street concerns about the viability of the clean power industry.
SolarCity had hoped to sell 10.1 million shares for $13 to $15 apiece, raising up to $151.5 million. But investor resistance forced the company to postpone the debut, which was originally set for Wednesday.
Brothers Lyndon and Peter Rive, who launched the company in 2006, considered pulling the IPO.
Quiz: The year in business, 2012
Chairman Elon Musk, who took his electric car company Tesla Motors public in 2010, had to reach out to institutional investors to calm their skittishness. Musk, who is the Rives’ cousin, bought $15 million of SolarCity stock in a show of faith.
The company also lowered it IPO price and raised the number of shares available to entice investors.
“It was a difficult roadshow and a difficult two weeks,” Lyndon Rive said. “The interest level was extremely high, but the financial markets had just taken such a beating in the solar sector that they weren’t ready to take a risk.”
SolarCity’s travails spotlight a mixed year for the IPO market itself. Investor sentiment has fluctuated throughout the year, said Francis Gaskins, editor of IPOdesktop.com in Marina del Rey.
The 142 public offerings this year and the $46.7 billion they raised are on par with the past two years, according to research firm Dealogic. Last year, 146 deals raised $41.9 billion.
The IPO market has rebounded from 2008 and 2009, when activity fell sharply during the global financial crisis. But it’s down from 2004 to 2007, when there was an average of more than 250 offerings a year, according to Dealogic.
Investors have also been uneasy about the market since Facebook’s lackluster public debut in May.
“The spring was strong, but then Facebook took the air out of the room after that until later in the summer,” Gaskins said. “It’s been harder to find growth companies in this economy. There are some, but not many.”
Investors also felt burned by earlier solar flops. Oakland-based solar thermal start-up BrightSource Energy’s planned debut went kaput in April, with the company citing “adverse market conditions.” Enphase Energy, which makes micro-inverters for solar panels, has seen its stock price halved since going public in March.
Fremont-based Solyndra’s collapse last year sounded the alarm about plunging prices for solar technology, which the American clean-tech industry has blamed, in part, on an influx of cheap, subsidized Chinese panels.
An index of solar stocks calculated by Barclays is down nearly 31% so far this year. “Visibility on the path to profitability is still cloudy,” the firm’s analysts wrote in a report, adding that the clean-tech market as a whole “still needs to grapple with a handful of structural issues.”
But investors may be warming more to green companies. Analysts say President Obama’s reelection will likely result in more favorable regulations.
SolarCity also has a key advantage: It isn’t a manufacturer, which makes it less susceptible to competitive forces.
The company, which is often described as purely an installation service, considers itself to be more of an energy provider along the same lines as a utility. It sets up panels and sells power back to customers using financing options such as lease programs, which cut out many of the upfront costs that have kept most Americans from going solar.
The company’s revenue is projected to surge to $124.1 million this year from $59.6 million last year and $32.4 million the year before, according to data from research company PrivCo. The company’s net loss widened to $73.7 million last year from $47.1 million the year before.
Lyndon Rive said SolarCity aims to be cash-flow positive by the end of next year.
“I’m extremely pleased,” he said of the stock’s performance Thursday. “Now hopefully this will spawn additional growth in the clean-tech sector and people will start to learn that solar is more than just manufacturing.”
But Sam Hamadeh, who runs PrivCo., is less sure.
Wall Street perceived the SolarCity IPO as being “pushed out pre-holiday at frankly any price,” he said.
The company is also included in an industrywide probe by the IRS and the Treasury Department into whether it exaggerated the market value of solar energy systems to score more grant money. Rive said SolarCity has “been extremely cooperative” with the investigation.
When SolarCity first said it would go public, analysts expected it “to establish a new benchmark for clean-tech valuations,” Hamadeh said. Between Musk’s star power, the company’s good reputation in the industry and high hopes from investors, “they had every advantage,” he said.
“But at $8 a share, it was a disappointment,” Hamadeh said. “It was like a dress that never sold when it was priced at $1,000 and is now on sale for $400. This is still a very troubled sector, and for professional investors, I don’t think SolarCity is going to open the IPO window.”
