SolarCity Stock Retreats as Revenue, Guidance Come Up Short

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SolarCity (SCTY) stock slipped a day after earnings, as lower-than-expected revenue and a disappointing forecast overshadowed a surge in new orders. SCTY fell more than 1% on the opening bell Friday.

SolarCity stock represents the largest U.S. solar company by market cap, but after a couple of years of ballistic gains, it has developed bipolar disorder in 2014.

Sure, SolarCity stock is up 30% for the year-to-date, but it was down as much as 15% just a couple of months ago. Heck, SCTY is still 14% below its April high.

Partly, that volatility because the market has turned on last year’s red-hot momentum stocks, but it doesn’t explain all the crazy action. Then again, anyone holding SolarCity stock has to be comfortable with the fact that outsized growth comes with higher costs and wider losses.

Profitability is secondary to hitting user-base targets. Indeed, SCTY is projected to lose $1 billion over the next three years as it builds out rooftop power projects for homes and commercial buildings.

When SCTY gets its business up to scale, that’s when it’s time to lose patience with losses. After all, multi-decade leases are a key part of its revenue plan. But as the market in SolarCity stocks shows, sometimes waiting is the hardest part.

For the most recent quarter, SCTY said revenue rose 62% to $61.3 million on “unprecedented demand.” The company signed up 30,000 customers in the second quarter alone, tripling results in the same period a year ago.

The downside of all this growth is that costs are piling up faster too. SCTY posted a much wider net loss of  $47.7 million, or 52 cents per share, in the most recent quarter. A year ago, SolarCity lost $39.5 million, or 52 cents.

The market applauded the news and gave SolarCity stock a little bump because, after excluding certain items, the loss came to 96 cents per share, which beat analysts’ forecast by 3 cents.

SolarCity Stock Dinged By Revenue, Guidance

As welcome as the earnings beat is for anyone holding SolarCity stock, there were still plenty of quarterly blemishes. As fast as the company added customers, revenue still fell short of Wall Street projections.

More worrisome is that SCTY issued disappointing current-quarter guidance. SolarCity now expects to book an adjusted loss of $1.10 to $1.20 per share. Analysts were modeling a loss of just $1.

Anyone holding SolarCity stock had better be in it for the long haul. After all, the company sure is. SCTY is very much in its infancy. All its energy is focused on growing the business — signing up customers and making acquisitions. Profits are only a promise at this point.

Furthermore, after last year’s huge run in SolarCity stock, it’s natural that 2014 would be something of a hangover year. That has been the pattern for SCTY stock ever since its late-2012 IPO — extended periods of huge gains followed by months of steep selling.

And yet, after all those rallies and plunges, SCTY stock is still up more than 500% since its IPO. If nothing else, the market hasn’t lost faith in this story.

Just be forewarned: If you want a piece of SolarCity stock, be frosty and be patient. It’s going to be a volatile ride for the next few years at the very least.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.