SolarCity expects this growth to continue in the current quarter. For the second quarter, operating lease revenue is expected to come in between $16 million to $18 million, while it expects to install 45 to 48 megawatts of solar panels.
Goldman goes green
While rising revenue and negative earnings are nothing new for high growth companies, the real reason for SolarCity’s big rally was Goldman Sachs Group, Inc. (NYSE:GS).
Last week, Goldman Sachs Group, Inc. (NYSE:GS) announced that it would finance over $500 million of SolarCity’s aforementioned residential and corporate solar leases. SolarCity stated that this partnership would produce the largest rooftop solar lease platform in the United States. The deal benefits both parties tremendously – for SolarCity, more funding would be immediately available for prospective solar customers, while Goldman Sachs would gain valuable long-term leases and capital that it could channel into other investments.
For Goldman Sachs, this is merely the beginning. The investment bank has a target of $40 billion in renewable energy investments over the next decade, according Stuart Bernstein, the head of its Clean Technology and Renewables Group. Solar power has been a top priority for Goldman Sachs, which notably purchased 40,000 acres of Nevada desert land in 2008, in preparation for a “solar gold rush.”
Goldman Sachs also heavily favors Tesla Motors, and is the company’s sole book-running manager on its new stock-and-bond offering that is now expected to top $1 billion. Tesla, which has already increased its offering size by 30%, intends to use the proceeds to fund its ongoing operations and to repay its $452.4 million government loan early. Tesla reportedly needs $200 million to complete development of its upcoming Model X SUV.
Both SolarCity and Tesla are not cash-rich companies. SolarCity has $127 million in cash, but is shouldering $282 million in long-term debt. Tesla stated that after the new offering, it will have $679 million in cash, which barely exceeds its long-term debt of $600 million. Therefore, both companies need government subsidies and private funding programs to continue operating.
The Foolish Future
In conclusion, I believe that SolarCity, just like Tesla, has a bright future ahead. The company has an established niche market that has some major backers and customers. Its position as an installer protects it from the manufacturing headwinds that are holding back the rest of the industry.
Although SolarCity is still unprofitable, its cousin company Tesla spent years in the red before finally posting a profit. All that matters for SolarCity right now is top line growth, increased customers, and the continued support of government and institutional investors. If the company can meet all three of these criteria, then I believe that sunny days are ahead for SolarCity shareholders.
The article Are Sunny Days Ahead for This Solar Play? originally appeared on Fool.com and is written by Leo Sun.
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