SolarCity Faces Make or Break IPO

SolarCity’s pricing is expected to be between $13.00 and $15.00 per share and the common stock will trade under the ticker “SCTY” on the NASDAQ. This IPO has a rather large underwriting group for the size: Goldman Sachs, Credit Suisse, BofA Merrill Lynch, Needham & Company, and Roth Capital Partners.

24/7 Wall St cares about this offering quite a bit. We just issued our Cleantech and Alternative Energy Stock Picks and Pans for 2013. If the recent growth and total market opportunity of SolarCity does not excite investors enough for a good IPO then these sectors tied around cleaner or green energy may have further pain ahead. Why this matters further is that many public companies have ties here as well, as you will see below.

Investors have a lot to watch here. SolarCity’s chairman is Elon Musk, who is also top dog over at Tesla Motors (NASDAQ: TSLA) and also on SpaceX. Musk has indicated that he intends to purchase $15.0 million worth of the company’s common stock in this offering from the underwriters at the initial public offering price.

SolarCity promotes its Better Energy plan whereby most customers agree to a 20-year contract term by putting solar panels on the roofs of customers. With electricity rates having doubled in the last 20 year period, SolarCity’s most recent filing shows that solar panel prices were 472% higher in cost versus today’s solar panel prices.

The company has raised $1.57 billion through 23 investment funds and related financing facilities established with banks and other large companies. These include Credit Suisse (NYSE: CS), Google Inc. (NASDAQ: GOOG), PG&E Corporation (NYSE: PCG) and U.S. Bancorp (NYSE: USB). It even claims that about $602 million of the amount it has raised remains available for future deployments. Firsthand Technology Value Fund (NASDAQ: SVVC), which you may recall as a pre-IPO investor in Facebook, Inc. (NASDAQ: FB), recently showed that it most recently held 426,300 shares of common stock and represented
approximately 3.6% of its investable assets in SolarCity.

If this deal prices at the mid-point of the range ($14) then the 71,708,364 shares outstanding after this offering will generate a market capitalization of right at $1 billion.

SolarCity has seen a very large change in its revenue mix. In 2009 the operating leases were only $3.2 million versus $29.4 million in solar energy system sales. By the end of 2011, that mix was $23.1 million in operating leases and $36.4 million in solar energy systems sales. Here is the mix for the first nine months of 2012 versus the same period of 2011 (lease versus systems sales):

• 2011: $16.1M lease and $22.7M on systems, $38.8M total
• 2012: $33.6M lease and $69.8M on systems, $103.4M total

Here is the latest revision filed with the SEC, which should be updated very soon for a pricing. It is important to look at both the good side and the bad side of the equation. We would note that not everyone has been positive here:

• Bloomberg said it is valued at about 19-times its peer group
• GigaOm calls it a bellweather for cleantech exits
• New Energy World Network said this was under the $200 million indicated offering
• IBD outlined whether its market and economy can support its growth
• IPOhome.com showed that returns have been dismal in the sector with other cleantech IPOs being withdrawn

JON C. OGG