SolarCity (SCTY)

[futureproof]

Wow, where do I start... I guess I'll start by saying this is the last bit I will post on this particular debate and move on to keep the conversation moving forward...

so, this whole thing started when I said Solarcity has a competitive advantage over competitors in the Solar business because of their long standing relationship with tesla(economies of scale)as well as early start in moving to market with products which no on else is doing. Energy storage is an inevitable addition to the PV system product, so clearly Solarcity is creating the moat. Second, you said it doesn't have anything a competitor can just copy and do they same. I said they have copyright on software/operating system(my reference to iOS and Android). You said that's not relevant (the phone software/operating system comparison) and I said yes it is and referenced Werner using using wireless/landline reference of here is the direct quote from the article:

"TW: … so if you think about smart phones, or the i-phone, the shift in 2007, those product life cycles ar so fast, the conversion from land line to wireless to smart phones, the incumbents never thought that this is a good idea, so you get a little of that both here and in America."

as far as you saying that "back up" wasn't in the article I quoted, I took that as back up wasn't mentioned in the article. I had said earlier post that sunpower was behind in energy storage development compared to Solarcity reference mr. Werners comments in the article @kenliles posted. So might have been crossed intentions here...

I'm going to finish up by saying when you say "feel free to disagree but the truth is..." It comes of as implying I wasn't being truthful as well. I think it is best to leave the one-ups-man -ship alone and keep to bringing good debate and information to this forum. Only makes for a positive environment regardless if you like Solarcity or not...

 

[NigelM]

so, this whole thing started when I said Solarcity has a competitive advantage over competitors in the Solar business because of their long standing relationship with tesla(economies of scale)as well as early start in moving to market with products which no on else is doing. Energy storage is an inevitable addition to the PV system product, so clearly Solarcity is creating the moat.

Uh, no. This is what you said:

@nigelm, ..... No other solar company has or will have a PV+storage product that can compete. Solarcity is years ahead of the game here.

Tip: If you click on the little blue/white arrow after the name on a quote you'll find it's a hyperlink to the original post so that you can actually see what was written.

In any case, I'm going to stop posting in this thread completely; it gets out of hand waaaay too often so I'm limiting my participation to that of moderator for the time being.

 

[LakeForest]

I agree with Nigel. This is a very interesting topic but it seems like the conversation is dominated by very few posters with a narrow mindset. If we could just self moderate ourselves a little that would be awesome.

Also, a number of the frequent posters on here have extremely similar opinions and writing styles. Would it be unreasonable to ask them to post a picture of themselves holding a piece of paper with their username and maybe a drawing of their favorite solar setup so that we could verify we are not being trolled by someone with multiple accounts?

 

[NigelM]

Would it be unreasonable to ask....

Yes, we prefer to give the benefit of the doubt.

If we could just self moderate ourselves a little that would be awesome.

And that's an awesome suggestion! Thank you.

 

[NigelM]

Mod Note: one post went to snippiness.

 

[sleepyhead]

This is a (great) SunPower article on the fool, but posted it here in the SCTY section, because it confirms what I have been saying about using retained value as a metric to value SCTY:

What SunPower Is Really Worth? The Answer Might Surprise You


SolarCity (NASDAQ: SCTY ) has addressed this problem by publishing what it calls retained value. This is the present value of all future cash flows from contracted projects, discounted into today's dollars at a 6% discount rate. At the end of 2013, SolarCity said it had $1.05 billion in retained value, so if the company's assumptions are correct, it could close down its operations and still generate that much value over 20-plus years.

SunPower chooses not to disclose the same numbers, in part because management feels that SolarCity's assumptions are aggressive. But it does hold assets on its balance sheet just like SolarCity does so there's value that's not shown in the $1.88 in non-GAAP earnings delivered over the past year. As its HoldCo/YieldCo strategy unfolds, even more assets will be held on the balance sheet, further complicating valuation.

 

[gene]

Thanks Sleepy, excellent article.

 

[sleepyhead]

Thanks Sleepy, excellent article.

Bgarret actually found the article, and it is a good one.

Edit: using retained value, the author comes up with a SPWR valuation between $50 and $150 in about 2 years. Retained value is therefore not a good metric to use to value a company as evidenced by his huge price target range.

 

[TheBanker]

Retained value is very much real for SCTY. You and 1000's of people may disagree with what retained value should be, but I'm sure the US gov/IRS has approved SCTY's method of calculating retained value. We also have no clue what products SCTY will roll out in the future to sell to these same clients. We assume this is the only agreement SCTY will enter with their clients. How do we know they won't sign another 10-15yr lease at a reduced rate most people would be crazy to pass up? We just do not know. I doubt SCTY is going to be taking down perfectly good panels from homes when they can lease them again at the appropriate price that 90% would agree to. It's going to be supply/demand for that last 10-15yrs of life on the panels. The customer will be in control of that price. If not enough customers want the panels kept on the roof then the price will come down to the point where most renew lease or buy the panels. Everyone keeps forgetting the company does have the ability to sell the panels to the client at the end of the lease. They will not be worthless which is why retained value makes sense.

 

[NigelM]

Retained value is very much real for SCTY.....but I'm sure the US gov/IRS has approved SCTY's method of calculating retained value.

IIRC, neither the US gov nor the IRS has a pre-determined definition for calculating retained value. I think you might be confusing the term with retained earnings or residual value which are covered by GAAP. Investors may agree or disagree with the numbers but don't rely on the government to have "approved" anything.

 

[hcsharp]

...In any case, I'm going to stop posting in this thread completely; it gets out of hand waaaay too often so I'm limiting my participation to that of moderator for the time being.

Hmmm... Or are you going to quit posting because it's simply a waste of time and you have better things to do? Sleepyhead felt the same way but he comes back in the room once in a while. I hope you'll do the same. :smile:

 

[hcsharp]

This is a (great) SunPower article on the fool, but posted it here in the SCTY section, because it confirms what I have been saying about using retained value as a metric to value SCTY:

What SunPower Is Really Worth? The Answer Might Surprise You


SolarCity (NASDAQ: SCTY ) has addressed this problem by publishing what it calls retained value. This is the present value of all future cash flows from contracted projects, discounted into today's dollars at a 6% discount rate. At the end of 2013, SolarCity said it had $1.05 billion in retained value, so if the company's assumptions are correct, it could close down its operations and still generate that much value over 20-plus years.

SunPower chooses not to disclose the same numbers, in part because management feels that SolarCity's assumptions are aggressive. But it does hold assets on its balance sheet just like SolarCity does so there's value that's not shown in the $1.88 in non-GAAP earnings delivered over the past year. As its HoldCo/YieldCo strategy unfolds, even more assets will be held on the balance sheet, further complicating valuation.

So if so-called retained value is not the best way to value these two companies, then what is? From reading the article the author basically uses the sum of future cash flows, or present value of projects, to come up with a valuation. This is what everybody's calling "retained value." Sure, the valuation has a broad range depending on a number of assumptions. Nonetheless he basically decides it's the best method and uses it to calculate a value. I can't see what SCTY should do differently in that regard. That's why I asked up-thread if the discount rate was reasonable. Nobody really knows if it's reasonable, but they have to pick a number.

I guess what I'm asking is, what's unreasonable about the way SCTY is calculating their revenue and balance sheet? If there's a better method, why didn't the author use it in his valuation of Sunpower? I'm not trying to argue, just trying to clarify...

 

[TheBanker]

Considering Elon is a lot smarter than all of us, I'm going to use his retained value vs. my own. Until someone comes up with something more reliable then I imagine SCTY has put a lot of energy into developing it's retained value and is probably more accurate than our models would be. I'd love to see a better model developed by someone who is not selling systems or heavily invested in selling vs. leasing. Obviously their opinion would be very biased. The fact that everyone seems to want to lease these panels would suggest they'll also want to renew their leases if the price is right at the end of the lease.

 

[TheBanker]

FSLR earnings appear strong and stock is up nice after-hours. SCTY seems to be up too on the news. I hope SCTY beats tomorrow as well.

 

[NigelM]

FSLR earnings appear strong and stock is up nice after-hours. SCTY seems to be up too on the news. I hope SCTY beats tomorrow as well.

FSLR seems to be settling barely above the days high, SCTY closed $3 down on the day, $4 down on the days high and only regained $1 after hours. Neither is cause for breaking out the champagne IMO.

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Considering Elon is a lot smarter than all of us, I'm going to use his retained value vs. my own. Until someone comes up with something more reliable then I imagine SCTY has put a lot of energy into developing it's retained value and is probably more accurate than our models would be.

Just noting that Elon is a non-executive Chairman so his main task is leading board meetings. Yup he's much smarter than me, but you might want to consider a Chairman's actual duties before assuming that he came up with the retained value calculation personally.

Also note that a metric only has comparative value if other entities use the same calculation method.

 

[TheBanker]

The market was down quite a bit today so I wouldn't expect FSLR to jump above the high of the day but it obviously surprised to the upside which was my point. It took the sector higher in after-hours. It's a hell of a lot better than a miss or just matching expectations.

I never said Elon came up with the retained value model but obviously as chairman he's standing by the math behind the calculation. As an engineer and an even greater businessman, I'm going to go with his model over someone else's. At least until I see a much better one that makes any sense. Moaning about 7% vs. 5% is just semantics at this point. I bought the stock last August so to tell you the truth, if there was no retained value at all I would have still bought the stock at much lower levels and profited even more over the next 20 years if I hold that long. The retained value calculation could end up being conservative if oil/gas prices rise at a 5% clip going forward, which is definitely possible. We have no idea what the spread between the lease price in 20 years vs. the utility rates. 6% may end up being a high number when 20 years roll by.

I wish everyone who is negative on this stock would go ahead and short it or stay quiet. It's so easy to bad mouth a company and their models when you have zero money on the line.

 

[killer_model_s]

The market was down quite a bit today so I wouldn't expect FSLR to jump above the high of the day but it obviously surprised to the upside which was my point. It took the sector higher in after-hours. It's a hell of a lot better than a miss or just matching expectations.

I never said Elon came up with the retained value model but obviously as chairman he's standing by the math behind the calculation. As an engineer and an even greater businessman, I'm going to go with his model over someone else's. At least until I see a much better one that makes any sense. Moaning about 7% vs. 5% is just semantics at this point. I bought the stock last August so to tell you the truth, if there was no retained value at all I would have still bought the stock at much lower levels and profited even more over the next 20 years if I hold that long. The retained value calculation could end up being conservative if oil/gas prices rise at a 5% clip going forward, which is definitely possible. We have no idea what the spread between the lease price in 20 years vs. the utility rates. 6% may end up being a high number when 20 years roll by.

I wish everyone who is negative on this stock would go ahead and short it or stay quiet. It's so easy to bad mouth a company and their models when you have zero money on the line.

We have shorted and bought puts on SCTY, probably for more money than most people would risk on this stock. We got lucky with timing (~$80) and took profits when the stock hit ~$52. We're still negative on the stock. We list all our trades on our site. We take real positions in crowdsourced investment opportunities where investors who publish a thesis can actually make money when we invest in their ideas.

Retained Value is smoke and mirrors. If you look at how much money the company raised in debt and equity and how little 'Retained Value' they generated it becomes exceedingly clear that SCTY won't be around 10 years from now. It may have a decent next 2 years as consumers rush to get into solar before most benefits expire in 2017. It's so obvious that I very much question the bull case that keeps getting promoted on this board as very naive at best. Some of the things that were said by Elon this year made me question his integrity as well. Elon has created a great company with TSLA and there is no need for him to pump the price of TSLA into the stratosphere. Unfortunately, I have a feeling that tomorrow will be a massive sell-off in TSLA and SCTY.

 

[NigelM]

I wish everyone who is negative on this stock would go ahead and short it or stay quiet.

Then you're in the wrong place; we encourage all points of view on this forum. Informed investment decisions are much more likely to succeed.

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Mod Note: one post got moved to snippiness.

 

[Auzie]

Some of the things that were said by Elon this year made me question his integrity as well. Elon has created a great company with TSLA and there is no need for him to pump the price of TSLA into the stratosphere. Unfortunately, I have a feeling that tomorrow will be a massive sell-off in TSLA and SCTY.

Perhaps TSLA is rising rapidly for some reasons. I failed to see EM pumping the stock, but I have seen him doing the opposite, tempering its rise with his comments.

 

[TheBanker]

You're correct Auzie. Elon said on tv that the stock was fairly priced if not a little overprice. I've never seen or read anything where he hyped up the stock price of SCTY or TSLA stating it was undervalued.

It's ok to bash a stock here and have it posted but the moment you come to defend the stock your posts end up in the trash.