What Do Analysts Expect from SolarCity’s 1Q16 Earnings?
SolarCity’s gross profit estimates
SolarCity’s (SCTY) gross profit for 4Q15 came in at $28.5 million. For 1Q16, analysts expect the company to report gross profit of $29.6 million. The expected increase in gross profit is primarily due to the expected decrease in its cost per watt installed. According to a company filing, SolarCity set an operational goal of reducing the cost per watt to $2.30 by 2017 and $2.00 by 2019. As of December 31, 2015, SolarCity’s cost per watt installed stood at $2.71.
Higher gross profit implies that a higher portion of revenue is retained by the company after accounting for the cost of goods sold. Also, analysts anticipate a marginal increase in gross profit margins to 26.1%—compared to 2.6% in 4Q15. Moving ahead, analysts expect that the company will report higher gross profit margins in fiscal 2016.
Operating income
SolarCity reported an operating loss of $199 million in 4Q15. For 1Q16, analysts expect SolarCity to report an operating loss of about $201 million due to lower revenues. The downstream solar industry is a capital intensive industry. The industry is in its growth phase. The incumbent player spent huge capital upfront to gain market share. However, income is generated from solar leases or power purchase agreements over the tenure of 15–20 years. As a result, operating losses are common among downstream solar (TAN) companies such as SolarCity, Sunrun (RUN), Vivint Solar (VSLR) and the downstream operations of SunPower (SPWR).
Net income
SolarCity reported a net loss of $232 million for 4Q15. For 1Q16, analysts expect SolarCity to report a net loss of about $245 million. Moving ahead, analysts anticipate an increase in a cumulative net loss during fiscal 2016—compared to fiscal 2015.
In the final part of the series, we’ll discuss the key factors that are important for investors in SolarCity’s 1Q16 earnings.
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