SolarCity IPO valuation approaches earth

December 12, 2012

By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

SolarCity’s underwriters have come down closer to earth. The U.S. solar panel installer slashed its expected initial public offering price by more than 40 percent at the last moment to $8 a share. The old price of $14 at the middle of the range, equating to some six times expected 2012 revenue, always looked starry-eyed. The new price merely requires optimism.

The involvement of Elon Musk, the guru behind electric car phenomenon Tesla and Space Exploration Technologies, gives SolarCity some extra brightness. But the original pricing hopes were obviously overdone. The company fits panels at little or no cost to customers, instead charging them for electricity. It’s an innovative model, but older companies with analogous ones – like Time Warner Cable, office equipment lessor MicroFinancial and home security provider ADT – trade on revenue multiples that average out at about two times.

At the new price, SolarCity’s sales would be worth under four times sales. That outstrips ADT’s multiple, the best of the three admittedly imperfect comparisons. Given SolarCity’s potential for rapid growth, that seems a lot closer to the mark. Now, rather than expecting the company’s business to go into orbit, investors only need a bit of sunny optimism.



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