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SolarCity IPO: How it beat the solar curse

SolarCity defied a trend of failing solar IPOs Thursday when its share prices soared nearly 50 percent on its first day of trading. What's behind the succes of the SolarCity IPO?

By Correspondent / December 13, 2012

SolarCity Founder & COO Peter Rive and SolarCity Founder & CEO Lyndon Rive celebrate the company’s IPO at Nasdaq Thursday. The successful SolarCity IPO may indicate a proclivity towards investment in solar system installers over manufacturers.

Mark Von Holden/AP Images for SolarCity

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A day after lowering expectations by cutting the price of its shares, SolarCity Corp. saw its initial public offering make a soaring Wall Street debut.

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SolarCity's shares opened at $9.25 on Nasdaq, up 16 percent from its IPO price. By Thursday's close, it had gained $3.79 per share, a stunning rise of nearly 50 percent. 

What a difference a day makes.

The change of fortune is a sign investors may be warming to the "buy side" of the solar industry. As an installer, SolarCity does not compete with the proliferation of cheap Chinese panels arriving on US shores. It instead capitalizes on the flooded market.  

"SolarCity is on the correct side of solar energy transactions," wrote Dana Blankenhorn in Seeking Alpha Wednesday.  "The problems of panel producers are its advantages, because they reduce its cost of goods."

That equation also helps explain why other solar stocks – from companies primarily on the market's "sell side" – have fared poorly this year. In April, BrightSource Energy, a solar thermal start-up, cancelled its IPO amid a turbulent market. Shares of First Solar, Inc. are down nearly a quarter this year. SunPower Corp. stock is down 13 percent this year.

SolarCity further distinguishes itself with a unique solar-leasing program that minimizes or eliminates solar's upfront cost – a major barrier to entry for many businesses and residents.

The San Mateo, Calif.,-based company also benefits from its association with Elon Musk, SolarCity's chairman and a co-founder of Tesla Motors Inc. Mr. Musk garnered praise after transforming the unprofitable electric-car maker into an award-winning company whose value has more than doubled since it went public in 2010.

“He’s a throwback to when people were doing less incrementalist things,” Peter Thiel, a co-founder of PayPal, told Bloomberg Businessweek in the magazine's September profile of Musk. “The companies he’s started are executing against a vision measured not in years but in decades.” 

Friends describe Musk as Steve Jobs, John D. Rockefeller, and Howard Hughes rolled into one, according to the Businessweek profile.

With a history of bucking bearish cleantech trends, Musk may be a useful antidote to investor skepticism.

But that skepticism was out in force early this week. A tepid response to SolarCity's upcoming IPO caused the company to postpone the stock offering Tuesday. On Wednesday, the company announced it would reduce the share price to $8 from between $13 and $15, effectively cutting the value of the company almost in half.

Thursday's stunning stock rise provided some vindication for the company. It is within $1.50 a share of hitting the lower range of its expected IPO price.

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