Are SolarCity's Results As Bad As Markets Thought?

SolarCity Corp SCTY was a popular choice for investors looking to jump on board the renewable energy revolution. The company was experiencing off-the-charts growth as the largest rooftop solar company in the United States, but the firm's latest quarterly results were disappointing, and subsequently sent SCTY shares 26.09 percent lower over the past five days as investors fled.

What Happened?

The number of rooftop installations fell significantly in the fourth quarter— the firm installed just 272 megawatts of panels in the final three months of the year. That was short of the company's original forecast of between 280 and 300 megawatts. Even more concerning was the fact that SolarCity sees installations in the current quarter falling 34 percent to just 180 megawatts.

Related Link: Solar City Crashes Over 20% On Poor Guidance, Despite Earnings Beat

What's Going On?

Although a decline in installations is worrisome for investors, it falls in line with the company's strategic goals to some degree. During the third quarter, the firm announced that it would be shifting its focus from high growth to becoming cash-flow positive. While SolarCity has experienced several quarters of impressive growth that initially attracted investors to the company, its profits have suffered as revenue has been consistently reinvested to drive growth.

Time To Worry?

Some of investors' concerns about SolarCity are justified. The results suggest that the company's business model has become much more fragile and the significantly suppressed growth could have a major impact on its bottom line. However, the firm also improved its margins by reducing expenses significantly and was able to turn a $4.6 million dollar profit in the fourth quarter, so there were some bright spots as well.