SolarCity (SCTY) Lower; 'Retained Value' Metric Questioned

SolarCity (Nasdaq: SCTY) is lower Monday following cautious commentary late last Friday.

The WSJ noted that SolarCity uses a metric called retained value, which estimates how much future income from the power SolarCity's customers purchase, net of costs, is worth in today's money.

SolarCity assumes 90 percent of customers will renew leases after the original 20-year term is up, which is an aggressive assumption. Those renewals account for 29 percent of its retained value estimate.

Another questionable area is backlog panels that customers have signed for, but haven't been deployed. Backlog ceased to be reported in May 2013 under the assumption that time between a contract being signed and panels being deployed made the metric less relevant. You can calculate the metric by dividing retained value by value per watt.

The risk to these assumptions is sales in the backlog can be canceled. SolarCity doesn't disclose cancellation rates for signed contracts. The company previously would impose a fee on canceled contracts, though that fee isn't being enforced as heavily, if at all.

Shares of SolarCity are down about 0.4 percent.

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