To The Moon

$First Solar(FSLR)$

Earnings Report Overview

First Solar reported its earnings after the market closed on Tuesday, and the results were generally solid, with both the earnings and guidance being in line with expectations. This is one of those companies that seems to be moving in the right direction across various aspects. Revenue continues to grow as the company expands its capacity. Currently, based on 2025 guidance, the price-to-earnings multiple is just under nine, suggesting that the stock is relatively cheap. This combination of growth and value makes it an attractive option, though there are some complexities to consider.

Stock Performance and Market Movements

Looking at the stock movement, shares were up about 99.3% today, which is a solid performance. They actually peaked at around $167 for the year, though they’ve only risen about 11% overall. Over the past five years, the stock has grown by 252%, so it’s been a strong run for First Solar.

Quarterly Report Breakdown

Now, let's dive into the quarterly report. For the full year, net sales were $4.2 billion, with $1.5 billion in the first quarter. Net income stood at $122 million, or $3.65 per share for the quarter. The company also had a strong cash position with a balance of $1.2 billion. Keep in mind, First Solar has a market cap of around $17 billion, which is important when we look at some of the financials.

Gross Margin and Financial Outlook

The gross profit margin for the quarter was 37.5%, which is down both from the previous quarter and the same period last year. Margins have been a bit volatile, so while this decline is worth noting, it might not be alarming just yet. Operating income was $457 million for the quarter. Looking ahead, the company expects revenue to grow to between $5.3 billion and $5.8 billion next year, driven by the increased capacity they’ve been building. Gross margin is expected to be between $2.45 billion and $2.75 billion, with operating income projected to range from $1.95 billion to $2.3 billion. These figures suggest a healthy growth trajectory.

Potential Risks and Tax Credit Implications

However, there is a caveat: the guidance is based on the assumption that First Solar will receive between $1.65 billion and $1.7 billion in Section 45X tax credits, part of the Inflation Reduction Act passed during the Biden administration. These subsidies have faced political pressure, especially under the Trump administration, and while it would take an act of Congress to change or eliminate them, it's something to watch as it could impact the company's financials if there are any changes to these incentives.

Revenue and Market Share Concerns

Tax credits are crucial to First Solar's business, as the company would almost struggle to remain profitable without them. These credits play a significant role in both its operations and valuation. As I mentioned earlier, the stock is currently trading at about nine times earnings, which looks cheap—unless you remove these tax credits. Without them, the stock starts to appear much more expensive. It's important to note that subsidies are a much larger driver for First Solar than many investors may realize.

Declining Bookings and Future Outlook

Another concerning issue is the decline in bookings, which is something I'm surprised the market isn't more focused on. The company’s expected module volume sold, also known as bookings, has been going down. At the end of 2023, expected bookings stood at 78.3 gigawatts (GW), but when looking at 2024, only 14.1 GW were sold, with net bookings at just 4.4 GW. This indicates that First Solar is not replenishing what it’s selling, despite expanding its capacity. By the end of 2024, expected bookings are at 68.8 GW, and there’s been only a slight increase in the first couple of months of 2025, now standing at about 68.6 GW. This downward trend in bookings, combined with increased capacity, suggests that First Solar may be facing challenges in generating future demand.

Geographic Concentration and Competitive Landscape

First Solar's concentration in North America is another red flag. The company reports a significant portion of its total bookings in North America, with 70.3 GW in expected bookings. This heavy reliance on the U.S. market is primarily due to tax credits like production tax credits and other savings incentives for developers working with domestically produced solar products. As the largest solar manufacturer in the U.S., First Solar benefits greatly from this but is less competitive in markets like India and Europe, where demand is also growing. In regions like Asia, particularly China, lower-cost and more efficient crystalline silicon panels dominate, making it harder for First Solar to compete.

Opportunities in Late-Stage Projects

First Solar also points to late-stage opportunities, which are projects that could turn into bookings soon. They report 21 GW in total late-stage opportunities. While this is a positive sign, it doesn’t fully alleviate concerns about the company’s broader booking and market share issues, especially as the global competition continues to heat up.

Strategic Impact and Future Outlook

First Solar is positioned to benefit from the increasing demand for electricity, particularly in the U.S. However, it's important to remember that while solar energy and utility-scale energy storage will be paired together in the future, building new natural gas or nuclear plants will take longer—potentially beyond 2030. So, if electricity demand rises, First Solar should see some benefits. That said, we haven't yet seen this reflected in the company’s bookings, which raises concerns. Additionally, their pricing assumptions are not particularly impressive. In the fourth quarter, their sales were around 29.9 cents per watt, with costs at about 20 cents per watt. While these margins are reasonable, they are far from exceptional. The key question for First Solar remains: What will happen to the tax credits? If they are phased out in 2025 or 2026, it would be a significant blow to the company.

The Role of Subsidies and Future Challenges

Another issue to consider is the potential for increased competition in the solar market. As other companies begin to bring more capacity online in the U.S. over the next couple of years, there’s a risk of oversupply, similar to what’s happening in the battery industry. This could put pressure on First Solar's pricing and margins. So while the company is enjoying solid profitability today, that might not last forever. Even with a decent quarterly performance, there are underlying challenges, especially concerning bookings and the company’s heavy reliance on subsidies. Without these subsidies, First Solar wouldn't be trading at nine times earnings—it would have a much higher earnings multiple. These risks are a significant reason why I'm not as bullish on the company at this point, particularly at the current price.

Conclusion

The solar industry continues to grow. While First Solar has benefited from a favorable environment in recent years, I believe the company is facing more headwinds moving forward. The backlog is shrinking, and the reliance on subsidies makes the business’s future less certain. What do you think about the earnings report? Let me know your thoughts.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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