Mario Tama
Shares of Mobileye Global (NASDAQ:MBLY) have seen quite a solid IPO, after its parent company Intel (NASDAQ:INTC) decided to float a minority shareholding of its ownership. Given the lack of momentum in the market, a 40% move higher has been huge and perhaps somewhat unexpected, albeit that expectations were downbeat already.
The move is interesting, not necessarily as I am looking to get onboard with Mobileye itself, yet it clarifies the valuation of Intel itself quite a bit here.
Enabling Autonomous Driving
The mission of Mobileye is that it is enabling autonomous driving at scale. Intel partnered with the business in the past, yet in 2017 decided to buy the company in a $15.3 billion deal, to ever since accelerate growth of the business and adoption across the industry.
The company has grown to employ over 3,000 workers by 2021, the vast majority of which focuses on R&D, and to date well over a hundred million cars are equipped with its products to improve safety on the road, with an ultimate goal to enable autonomous driving. The adoption is very wide, with more than 50 manufacturers and 800 vehicle models being equipped with these solutions, indicating strong adoption by the industry at large.
The total addressable market defined by the business itself is seen at $16 billion, yet the wider adoption and wider range of capabilities might increase this market by a factor of 30 times by 2030. This indicates a huge runway for growth, as Mobileye has been generating meaningful revenues and while it is loss-making, these losses are relatively manageable.
Many of Mobileye’s products are related to driver assistance and minimal autonomous features which drive the business today, as real fundamental changes and innovations will need to be delivered upon in order to arrive at the holy grail, that is full autonomous driving.
Valuation & IPO Considerations
Mobileye has sold 41 million shares of its own company (previously held by Intel, of course). After initially pricing its shares in a preliminary offering range between $18 and $20 per share, final pricing was set at $21 per share. Shares quickly rose to a $27-$30 range in the first week of trading.
Intel will continue to hold a 94.2% stake in the business, and an even greater ownership percentage if we look at voting shares, making this a highly and tightly controlled operation which has drawbacks, of course. With 796 million shares outstanding in total, Mobileye commands a $21.5 billion equity valuation here at $27 per share.
The company has seen solid growth in recent years. Revenues were reported at $879 million in 2019, rose 10% to $967 million in 2020, and rose at an impressive 43% pace in 2020 to $1.39 billion. Pro forma operating losses were reported at $86 million, $213 million and $174 million, respectively in the years 2018, 2019 and 2020, as R&D was the largest expenses of the business.
In the first half of the year revenues were up 21% to $854 million, yet operating losses of $73 million (again on a pro forma basis) which increased quite a lot from a $7 million profit in the first half of 2021. Preliminary third quarter revenues of $450 million are actually up 38% from last year. GAAP operating losses, seen between $25 and $29 million, are up modestly from a $20 million loss this quarter last year.
With revenues now seen around $1.8 billion a year here, the company commands a 12 times sales multiple. Given the promise, still strong growth, modest losses, but moreover the large addressable markets, this can be understood, as we are not in 2021 anymore. Note that the company operates with a net cash position of a billion, giving the company quite a runway, given the rapidly moderating losses here.
What Now?
With a current $21.5 billion equity valuation, Intel has seen 40% returns since the company acquired the business in 2017, yet of course it has been absorbing some of its losses as well during this time, so the deal has not really been profitable as the purchase goes back five years ago already.
Then again, this is not about Intel selling the business as just 4% of the shares are floated here, as Intel still owns pretty much all the business, yet the relative high valuation of Mobileye gives Intel more clues about the market value here. With regard to the company itself, a 12 times sales multiple remains rich, but sales momentum is here and losses are reasonable given the revenue base.
Typical risks for the business include supply chain issues, which has been very clear in recent years, also reliance on STMicroelectronics in terms of manufacturing, adoption of technology by automotive users, the price of these solutions, the improvement of these solutions towards autonomous driving. In the near term, there is a cyclical component related to the automotive market, with big ticket items likely pressured amidst global inflation and recessionary concerns.
For me, the primary interest is not that of a potential investment in Mobileye. With Mobileye having its own listing, Intel’s valuation becomes a lot clearer, very helpful as its stock has come under so much pressure.
Be the first to comment