MVIS - MicroVision's Murky Waters: Why Investors Might Await Clearer Financial Horizons

2023-09-12 15:58:29 ET

Summary

• MicroVision specializes in lidar hardware and software solutions for the automotive and non-automotive sectors.
• The acquisition of Ibeo Automotive Systems presents financial and operational challenges for MicroVision.
• MicroVision's declining revenue and negative cash flow raise concerns about profitability and market overvaluation.

MicroVision (MVIS), founded in 1993, specialises in lidar hardware and software solutions, targeting the automotive lidar and advanced driver-assistance systems (ADAS) sectors. It offers lidar sensors, perception, and validation software for automotive applications like ADAS and autonomous vehicles and non-automotive uses in industries like robotics and infrastructure. The stock price has experienced significant fluctuations, oscillating between $1.54 and $22 per share over the past three years.

Ibeo's acquisition challenges

LiDAR technology is pivotal in the rapidly growing autonomous and semi-autonomous vehicle sector. With global forecasts pointing to a compounded annual growth rate of 19.3%, the LiDAR market could be worth USD 7.94 billion by 2030. The promotion of improved automotive safety features by international regulatory bodies further supports this growth.

Despite the optimistic outlook, challenges persist. The technology's high costs, which require a lot of upfront investment, are noteworthy. A recent event underscoring this dynamic is MicroVision's acquisition of Ibeo Automotive Systems. This strategic step aims to fast-track solutions for automotive OEMs and bolster multi-market sales. Yet, it's not devoid of risks. Ibeo faced insolvency when acquired, hinting at looming financial and operational challenges. MicroVision's upfront payment of $7.75 million to keep Ibeo operational during the acquisition underscores the financial strains of the deal. Moreover, a reduced headcount at Ibeo may signal upcoming restructuring or integration challenges.

In need of funding despite large cash reserves

Upon initial examination, MicroVision appears to be in a comfortable financial position for expansion, boasting nearly $94 million in cash and available-for-sale investment securities as of June 2023. However, their strategic acquisition of Ibeo Automotive Systems raises some liquidity questions.

Historically, the company has predominantly depended on the sales of securities for its operations. The cash flow from operations was negative, registering a deficit of $38 million in 2022, with share-based compensation expenses accounting for approximately $15.5 million of this amount. With this trend, the company's liquidity is projected to be exhausted by 2025.

Recognising this potential challenge, the company secured an agreement with Craig-Hallum Capital Group in August, allowing it the option to sell up to $35 million of its common stock. This initiative could fortify their financial position, supporting production enhancements and the launch of their flagship products. Still, if the current $94 million gets depleted in just two years, it's likely MicroVision will need to source a comparable amount of funds, which might result in further dilution for existing shareholders.

Declining revenue and consistent negative free cash flow

Our growing concern revolves around the company's capacity to achieve profitability and maintain positive cash flow. Since 2016, there has been a noticeable decline in revenue, coupled with persistently negative free cash flow.

The company's plan to issue more equity to secure funds suggests that it may continue its cash burn trend, potentially delaying profitability and positive free cash flow for at least another two years.

Expensively valued in the market

Priced at $2.35 per share, MicroVision boasts a market capitalization of over $441 million, translating to an enterprise value of $363 million. For 2023, the company still maintains its target of $10 million to $15 million in revenue. If the company can deliver $15 million in revenue, it sets the forward EV/Sales valuation at more than 24.2x, which is significantly higher than its peers, including Ebix (NASDAQ: EBIX ) at 1.78x, Par Technologies (NYSE: PAR ) at 3.51x, and Impinj (NASDAQ: PI ) at 6.51x.

Key takeaways

MicroVision's involvement in the LiDAR sector presents promising prospects, especially with the anticipated market growth. However, the financial ambiguity surrounding their acquisition of Ibeo and the looming liquidity concerns, despite their current substantial reserves, give pause. Their history of declining revenues since 2016 and continuous negative cash flow paint a picture of delayed profitability. Coupled with a valuation significantly higher than their peers, it raises concerns about current market overvaluation. Furthermore, its reliance on equity sales as a primary financing tool highlights potential liquidity concerns and hints at future shareholder dilution. Given these uncertainties, it would be prudent for investors to wait for a clearer financial trajectory and evidence of sustained profitability and positive free cash flow before diving in.

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