2023-11-10 11:50:19 ET
Summary
- Luminar shares dropped after a disappointing Q3 report, with a large revenue miss and a reduction in full-year revenue guidance.
- Analysts are continuing to cut their revenue estimates for the next two years, weighing on near term sentiment.
- Luminar's large losses are leading to meaningful cash burn, resulting in an equity sales program that's diluting investors over time.
One of the street's biggest losers on Thursday was Luminar ( LAZR ). Shares of the automotive technology company dropped after the company's Q3 report , which featured both a large quarterly revenue miss and a reduction in full year revenue guidance. While the name certainly looks to have a very bright future ahead of it, results in the short term need to improve a bit before I can recommend buying into this story.
For those unfamiliar with the company, it is working to help power the next generation of smart vehicles. The name is most known for its LIDAR sensors, which many believe are a key to developing future autonomous platforms. Luminar is working with automotive manufacturers and logistics companies to get its products to market. For instance, Volvo Cars completed its first installation of Luminar's Iris sensor onto a Volvo EX90 off of the production line at its US plant in Charleston in the most recent quarter.
Last year, the company reported revenues of just over $40 million, but its high startup expense base meant that operating losses were about 11 times that amount. For most of this year, the goal was to more than double revenues in 2023, but management on Wednesday cut that forecast to total sales of about $75 million, or roughly 85% growth. As the revenue picture starts to ramp up, gross margins on a non-GAAP basis are expected to reach positive territory this quarter. Operating losses for the first nine months of this year soared by roughly 37% to almost $415 million, but they hopefully will come down significantly as the business really starts to scale.
For Q3 2023, Luminar reported revenues of just under $17 million. While this number was up more than 32% year over year, the number badly missed street estimates by more than $2.6 million. That revenue miss, along with the guidance reduction for 2023, has further resulted in street analysts cutting their revenue estimates for the next two years as seen below. A year ago, analysts thought Luminar could deliver revenue of over $1.1 billion in the next two years, but that number stands at just $722 million right now.
With the company reporting significant losses over time, cash burn has certainly been a problem. At the start of 2022, Luminar had over $792 million in cash and investments on the balance sheet. That number was down to about $320 million at the end of Q3, with cash burn in the latest period being a little more than $60 million. Management hopes to get that cash burn figure under $40 million in the current quarter.
Throughout this year, guidance has talked about the company finishing this year with a liquidity balance of greater than $300 million, which I believe is sufficient to reach profitability based on the current trajectory. Unfortunately, to achieve this goal, Luminar has needed to tap an equity sales program, selling about $36 million worth of stock in the first nine months of the year. About half of that program is still available for use, and I wouldn't be surprised to see it used to further strengthen the balance sheet. Between this program and ongoing dilution from stock-based compensation, the outstanding share count is up nearly 15% over the past year.
Next year is expected to be the company's breakout year, with revenues projected to more than double to over $200 million. Analysts see the company soaring to $1 billion in sales by 2026 with the potential for more solid growth after that. Investors see a bit of potential here, because the current price to sales valuation based on 2025 revenue estimates is less than 1.9 times. That's a dramatic discount to a comparable name like advanced driver assistance system company Mobileye ( MBLY ), which goes for about 8.5 times its projected 2025 revenues. While Mobileye doesn't offer the same potential large revenue growth rates in the coming years, it did just report solid revenue growth along with a Q3 GAAP profit, while also having a very strong balance sheet and decent free cash flow.
Today, I am initiating Luminar shares with a hold rating. I do believe the company has a bright future ahead of it, with LIDAR systems being key to a variety of vehicle platforms in the coming years. However, the latest earnings report has to be fully digested, so we likely will see street estimates come down another notch in the coming weeks. I also am weary that a little more dilution in the short term could weigh on shares as we enter 2024. I will review my rating on the name once we get full guidance from management for next year, along with seeing how the balance sheet shakes out in the coming months. I would consider a buy rating if the company can show it is getting closer to being cash flow positive, as that would certainly reduce the dilution overhang angle here.
In the end, Luminar shares dropped on Thursday after a disappointing Q3 report. Not only did the company badly miss revenue estimates for the period, but it slashed its revenue growth forecast for the year. The LIDAR system company is projected to see its top line soar in the coming years, which hopefully will allow it to reduce losses and get to positive free cash flow. However, near term speed bumps and ongoing dilution could weigh on sentiment, so I cannot fully buy in just yet.
For further details see:
Luminar: Waiting To Take Off