MBLY: The Only Driverless Car Stock to Invest In
When thinking about truly disruptive technologies, one that has to be ranked as one of the most destructive is that of driverless cars. If as a society we really move in that direction, it’s likely to be tremendously disruptive for auto insurance companies, taxi drivers, traffic speed monitoring solutions, ambulance services, long haul trucking, etc. If you believe this is the direction we’re going in, then you probably want to invest in it.
A number of different articles have been published on the topic and most mention Google as an option. This is not a viable option if you want a pure play stock. Google brought in $66 billion in revenues last year, none of which was derived from driverless cars. It is almost ridiculous to suggest at this point that investing in Google gives you exposure to the driverless car opportunity. If driverless cars went away tomorrow this would not impact Google shareholders whatsoever. Other companies mentioned include car manufacturers like Audi, Mercedes, or Nissan. Again, if driverless cars are not a success, these companies are not impacted. We don’t want to invest in search engines, or car companies, we want to invest in driverless cars. One company that a majority of these articles do mention, and which is the only pure-play opportunity to invest in driverless cars today, is Mobileye.
Israeli based Mobileye (NYSE:MBLY) is the global leader in the design and development of software and related technologies for camera-based advanced driver assistance systems (ADAS). ADAS are systems that assist drivers through using radar and cameras that provide real-time information about the surroundings. Using these systems helps drivers to avoid accidents and are quickly being adopted by OEMs (car manufacturers) who are looking to satisfy the growing government regulations regarding the safety of drivers and passengers. The below graph shows how “driving assistance” has been rapidly increasing:
According to Mobileye’s website, their technology is available today in 160 car models from 18 car manufacturers. Not only that, but Mobileye’s technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016. As of today, 5.2 million cars are using technology from Mobileye.
With a current market cap of around $10 billion, Mobileye began trading in the U.S. as an ADR in August of 2014 under the ticker MBLY. Since that offering, the share price is up about +28%. The revenue growth for this company, regardless of what they’re selling, is incredibly strong with +96% CAGR from 2011 to 2014:
Note that the exceptional G&A expense in 2014 was related to a $60 million increase in share-based compensation of which was mainly related to options granted to the Company’s Founders. If it wasn’t for that one-off expense, 2014 would have been the second year in a row that Mobileye achieved profitability. So where is all this revenue growth coming from? Sales to car manufacturers were 85% of their revenue with Mobileye’s OEM products being available in production vehicles since 2007. Key customers for Mobileye are seen below:
Those 4 companies are responsible for 62% of Mobileye’s total revenues. Clearly there is some risk here, but even with the loss of a key client, Mobileye can weather the storm with their $375 million pile of cash they are sitting on. This cash can also be put to good use in making driverless cars a reality, and Mobileye is clearly committed to the future of the driverless car with the below statement made in their prospectus:
Management believes that our long term revenue growth opportunity will come from the increasing emphasis on autonomous driving, which will require ADAS technological innovations of increasing complexity. We have design wins from four OEMs to launch features involving hands-free-capable driving at highway speeds and in congested traffic situations in 2015 – 2018. We are also in development programs with four additional OEMs for potential launches in 2018.
Mobileye is already working on autonomous driving and is planning to launch, in the 2016 time frame and with two partner OEMs, the first hands-free system capable of driving at highway speeds and in congested traffic situations. It seems that Mobileye is well-positioned to compete against Google given the progress they are making in growing revenues, establishing OEM relationships, and actually enabling cars on the road today with the ability to at least be operated in a partially autonomous fashion in the near future. MBLY may not be “the only driverless stock you should invest in right now” but it certainly is “the only driverless stock you can invest in right now”.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.