Four LiDAR Stocks That Debuted in 2020
You don’t need to be educated in a particular topic to speak knowledgeably about it. All too often, educated people who should know better say daft things like, “Elon Musk’s net worth plunged $16.3 billion Tuesday, the largest single-day wipeout in the history of the Bloomberg Billionaires Index.” This non-news headline should read “Elon Musk’s paper wealth fluctuates rapidly in response to the extremely volatile stock price it’s tied to.” Confusing paper wealth with real wealth is a mistake newbie investors make all the time, not to mention those who should know better.
You may have seen financial pundits droning on about the 25-year-old self-made “billionaire,” Austin Russell, whose LiDAR company went public this year using a special purpose acquisition company (SPAC). The same holds true. When this bloke sells all the shares of his company, something he’s not likely to do anytime soon, then we’ll see if he’s managed to clear that elusive billion-dollar watermark. Today, we want to talk about the proliferation of LiDAR stocks coming out of the woodwork.
The LiDAR Investment Thesis
The harder you work, the luckier you get. Elon Musk’s luck has been largely driven by 15 years of 100-hour workweeks. You do the math. Everyone likes to talk smack about His Holiness Elon Musk, but you’re well served to listen to what he says, and he happens to believe that LiDAR is a “fool’s game” for self-driving cars.
Even if Mr. Musk is right, there are more reasons to invest in LiDAR aside from the autonomous driving thesis. There are last-mile-delivery robots, robo taxis, autonomous shuttles, mapping applications, and many use cases in robotics. Leading experts estimate an approximate $118 billion total addressable market (TAM) for LiDAR-based perception applications by 2025. LiDAR is a technology we wouldn’t mind getting some exposure to because it crosses so many tech verticals. The problem is that the LiDAR companies that are public have chosen to use SPACs, all of which are being hyped at the moment.
Four LiDAR Stocks
We recently had a reader comment that Innoviz was at “an attractive price” because it has the lowest price premium. If we pretend for a second that all deals were valued in the same fashion, and that the valuations were fair, the comment still doesn’t hold water. It’s all about the quality of the business. As Mr. Buffett says, “it’s better to buy a wonderful company at a fair price than buy a fair company at a wonderful price.”
Let’s start with the company we view as most attractive of the lot – Velodyne.
Our tech investment methodology prioritizes revenue growth over profitability because capturing market share is what disruptive technology is all about. Of the four LiDAR companies in today’s beauty contest, Velodyne stands out because they have a track record of meaningful revenues. The problem is they’re shrinking, which is all part of their master plan to spur adoption by decreasing the price of their product. It’s one of those rare cases where we might look past shrinking revenue growth, and trust the company’s forecasted revenue growth which looks like this:
So far, Velodyne’s revenues have largely been sales that are not part of a multi-year agreement, generally, spot buys used for development of new programs. Next year, they’re expecting to increase sales from multi-year agreements including software and subscription revenues. Here are the areas where they expect that growth to come from.
As we’re learning with the only SPAC we’ve invested in so far, Desktop Metal, volatility is a characteristic of SPACs that we need to accept. Since the deal closed, shares of Velodyne have traded down to the low $12 range. We’d be buyers closer to the $10 per share mark which is what institutional investors were willing to pay.
After the first electric vehicle SPAC debuted, droves followed. That’s because founders saw how easy it was to raise money with a SPAC under increasingly favorable terms. When you have 13 million newbie investors who will throw money at anything, why not go for the maximum amount of money you can get at the highest possible valuation? Ever watch Shark Tank?
The same thing that happened with electric vehicle companies happened with LiDAR companies. Luminar followed the Velodyne SPAC with much the same value proposition, but less revenues to show for (2020 revenues are expected to be around $15 million). Daimler Truck invested in the company at the SPAC valuation (around $10 a share) which is what retail investors should consider investing at, not the $22.97 per share it sits at currently.
Innoviz was one of the 9 Startups Developing LiDAR Sensors for Cars we covered back in 2017. At that time, the company was only a year old and had raised $9 million. As of today, they’ve raised a disclosed $252 million and announced their plans to go public using a SPAC called Collective Growth Corporation, a vehicle being run by Bruce Linton, former Chairman of Canopy Growth Corporation (CGC). An article by Forbes this past summer described the SPAC as follows:
Earlier this year, Linton launched Collective Growth, a special-purpose acquisition company that went public on the Nadaq exchange in May, and aims to exploit the potential of hemp, seeking to disrupt many industries that go well-beyond medical and recreational cannabis.
My, how quickly they pivot. Momentus was another SPAC that pivoted from cannabis into tech. Perhaps these cannabis SPACs are encountering unexpected regulatory problems.
The Innoviz pitch deck plays the pivot down by framing Mr. Linton as a man with a great deal of M&A experience, but it’s starting to become apparent that these SPACs are all about making deals, prior experience be damned. Another clue is the involvement of hedge fund Antara Capital in the transaction. When you have such an industry mix-and-match of participants, it’s easy to see how focus might be less on establishing the most accurate valuation, and more about “not leaving any money on the table.” That’s not good for retail investors.
Just today, a CEO was bemoaning the fact that Airbnb and DoorDash left money on the table. Accusing the investment bankers involved of an “epic level of incompetency,” he criticized investment banks for “not appropriately factoring in the new cohort of younger investors as the priced IPOs.” As if we’re all supposed to disassociate with valuations because 13 million morons at Robinhood have decided to.
Three members of the Innoviz founding team hail from the most elite technology unit in the Israeli Defense Forces. This formidable force has now made a beachhead on the shores of Germany, partnering with BMW to bring their LiDAR solution to market in a production contract for L3 LiDAR solutions across multiple vehicle lines. Today, Innoviz claims to be “only certified automotive-grade high-performance LiDAR on the market in the near future,” a statement that implies the competition isn’t far behind.
They’re also the only LiDAR company that meets both performance and cost requirements. Did we mention that the founding team members are all ex-Israeli Defense Forces?
At the end of the deck, you’ll find the usual comparables slide which compares their grandiose expectations with everyone else’s grandiose expectations. Here’s perhaps the most useless SPAC metric we’ve seen to date:
Innoviz estimates $5 million in revenues for 2021, and after that a compound annual growth rate (CAGR) of +155% over the next 5 years culminating in 2025 revenues of nearly $540 million. Revenue growth predictions and $3 won’t get you a pumpkin spice latte at Starbucks these days, so we’re a pass on Innoviz.
The final entrant in today’s beauty contest is a company we came across last year in our article on 6 New Perception Systems for AI Self-Driving Cars. Founded in 2017, Silicon Valley startup Aeva has raised $48.5 million in disclosed funding so far. The last round of funding was an undisclosed corporate round in December of 2019 which was led by Porsche. The founders, a pair of ex-Apple engineers, have built a sensor package that “combines the key advantages of lidar, radar, machine vision, and high-accuracy motion sensing.”
Like the others, Aeva has only sold or otherwise provided prototypes and non-recurring engineering services. Revenues from those activities are as follows:
- 2018: $135,000
- 2019: $1.4 million
- First nine months of 2020: $4.1 million
In September 2020, Aeva announced a multi-year production partnership with ZF, a global automotive Tier-1 supplier, to manufacture and distribute the world’s first automotive-grade 4D LiDAR to OEM customers globally.
Like every other company on today’s list, the message seems to be that you, Mr. Retail Investor, have arrived at the perfect time – just before the hockey stick growth happens. In the case of Innoviz and Aeva, don’t even bother looking at these investment vehicles until the tickers have changed, signifying that the deals are done and dusted.
Momentus and Collectives Growth were both SPACs that started out looking for cannabis opportunities and ended up settling on space transport and autonomous driving. The original intent of the SPAC was for subject matter experts to focus on an area where their prior expertise could lead to compelling investment opportunities. Now, it’s just about getting a deal sealed so the SPAC managers can take their 20% and start working on the next one.
For retail investors, you’re best off staying clear of these LiDAR stocks and waiting until the music stops and the dust settles. Revenue growth will be the biggest indicator of traction, so that’s what we’ll be monitoring going forward from the sidelines.
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