Why We No Longer Like Evolv Technology Stock

May 24. 2023. 6 mins read

The United States is unlike any other country in the world. For about half of our readers who hail from all the other interesting points on the globe, here are a few differences: We still use the British Imperial System for measurement, even though the Brits ditched it decades ago. Our paper money comes in just one color and size. National sports leagues that don’t exist elsewhere in the world, like baseball and (American) football, have world championship series. We tip for service, pay with credit cards for super-sized portions of food, and often graze indefinitely at all-you-can buffets. 

Graph showing trajectory of mass shootings in the United States.
Business is literally booming in Evolv Technology’s core U.S. market. Credit: Evolv Technology

And, of course, we can outgun any country on Earth, with about 121 firearms for every 100 residents in the United States. Easy access to weapons – whether legally obtained or through the black market – have led to nearly 650 mass shootings last year alone, with gun violence now the No. 1 killer of children. Where some might see a society in crisis, others see opportunity to grab market share. Evolv Technology (EVLV) has brought the metal detector into the digital age with an AI-powered screening system that uses sensors and algorithms to detect weapons as people stream seamlessly into stadiums, schools, hospitals, and more. 

An Update on Evolv Stock

Click for company website

We have actually been covering this Bawston area company on and off for more than five years when we first came across it for an article on AI startups doing physical security. It popped up a couple of years later on another list of high-tech startups developing safety solutions for smart cities. In 2021, Evolv decided to merge with a special purpose acquisition company (SPAC). At the time, we found enough to like the company but had zero inclination of buying shares until we could see the numbers behind the shiny investor deck. The merger went through in July 2021 and the newly minted Evolv Technology stock shares followed the usual SPAC trajectory over the last couple of years. In other words, straight into the dumpster. 

While it seemed that Evolv Technology stock was headed to the dustbin of public company history, the company has clawed its way back over the last few months to a market cap of just south of $1 billion. Is there a reason for optimism or is this typical meme stock shenanigans?

The Good News About Evolv Stock

Let’s start with the positives. The company ended 2022 with more than $55 million in revenue, a 136% year-over-year increase. That’s actually more than what Evolv predicted in its shiny investor deck back in early 2021. We definitely have to give them points for hitting what seemed like a pie-in-the-sky number when most other SPACs have fallen way short. 

Evolv Technology stock revenues
Credit: Evolv Technology

The company also added nearly 300 new customers, a 255% year-over-year increase. Here are a few more numbers Evolv management highlighted in the most recent investor presentation:

Evolv Technology metrics
Credit: Evolv Technology

Let’s unpack the most important number – those 2,267 subscriptions, which represents growth of 222% year-over-year. These are generally four-year software and service commitments from customers who either outright buy or lease Evolv Express, the company’s touchless screening solution. The long-term plan is to get out of the hardware business and become a pure software/security-as-aservice (SaaS) company where customers mainly lease the hardware. We tend to favor businesses with SaaS models because they offer more predictable and consistent annual recurring revenue (ARR) streams. 

This transition is already underway: ARR nearly tripled from $13 million at the end of 2021 to $34 million last year. Evolv projects ARR will double in 2023. Earlier this year, the company inked a licensing deal with its primary contract manufacturer to work directly with a select network of resellers to continue offering hardware purchases. Evolv will receive a hardware license fee for each system sold but will work directly with the reseller to provide its SaaS subscriptions to the end-users.

The Bad News about Evolv Technology Stock

It’s easy to get tunnel vision when you see such eye-popping percentage increases across the board, especially in the almighty revenue dollar category. But there’s a reason why Evolv is pivoting away from hardware sales and pushing the burden onto someone else. The company is losing money on every purchase:

Evolv Technology product revenues.
Credit: Evolv Technology

In fact, product revenue is such a drag on the bottom line that the company’s overall gross margin flatlined in 2022, with more than $100 million in total operational losses for the year. Management believes it can achieve between 30% and 35% gross margins by the end of 2023 by building up its SaaS revenues and rolling out a cheaper next-generation model of its Evolv Express. The company already increased prices across the board at the beginning of the year, but still maintained triple-digit growth in total revenue and ARR. Still, this is one of those we’ll-believe-when-we-see-it scenarios when it comes to increasing the gross margin gap.

Aside from shaky gross margins, there is some concerning customer concentration risk despite the gaudy numbers around new clients. Specifically, Motorola Solutions accounted for more than 20% of total revenue, with another unidentified customer representing about 10% of total revenue. Motorola is also an investor and sells its own branded products based on the Evolv Express platform. 

2023 outlook for Evolv Technology
Credit: Evolv Technology

Evolv also seems focused on just the weapon screening system market in the United States, which it claims has a total addressable market (TAM) of more than $20 billion based on “nearly 400,000 sites and nearly 700,000 individual thresholds where [its] security screening products could potentially be deployed.” While we don’t have the data to argue about the TAM, there is definitely a ceiling to how far Evolv can grow by being limited to its gun-toting domestic market.

Should You Buy Evolv Technology Stock?

Evolv Technology stock is definitely having a moment, but we believe this is more of a short-term growth spurt than the beginning of a long-term rise to market dominance. Does Evolv have the cash and capability to do so? The company has about $180 million in cash and liquid assets with no debt, so that’s a start. It could probably last another couple of years based on burn rate ($75 million in negative operating cash flow in 2022) and recent cost-cutting measures to see how this new pure-subscription model will play out. 

Eovlv Technology tech.
Evolv Technology believes a pivot to a SaaS-centric revenue model and a cheaper second-generation version of its hardware will boost margins.

Its partnership with Motorola Solutions, which has built up an extensive portfolio of security solutions that includes everything from video security to body cameras, provides a certain amount of synergy. Or could Evolv Technology stock be a possible acquisition target? The $48-billion company has been on a buying spree of late, snatching up all sorts of security-related companies. Though the time to buy was before Evolv Technology stock shot up more than +83% in the past month, perhaps buoyed by “traders” on Twitter or even AI hype. Evolv isn’t afraid to lean into it when describing themselves as, “the leader in AI-based weapons detection security screening.” Intrinsic value doesn’t jump that quickly, and short-term price movements like this are usually the result of hype.

Based on our simple valuation ratio (market cap/annualized revenues), Evolv currently sits at 12, which is well below our threshold of 20, but about double where most holdings in our tech stock catalog currently sit. We will continue to sit out and avoid Evolv Technology stock going forward.


It’s hard to put a positive spin on a business whose major market trend is mass murder, and its biggest customer is a school district with 160 Evolv Express units deployed across dozens of high schools and middle schools. On the other hand, the need for hands-off weapons detection tech isn’t going anywhere. But Evolv as a standalone company seems to have less value than as a bolt-on acquisition for an existing investor/customer like Motorola Solutions or even a traditional deep-pocketed defense company. Retail investors probably aren’t going to create generational wealth holding Evolv Technology stock.


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