MicroVision: A Promising AI Business Model But Underappreciated

Microvision Inc. (NASDAQ: MVIS) went from near $3-4 to over $6-8 in less than two months. We are pleased that the previous analysis yielded such useful results. Along with that, considering MicroVision’s exposure, Given the recession in Germany and Europe and the recent lack of communication from management, the current valuation cannot be justified. I also believe that the current number of employees reported by MVIS is too small to justify its current market capitalization.

MicroVision: Great Partner, Growing Target Market, and Great Stock Performance

MicroVision designs and markets lidar hardware and software solutions for the advanced driver assistance systems market.

The company has recently received a lot of recognition thanks to its partners in the technology industry and the automotive sector. Even if you don’t like the current stock price, I believe so. there are so many things i like MVIS business model.

The company has recently attracted a great deal of interest from market participants. The main reason is that the company operates in a target market that he expects to grow at his CAGR of close to 30-50% from 2025 to 2030. I evaluated his MVIS potential valuation in a recent article. article. Readers may want to see that article before seeing this article. It may also be of interest to look at recent stock price movements.

MicroVision: Wondering if it’s time to sell after a big recovery in stocks

In my previous article, I suggested that future free cash flow from 2023 to 2033 would result in a valuation of $4.85 or less per share. Since the publication of this article, the stock price of MVIS has risen from nearly $3-4 to over $6. Congrats to the investors who bought the stock for about $3-4 and they are now making impressive profits.

As a result, we believe that it may be necessary to reevaluate the MVIS evaluation regarding recent stock returns. I’m not saying the stock could hit $10 or $15 in the future. I am simply saying that I feel there are some difficulties in justifying such an assessment.

Rating and number of employees

I think you can assess the due diligence of MVIS by looking at the total number of employees and market capitalization. Let’s start with the acquisition by MVIS. Germany’s Ibeo was acquired in 2023 for nearly $21 million, including cash paid, cash in escrow, holdbacks and upfront payments.

Pursuant to the terms of an asset purchase agreement dated December 1, 2022, the Company will complete the acquisition of the assets of Ibeo Automotive Systems GmbH (“Ibeo”) on January 31, 2023 with MicroVision, a wholly owned subsidiary of the Company. completed on the day. GmbH is organized under the laws of the Federal Republic of Germany. Source: 10-Q

According to Linkedin, Ibeo had nearly 400 employees. However, a further investigation by Zoominfo reported that Ibeo had about 325 employees. In any case, MVIS market capitalization divided by the number of employees is not far from $0.06 million.

With the new 4D solid-state LiDAR ibeoNEXT, Ibeo has set a milestone on the road to fully autonomous driving. Ibeo employs more than 400 of his employees at locations in Hamburg (Germany), Eindhoven and Detroit and intends to establish a subsidiary in China.Source: LinkedIn

According to MVIS’ list of competitors, the ratio of market capitalization to total number of employees is between about $7 million and $1.49 million. It’s also worth noting that this ratio wasn’t really that high. Since 1995, no competitor has reported a salary-to-employee ratio significantly higher than his $7 million.

According to MVIS, after the acquisition of Ibeo, the total number of employees is close to 350. Assuming the market capitalization he is close to $1.35 billion or $1.5 billion, the ratio per employee would be $3.85 million to $4.2 million. That means it could reach $7 million per employee, which could also double his current price mark. However, downside risks appear to be considerable. Considering I wrote the article he was at $3-4 a share, I would consider him selling at $6-8 a share right now.

As of February 24, 2023, we have approximately 350 full-time employees across our global offices, including employees who joined MicroVision in connection with the acquisition of assets from Ibeo. increase. Source: 10-k

MicroVision appears to be trading at over 100x sales

In its last quarterly report, MVIS reported revenue of nearly $780,000, research and development of nearly $12 million, and total operating expenses of nearly $21 million. Considering these numbers, a market valuation of over $1 billion seems too big.

MVIS appears to be trading at nearly 106 times futures sales, while other growth tech companies and competitors trade at between 1 and nearly 27 times futures sales. All in all, MVIS doesn’t look cheap compared to its competitors.

MicroVision exposed to German and European markets, entered recession in Q1 2023

There is a lot of new information about the economic situation in Europe, which entered recession in the first quarter of 2023. In fact, Germany, where his MVIS now operates after the Ibeo acquisition, is also in recession. With this in mind, we think it would be wise to sell MVIS now.

The euro zone entered a recession in the first quarter of this year, but economists are not optimistic about the outlook for the coming months. The union’s gross domestic product fell by 0.1% in the first quarter, according to revised Eurostat estimates released on Thursday. Source: Eurozone plunges into recession after growth revisions in Germany and Ireland.

Household spending, the engine of Europe’s economy, finally gave in to the pressures of high inflation, sending the German economy into recession in early 2023.Source: German economy plunged into recession as inflation hits consumers

MicroVision didn’t really explain the recent stock price rally

I don’t like how they can’t really explain why the stock has risen so much. The company did not provide a press release mentioning any type of acquisition, new development or corporate transaction. This press release was issued on May 9, 2023. I really don’t think the new information reported in May can explain why stocks are still trending higher in June.

I believe the stock price movement can be explained by a large short squeeze on the short positions that many have placed on MVIS. Short sellers may be buying to close positions, which may be driving up the stock price. In this case, we don’t know if the stock could hit $10, $15, or $20 per share. However, without clear information about what will happen, I think it makes sense to close the position.

Stock dilution risk

Given the current share price, I think management and the board may try to issue shares. Considering the stock is trading at its highest level since May 2022, this would be a smart move. The recent increase in the number of shares seems to indicate that management may think now is the best time to sell shares.

If MVIS is able to generate additional cash from the sale of its shares, management may use the new cash to reduce accrued debt, pay operating lease liabilities or reduce contractual liabilities in connection with the Ibeo business combination. be. The company may also accelerate its capacity development and report more assets and equipment.

Stock price volatility and risk of smart money leaving MVIS

Positions in stocks mean exposure to large fluctuations in stock prices. We were very clear about this risk in our last quarterly report because management can’t really do anything if investors start buying like they did recently.

Our stock price has fluctuated significantly in the past and may continue to fluctuate in the future. In the 52 weeks ended May 5, 2023, our common stock has traded at a low of $1.82 and a high of $5.96. We may continue to experience sustained downturns or significant volatility in stock prices in the foreseeable future, regardless of our performance or outlook. Source: 10-Q

There’s another clear sign that we may see a stock market sell-off in the near future. The number of institutional investors holding MVIS shares appears to have fallen recently. According to Ycharts, the number of institutions has decreased recently. It is questionable whether stock price declines will occur in response to the amount of smart money in stocks.

Conclusion

MicroVision recently delivered a hefty stock return to my followers and those who bought the stock a month ago. I believe it’s time to close stock positions. I haven’t heard from management recently, many institutional investors sold their positions, and there was a lot of skepticism on social media, and I couldn’t explain the further stock price appreciation. I doubt his future FCF generations will be able to explain the $6-$8 per share price. Furthermore, the number of employees working within MVIS does not appear to be sufficient to justify its current market capitalization, even considering the new hires from Ibeo Automotive Systems. Finally, given the ongoing recession in Europe and Germany, I doubt next quarter’s earnings will be better than the past.