Mobileye: Bright Future, But Intel Overhang Is A Problem

Core Viewpoint - Mobileye Global Inc. has experienced a significant decline in its investment thesis over the past year, with the stock price dropping substantially and Intel rumored to be considering selling its large stake in the company [1][2]. Group 1: Recent Developments - In September, Mobileye canceled its internal Lidar development and is reportedly facing Intel's potential sale of its 88% stake, which poses a significant overhang on the stock [2]. - The company plans to cut 100 employees by year-end and has forecasted Lidar R&D costs for 2024 at $60 million, which includes $5 million in stock-based compensation [2]. - Mobileye's R&D expenses were $256 million in Q2 '24 and $499 million in the first half of the year, indicating that the planned cuts represent only 6% of the total spending [2]. Group 2: Financial Performance - Mobileye reported a 3% year-over-year decline in Q2 revenues and has reduced its 2024 revenue guidance to $1.64 billion from a previous estimate of $1.895 billion, attributing the challenges to macroeconomic conditions in China [4]. - The company has lowered its EyeQ sales estimates by 3.5 million units for the second half of the year, and it is currently near cash flow breakeven [4]. - Despite the setbacks, analysts project a sales increase to $2.2 billion in 2025, with 2023 sales reaching nearly $2.1 billion [4]. Group 3: Market Position and Valuation - Mobileye's stock is currently trading at around 5x forward sales targets of $2 billion, down from previous multiples exceeding 12x forward EV/S [5]. - The company has a valuation of $10 billion, which suggests a disconnect in the market, especially considering the potential acquisition of a Lidar technology leader like Innoviz Technologies, valued at $100 million [2]. - The major concern remains Intel's potential sale of shares, which could significantly impact the stock given that Intel controls a large portion of the outstanding shares [5][6]. Group 4: Future Outlook - The investment stance on Mobileye is currently Neutral, with the company needing to demonstrate a turnaround in its business before being considered a Buy [6]. - Despite the challenges, Mobileye still has a promising future in advanced driver-assistance systems (ADAS) and autonomous vehicles (AVs) [6].