This ad caught my eye as readers were forwarding it in because it looks like a biotech pitch at first, but quickly morphs into a technology story.
The spiel is all about stopping deaths, and about how it’s about time someone put a stop to the unnecessary level of pain and suffering we’re all suffering… but it’s not about the next pain pill or cancer drug, it’s about technology that will prevent accidents. Especially car accidents.
Sound familiar? Yes, I imagine we’re looking at some of the same kinds of technologies that are being touted as key enablers of advancement as the “driverless car” evolves… but auto technology and safety technology have both generated some big stock market winners in the last couple decades, so let’s see exactly what Chris Versace is talking about as he tries to get us to subscribe to his Growth & Dividend Report (which is, as almost all newsletters almost always are, “on sale” for a “special low price” — in this case, $49.50 instead of the “regular” $250).
Here’s how the ad gets your attention:
“The vast majority of car accidents — 93% – are the result of human error.
“And I’ve seen several other reports that put that number as high as 98%.
“Now one company has emerged with technology designed to compensate for the human errors… protecting you, your family and millions of your fellow drivers in the process.”
Which “one company” is that? It’s probably not the same stock that the Motley Fool was touting in their driverless car ads last year (the one that’s Warren Buffett’s “worst nightmare” because it will destroy the auto insurance business), since that was a pitch for a microchip company (Nvidia, NVDA) and Versace seems to be talking about more of a “pure play” auto safety company, but we’ll find out when we go through the clues.
(Nvidia, by the way, has done just fine since the Fool started teasing it with that ad almost exactly a year ago — it’s up about 20% while the S&P is up about 10%. Still trades at about 20X earnings, with a small dividend and a large cash pile.)
So what is this new technology that Versace says will be “disruptive?” (When you’re pitching an investment, “disruptive” is usually code for “doesn’t matter that it’s expensive, because it’s going to change the way their business works in dramatic ways that ordinary mortals don’t understand.”) Here’s some more from the ad:
“… this is the first proactive driver protection system I’ve ever come across.
“I’m not talking about seat belts and air bags… or even antilock brakes…
“I’m talking about a system that will monitor what’s happening around you and actively engage systems to prevent an accident.
“That’s why the company developing this technology refers to it as a “Guardian Angel”…
“And why this proactive system will save hundreds of thousands of lives — maybe millions — over the next few years.”
OK… so what is this “Guardian Angel?” Thankfully, he starts to get into a few specifics as we drive our way down the page…
“Founded in 1999, this company has been installing driver-assist systems in cars around the world for almost a decade.
“To put it in their own words, “this system is a Guardian Angel, improving driver safety and driving habits”.
“With their latest systems installed in over 160 models in 2015, the next revolution in automotive safety is right around the corner… and the “Guardian Angel” technology is critical to making it happen.”
And he tosses out a possible model for how much these companies might make, along with a recent catalyst…
“In January 2015, the NHTSA announced that they would add automated braking systems to the recommended safety features in their New Car Assessment Program.
“This is the first big push for automakers to start embracing automated and assisted driving systems.
“And it’s a huge boost to business for the companies that supply these technologies.
“This effort will provide even more momentum to an industry that already stands at about $6 billion. So how big could the market get? Consider this…
“Estimates from French research firm Exane BNP Paribas say it should be worth $25 billion by 2020 and $57 billion by 2025. That’s a growth potential of almost 10 times.
“If share prices for the companies leading the charge grow at the same rate… that could turn a $5,000 investment into $47,500.”
He goes through some of the recent advancements in safety that started in luxury brands and are trickling down to most modern cars now, like the “lane departure” warnings, braking assist when you get too close to the car in front of you, which he says are part of this company’s offerings…
“The BMW i3 now includes an option for a Driving Assistant Plus package which warns drivers about collisions.
“It also features the ability to automatically maintain speed and distance in both city traffic and traffic jams.
“Most recently, the 2014 GMC Sierra introduced both Lane Departure Warning and Forward Collision Warning capability, including a vibrating safety seat to help alert the driver.
“As you might have guessed by now, all of these innovations are part of the ‘Guardian Angel’ technology.
“And by 2016, these revolutionary systems will be integrated into the production of 237 car models from 20 different manufacturers.”
And Versace, echoing claims made by the Motley Fool last year, says that the “disruptive” impact of this safety technology will drive down auto insurance rates, though he says it in a more colorful way:
“The Death of the Geico Lizard
“As the uncrashable car becomes closer to a reality, the auto insurance industry will be reshaped completely…”
I met the lizard in Omaha, he still seems pretty hale and hearty… but I wish him well. (And no, I’m not proud of my hair in that photo — but if you make me wake up at 4am to get a seat to see Warren Buffett speak, that’s the best I can do.)
And one more bit of excitement before we toss all this into the hungry maw of the Thinkolator…
“… the best part is…
“How this technology will disrupt other sectors hasn’t yet factored into this company’s profit potential.
“The “Guardian Angel” technology won’t just be in almost every single new car made over the coming decades…
“It will trigger a major change in the auto insurance industry…
“It will impact the way we design and spend on future highway projects…
“And it will potentially shape all forms of travel… automated trains, self-driving trucks, airplanes, marine craft from small boats to commercial ships — nothing that moves is off limits.
“So what does this mean to you as an investor? Simply this: you could make life-changing profits by investing in this company today.”
Enough? Right, well, there are a bunch of companies working on safer cars and on “awareness” systems like Versace is mostly talking about here, from rear-view cameras to lane sensors and forward crash sensors that can shake a driver awake when he’s about to drift off the road or into the back of a semi trailer. But when we feed all of those clues into the Mighty, Mighty Thinkolator and allow for a few minutes of chipping and chopping and pulverizing, we come up with one overwhelming answer: Chris Versace here must be teasing Mobileye (MBLY).
Mobileye is a technology company, aimed primarily (but not exclusively) at the automotive safety market — here’s how they describe themselves on their homepage:
“Mobileye is a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye’s technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving.
“Mobileye’s proprietary software algorithms and EyeQ® chip (now in its 3rd generation) perform detailed interpretations of the visual field in order to anticipate possible collisions with other licensed vehicles, pedestrians, animals, debris and other obstacles. Our products are also able to detect roadway markings such as lanes, road boundaries, barriers and similar items, as well as to identify and read traffic signs and traffic lights. This is done with high performance, low energy consumption, and low cost, with automotive-grade standards.
“Mobileye’s unique capability in this area is having all the object detection algorithms conducted by a monocular camera configuration thereby reducing cost and simplifying tooling and packaging of the camera sensor device.”
Though this is a brand new public company, and just had an IPO last Fall, their technology has been in cars for eight years now, slowly working its way down from the Volvos and BMWs to the Fords and Chevrolets, and it’s still often an optional system. Their signature system, that uses a rearview mirror-mounted camera to warn of problems ahead (pedestrians, lane drift, slowing car, even reading speed limit signs), is also available aftermarket and has been for a while (you can see a review of an older version from Consumer Reports here, for example).
This is definitely a speculative stock — and some folks think the market is unlikely to be all that friendly to speculative stocks, so if you’re not interested in a bumpy ride you can probably stop reading here. They went public at $25 last August, pricing above the expected range, and immediately jumped 50% on the first day — since then the stock has bounced from a low near $30 to highs of almost $60 and is now right in the middle of that wide range at about $45… and they report next week, so your guess on the price seven days ago is probably just as good as mine or Chris Versace’s. The shares at $45 are up about $10 since they reported their final numbers for 2014, despite the fact that there was a secondary offering at $41.75 back in March.
So it’s all about the future with Mobileye — they have one really core product, the forward-looking camera and algorithm for interpreting that camera’s data, and though they have a large number of auto models they’re selling into already (and more expected), and this year they released the next version of that product which will be in 2018 model year cars, the revenue is still really almost trivial for a $10 billion company. They had revenue of about $140 million last year, which was about 75% revenue growth from 2013, and analysts are forecasting dramatic growth of better than 50% both this year and next year — which is good, because even after two years of that growth the analysts think they’ll be making sales of only $345 million a year… which means that right now, Mobileye is trading for 28X forecasted 2016 sales (or about 92 times expected 2016 earnings).
Will that growth happen? I have no idea what the prospects are, I’m afraid — but I would expect a very bumpy ride. The insiders and investment banks sold about 20 million more shares in that follow-on offering in March, which is no real surprise (their R&D and early products have been funded by venture folks for 15 years, insiders and early investors no doubt want some return), but this will very likely be a very momentum-driven stock for quite some time — if the sales growth continues at better than 50%, and they can improve margins as sales rise as most software/chip firms can, then it can probably keep going up… if it misses a quarter, look out below. With a forward PE well over 100, I think you probably need a “beat and raise” every quarter.
That’s certainly possible, but I don’t know what the odds are. If you look at the 20-F (a foreign issuer’s equivalent of a 10-K — Mobileye is an Israeli company) you’ll see the pretty clear rapid growth rate, but also the rapid growth in costs as they scale up… where that really diverges in the future, with margins increasing more aggressively as sales increase and bringing real profits, I don’t know (and if you want to quibble, my worry would be that their overhead general and adminstrative costs are rising over the last couple years — but so far they’re not spending a lot more on sales and marketing than they were two years ago… could be nothing, it’s hard to know how companies classify spending and how they arrange to make numbers look good right after they go public, but for most companies it’s also hard to grow without ramping up your sales efforts).
This is not an unknown company, it’s fairly large and got a lot of attention at the IPO last year (which did well despite a soft market at the time), and it’s been touted by the growth investor’s bible Investors Business Daily recently as well… cool story, a popular product it seems, and, well, a stock that’s really, really expensive and is reporting earnings next week. That’s about all I can tell you from my few minutes with the stock this morning — Buckle up!
And, as always, if you’ve been toying with this recent IPO, or have an opinion on the prospects, feel free to shout it out with comment below.