Gores Metropoulos (NASDAQ:GMHI), a SPAC (special purpose acquisition company) stock signed a merger agreement on Aug. 14 with Luminar. GMHI stock should do quite well since Luminar is a Lidar autonomous driving technology company that has very good prospects.
Lidar sensors use lasers to make 3D representations of objects. Luminar is used by seven of the top 1o global automakers for auto self-driving technology. Also, it claims to have 50 partner companies. Volvo will use Luminar’s products in its 2022 vehicles.
Luminar Should Be Very Profitable
Recently the company made a presentation to investors. This was very helpful since it allows us to see the company’s own forecasts of its profitability in the future.
For example, the transcript of the presentation shows that Luminar believes its total addressable market is $150 billion. The company says it can capture $5 billion in revenue from that market. Luminar also believes that it can make EBITDA (earnings before interest, taxes, depreciation, and amortization) of $2.5 billion.
Moreover, Luminar forecasts that its order book will be over $1 billion by the end of this year. By the end of 2025, it believes that the order book will be $10 billion.
However, the company’s financial reality seems to be a bit more conservative. For example, on page 27 of that presentation, Luminar forecasts EBITDA profits of $124 million in 2024 and $365 million in 2025. And the 2025 revenue is forecast to be just $837 million.
So there seems to be a wide gulf between its order book and its ability to translate that into revenue and profits. Nevertheless, this is still impressive for a company cutting a pathway in the vanguard of a new industry.
Later in the presentation, Luminar says it won’t reach $5 billion until 2030. Most of that revenue will come from sales of its Lidar sensors on passenger and commercial electric vehicles. Some of it comes from robo-taxis and adjacent markets.
What Luminar May Be Worth
At $10.55 per share, Gores Metropoulos has a pro forma implied market capitalization of $3.574 billion. The presentation says on page 42 there will be 338.8 million fully diluted shares outstanding after the merger closes.
Moreover, Luminar will have $488 million in cash on hand post-merger. Therefore, its implied pro forma enterprise value (EV) is $3.086 billion ($3.574 billion less $488 million).
Therefore, the pro forma 2025 EV-EBITDA ratio is 8.5x. Keep in mind that is a projection for five-plus years in the future. It is a little surreal. But that is what passes for valuation of high-tech companies these days.
In fact, on page 43 of Luminar’s presentation, it attempts to justify this valuation. Here is the title of the slide: “Future Growth and Margin Profile Compares (sic) Favorably With Peers.”
And if that doesn’t sink in, here is what the next slide (page 48) proclaims: “Transaction Represents Attractive Discount to Peers.” It discounts Luminar’s future EV back to the present at a 20% discount rate. It then shows that this a reasonable valuation (7.9 x 2025 EV-EBITDA).
What To Do With GMHI Stock
At this point, GMHI stock is up just 5.5% from its IPO price of $10. it does not seem to include any kind of premium that other SPAC stocks have had once their mergers were announced.
But SPAC investors may be getting more critical. For example, apparently, the SEC is going to scrutinize the SPAC industry and blank-check stocks more carefully, according to Seeking Alpha and CNBC.
Investors seem to be holding back on GMHI stock. They are leaning towards companies with near-term prospects of making money.
Nevertheless, investors who invest a portion of their assets in speculative or risky assets might look at GMHI stock. After the merger, the market might grant the stock more credence about its ability to generate revenue and profits in the future.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake runs the Total Yield Value Guide which you can review here.
