MicroVision (NASDAQ:MVIS) held a conference call on March 11 for its fourth-quarter and 2020 earnings report, and management made a startling announcement. The CEO, Sumit Sharma, made it quite clear after questioning that the company is up for sale. This means that MVIS stock has limited upside. No suitor for the company is going to consider buying it if the stock is soaring, artificially pushing up the shares.
MicroVision is basically looking for a strategic partner right now with its high valuation and limited revenue ($3 million in the last 12 months). It makes sense that any potential buyer will want to see the stock fall further. They are also likely to wait until MicroVision actually reveals its new Lidar vision product sample, which is due out sometime in April.
Why MicroVision Is Up For Sale
In case you can’t actually believe what I am saying, here is one of several quotes where Sharma made this point:
“So, I’m saying that strategic alternatives is the right way to think about it. And we are a stand-alone company right now, but we’re up for sale. So I think that’s the best way I can answer it.”
Why would he say that? The conference call seems to give several clues.
First, the CEO heavily implied, that despite its new cash position of about $78 million, the valuation of MVIS stock is highly valued. For example, right now MVIS stock has a $2.04 billion market capitalization. But in response to a question from Ladenburg Thalmann analyst Glenn Mattson about the urgency in finding a strategic partner, the CEO said this:
“How is anybody can justify all these valuations with the kind of revenue that would have to be a reasonable multiple to that in the future, right, Glenn?”
The CEO pointed out that there is a significant amount of consolidation going on in the Lidar sector right now. In addition, the CFO said the company is ramping up its ongoing expenses, and cash burn is now $5 million to $5.5 million per quarter and rising. That means its burn rate of $20 million to $23 million per year could reduce its $78 million fairly quickly, especially if it keeps rising.
This means that the company will not have enough money to go into full production mode once its sample products are available. But that is not even the point. They need to find a clear strategic partner that wants to use its latest long-range Lidar sensor product.
Where This Leaves MVIS Stock
Most of MicroVision’s revenue right now comes from what it calls a “large customer” or the “April 2017 customer.” It’s highly likely that this customer is Microsoft (NASDAQ:MSFT), partly because both companies are based in Redmond, WA.
Recently Microsoft won an augmented reality headsets contract that could be worth up to $21.88 billion over 10 years. Seeking Alpha reported speculation that MicroVision stock would benefit from this contract with Microsoft, but there is nothing to support this so far.
Nevertheless, this has not prevented rumors from circulating that the company is looking to be bought out by Microsoft. But why would Microsoft buy out MicroVision until the company had at least produced its new long-range Lidar Sample A sensor product?
The CEO indicated on the conference call that this would be out sometime in April and that sample sales could be made in small quantities in Q3 or Q4. Therefore, don’t expect Microsoft or any other large company to make any moves until the company actually shows it has a long-range Lidar sensor product.
And this, of course, begs the valuation question. The longer it takes for MicroVision to actually produce its sample sensor, the lower MVIS stock will fall. As a result, most potential investors in MVIS won’t make any move until they see how well the product, if produced at all this year, is received by the market.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
