It’s been a tough three months for MicroVision (NASDAQ:MVIS) investors who have held the autonomous driving technology innovator’s shares through a drop. Shares trade 79% off 2021 highs but could still make a strong comeback if management strikes a deal or two next year. Should MVIS stock investors look forward to a recovery?
MicroVision is a leading remote sensing Light Detection and Ranging (LiDAR) technology developer. It’s looking to form major supply deals in an emerging sophisticated automotive industry that’s amassing self-driving capabilities. The company touts a deep intellectual property portfolio and compelling value propositions for its small-sized lidar offering, but it lacks a key asset that is critical for its future success – long-term contracts.
Investors could witness MVIS stock trade mostly sideways in the coming year. Potential revenue declines, increasing cash burn rates, and sure dilution could weigh on MVIS stock in 2022.
MVIS Stock: Watch Declining Revenue and Growing Cash Burn in 2022
During the third quarter of 2021, MicroVision recognized revenue of $718,000 which related to royalties from a $10 million prepayment deal with Microsoft (NASDAQ:MSFT) made in 2017. The company earns royalties as its customer produces licensed components. The remaining unearned revenue on the balance sheet had declined to just $5.8 million going into October.
Management expects to recognize between $500,000 and $600,000 in revenue from the prepaid deal for the fourth quarter. The company’s declining revenue run-rate may persist in the coming quarters.
At current revenue recognition rates, it could take two more years for MicroVision to exhaust the prepayment. The customer won’t make cash purchases until the balance is exhausted.
The problem with MicroVision’s situation is that current royalty revenue isn’t contributing anything to the company’s cash flows. The prepaid money is already spent, already gone.
MicroVision needs to land a new cash-paying customer soon. Given the business’s growing cash burn as it hires more talent, grows inventory, and invests in business development efforts, new cash injections may be required within the next two to three years.
MVIS had a seemingly healthy cash balance of $125 million going into the fourth quarter, but cash burn rates could expand north of $10 million a quarter, starting this quarter.
Sure Dilution for MVIS Stock Investors in 2022?
Higher cash burn and non-cash revenues could combine to fuel significant shareholder dilution in 2022.
If MVIS stock remains beaten down for much longer, the company’s remaining equity raising capacity on its at-the-market (ATM) program with the Craig-Hallum Capital Group could be utilized at unfavorably low share prices. The ATM could be more dilutive than other recent similar transactions.
Given increased stock-based compensation going forward, dilution could worsen if an acquisition deal doesn’t come along in the near future.
MicroVision Management Upbeat, Peer Validation Followed
MicroVision’s leadership remains overly bullish when describing how the company’s LiDAR offering beats the competition on all critical fronts. One only has to go through the company’s Q3 2021 earnings call transcript to read through one of the most beautiful and encouraging recent pitches for MVIS stock as presented by the company’s upbeat Chief Executive Officer Sumit Sharma.
MicroVision believes it beats competitors on cost, design features, size, operating latency, and scalability of offerings. Its LiDAR’s purported 250-meter scanning range seems at par with its toughest competition. MVIS’s sensor ranges place it in the same brackets with Innoviz’s (NASDAQ:INVZ) lidar offering, Ouster’s (NYSE:OUST) competing system, and Aeva’s (NYSE:AEVA) flagship lidar product. MicroVision’s offer even threatens to beat Valeo’s 200-meter sensor range.
That said, there are not any standards against which to test the various lidar systems from the several start-up companies to make an apples-to-apples comparison. Interestingly, such standards could be developed soon. Even more interesting is the fact that MicroVision will take a critical industry role to that end.
Microvision and Innoviz are two of only three LiDAR developers selected to join a LiDAR standard-setting consortium led by fka GmbH, a Germany-based automotive testing research and engineering services leader. The consortium includes several leading global automakers and top-tier suppliers to the car manufacturing industry.
To a market observer, the invitation to set industry standards seems like strong peer validation for MicroVision’s leadership in the LiDAR development space. Innoviz has signed industry deals with BMW and Magna.
History Better Not Repeat Itself on MVIS Stock
MicroVision is bullish and confident it will succeed in the automotive vertical. However, there are no customer deals signed yet to validate its management’s claims.
Investors will recall that MVIS failed to secure a customer to launch its first module in 2020. It shifted its attention to strategic alternatives which included an outright sale of the business. Nothing has transpired yet (since February 2020), and there are no offers on the table to this day.
That said, the company reported positive feedback from its marketing presentations at the 2021 Munich show. Management targets clinching new deals that could generate recurring revenue from 2025 car models and beyond.
Perhaps the innovative company will bag a deal around the CES 2022 auto show in Las Vegas. It has to; it needs one.
Analysts project potential revenue growth of around 175% year-over-year for 2022. Achievement will depend on new deals and partnerships. The company needs new business next year. Its microdisplay, augmented reality, and virtual reality offerings should also help bring something to the top line next year. History should better not repeat itself this time.
If it does, MVIS stock could print new lows in 2022.
On the date of publication, Brian Paradza did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Brian Paradza is an investing enthusiast who was awarded the CFA Charter in 2019. A strong believer in fundamentals-based long-term investing, Brian learns from gurus like Warren Buffett but acknowledges human behavioral tendencies that drive short-term “madness.” You may find him inquisitive as he examines tech investing opportunities, cannabis, blockchains, and the new cryptocurrencies asset class.