Shares of Velodyne Lidar (VLDR) charged sharply higher Tuesday, surging as much as 29.2%. As of 11:30 a.m. ET, the stock was still up 12.5%.
The catalyst that sent the light detection and ranging (lidar) systems specialist higher was a deal that could lead to a significant ownership stake by Amazon (AMZN -3.66%).
In a regulatory filing late Monday, Velodyne disclosed that it had entered into an agreement with the e-commerce giant. Velodyne issued a warrant that would allow Amazon to buy as many as 39.6 million shares of Velodyne stock, or nearly 16% of the company, at an exercise price of $4.18 per share.
The vesting of the warrant shares will be contingent on certain discretionary payments made by Amazon to the lidar maker of up to $200 million. Amazon will also have the right to exercise the warrant at any time before Feb. 4, 2030. Once its stake has climbed above 12.3 million shares, Amazon is also entitled to appoint a board observer to Velodyne's board of directors.
Velodyne makes lidar systems used by self-driving cars. These systems emit light pulses similar to radar to create a three-dimensional image of the surrounding area, enabling it to detect vehicles, pedestrians, and other obstacles in its path.
This isn't the first time Amazon has invested in a partner to potentially benefit from its technology. Late last year, the company revealed it had acquired a 20% stake in electric vehicle (EV) maker Rivian Automotive (RIVN -8.33%), which at the time was worth roughly $3.8 billion.
While Amazon's interest in Velodyne is intriguing, investors should proceed with caution -- particularly given the bumpy road the company has traveled. Velodyne stock has tumbled more than 73% since the company's high-profile public debut in late 2020.
For the first nine months of 2021, Velodyne reported revenue of $44.4 million, a decline of 43% from the prior-year period, driven lower by a pandemic-related decline in sales and lower average selling prices (ASPs) of its systems as the company prepares for mass commercialization.
Additionally, Velodyne announced the departure of CEO Anand Gopalan earlier this year, after reports of a bitter feud with founder David Hall.