Mobileye Global's (MBLY 5.65%) stock plunged 16% on April 27 after it posted its first-quarter report. The automotive chipmaker's revenue rose 16% year over year to $458 million, which exceeded analysts' expectations by $1.2 million. Its adjusted net income dipped 4% to $115 million, or $0.14 per share, which also cleared the consensus forecast by $0.02.
Those growth rates seem stable, so does Mobileye's post-earnings plunge represent a good buying opportunity for patient investors? To find out, let's weigh four reasons to buy Mobileye against four reasons to sell it.
Image source: Getty Images.
The four reasons to buy Mobileye
The bulls love Mobileye for four reasons:
- Its dominance of the advanced driver assistance systems (ADAS) market.
- Its ongoing design wins.
- Its stable growth rates.
- The secular expansion of the driverless vehicle market.
Mobileye controls nearly 70% of the global ADAS market, according to RBC Capital. Its systems, which are powered by a mix of cameras and sensors, keep vehicles cruising in the correct lane, provide assisted parking services, and support other semi-autonomous features. These ADAS platforms are powered by its own EyeQ computer vision chips.
In 2022, the newest "SuperVision" version of Mobileye's ADAS platform, which supports hands-free navigation capabilities for driverless vehicles, scored design wins across nine brands from six major automakers. The company claims those design wins will generate an estimated $6.7 billion in future revenue through 2030, and it expects that figure to keep rising as more automakers develop semi-autonomous and fully autonomous vehicles.
Mobileye's revenue fell 10% in 2020 as the pandemic disrupted the auto market, but rose 43% in 2021 as those headwinds dissipated. In 2022, its revenue grew 35% to $1.87 billion as that post-pandemic recovery continued.
As for long-term catalysts, the driverless market could still expand at a compound annual growth rate of 23% between 2022 and 2027, according to Mordor Intelligence. If Mobileye merely keeps pace with that growing market, its annual revenue could nearly triple within the next five years.
The four reasons to sell Mobileye
Meanwhile, the bears will tell you about these four issues:
- Mobileye faces stiff competition in automotive chips.
- Its margins are shrinking.
- Its revenue growth is cooling off.
- Its stock is prohibitively expensive.
Mobileye is still the market leader in ADAS platforms, but its EyeQ computer chips face stiff competition from other automotive chipmakers like Qualcomm and Nvidia. Qualcomm and Nvidia have both been bundling their chips into their own autonomous driving platforms, and those aggressive tactics could disrupt Mobileye's attempt to bridge the ADAS and driverless markets with its SuperVision platform.
That intense competition coincides with the compression of Mobileye's adjusted gross margin, which fell from 78% in 2021 to 75% in 2022, before dropping to 71% in the first quarter of 2023. Mobileye mainly attributed those declines to higher production costs, but competitive pressure could also be preventing it from raising its prices.
Its revenue growth is also cooling off. At the end of 2022, Mobileye told investors it could grow its revenue by 17%-22% in 2023. But in its first-quarter report, it slashed that outlook to just 10%-13% growth. It blamed that slowdown on the weakness of the Chinese EV market, which was largely caused by a reduction of government subsidies, macroeconomic headwinds, and price cuts from leading EV makers. Analysts had expected Mobileye's revenue to rise 20% for the full year.
Mobileye's slowdown is worrisome because its stock has been running hot ever since its spinoff from Intel last October. Even after its latest sell-off, Mobileye still has an enterprise value of $36.6 billion -- or 18 times the midpoint of its revised sales forecast for 2023. It also trades at 65 times forward earnings.
Stick with other chipmakers for now
Mobileye still has a bright future, but its combination of slowing growth, declining margins, and high valuations make it a dangerous stock to buy right now. Investors should either wait for Mobileye's stock to be revalued to account for all of those challenges, or they should simply buy a cheaper semiconductor stock like Qualcomm, which provides ample exposure to the automotive market but only trades at 13 times forward earnings.
