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Why Mobileye NV Shares Reversed Course and Climbed 19.6% in February

By Asit Sharma – Mar 14, 2016 at 12:00PM

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The developer of advanced driver assistance systems outlined a four-year revenue target which bolstered its shares last month.

Image source: Screenshot from a Mobileye video demonstrating the company's "Collision Mitigation by Braking" technology.

What: Shares of autonomous driving technology provider Mobileye NV (NYSE: MBLY) rose 19.6% in February, according to data from S&P Global Market Intelligence

So what: Mobileye shares declined nearly 13% in the early part of the month, but changed direction upon release of company's fourth-quarter 2015 earnings. Mobileye reported 81% revenue growth versus the prior year, to $71.8 million, and booked net income of $18.8 million, a nearly eightfold increase over Q4 2014.

Mobileye derives most of its revenue from the sale of its EyeQ chips, which enable visual field interpretation for advanced driver assistance systems, or ADAS. The company sold 1.3 million EyeQ units during the fourth quarter, which represented an increase of 83% year over year.

Mobileye also benefited from a higher average selling price (ASP) for its EyeQ units, of $44.70, versus $43.10 in the comparable quarter. This 4% increase is a subtle but important detail for shareholders to note. EyeQ units are bundled within programs and sold to a broad variety of vehicle manufacturers. Higher ASPs are driven by more complex programs, thus, a consistently higher trend in ASP can be indicative of the long-term market potential of Mobileye's products.

During the company's fourth-quarter earnings call, CFO Ofer Maharshak noted that a shift toward more advanced technologies utilized by customers around the world is positively impacting EyeQ pricing. Maharshak cited vehicle traffic light recognition as an example of a more complex technology boosting EyeQ demand.

Looking ahead, Mobileye anticipates higher net income in 2016, and projects diluted earnings per share, or EPS, of $0.68 to $0.69, versus EPS of $0.29 in 2015, on revenue growth of 40%. Management has signaled to investors that revenue in the second half of the year will outpace the first half, due to new program launches.

Now what: Details provided by management on the company's future long-term growth appear to be the strongest support beneath Mobileye's stock since the earnings release. The programs which Mobileye develops for original equipment manufacturers, or OEMs, are usually formalized within five-year contracts. Management revealed on the earnings call that it believes it has enough of these contracts in hand, and is confident enough in its new business prospects, to reach the $1.1 billion mark in sales by the end of 2019.

This represents unusually aggressive growth, given that last year the company booked just $240.9 million in revenue. To cross $1.1 billion on its top line, Mobileye will have to grow at a compounded annual growth rate, or CAGR, of more than 46% over the next four years. This prospect has pleased investors, but it also has established a fairly aggressive revenue hurdle which the company will have to meet, quarter in and quarter out.

Asit Sharma has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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