There’s a common misconception among Twitter critics – most of whom haven’t done the squat – that what keeps would-be entrepreneurs from becoming billionaires is funding. They will postulate that this is because some venture capitalists look alike or dare to ask critical questions about a business model without considering someone’s feelings. The truth is that throwing money at a good idea, led by someone who is poor at execution, will not do anything positive. We also see it on the stock market.
In our previous article on Vuzix, we noted that the inflated share price has led the company to raise capital, which should help them survive for quite a while. At least they have a material product that is showing signs of life. But what happens when you throw a lot of money on a stock that seems to be slowly dying? One of these companies is MicroVision (MVIS).
About MicroVision Stock
Much like you might look at a candidate’s resume, let’s put aside the cacophony of drivel posted on Reddit and focus on what this company has been able to accomplish over the past decade. The answer is not much.
In 2018, the company said its revenue came from “development contracts and license fees and royalties for PicoP® scanning technology.” In 2020, one customer represented 97% of their total revenue. Having just one client is a huge risk, and it’s a stumbling block for us.
If a given technology shows signs of traction and then fades, it usually means that it has failed to adapt to the product market. In MicroVision’s latest 10-K, we realize that things haven’t worked out after spending nearly $ 600 million trying to bring their technology to market. They reflect on their past goals:
Over the past few years, our strategy has been to sell AR displays or components, interactive displays or consumer lidars to Original Equipment Manufacturers (OEMs) and Original Design Manufacturers (ODMs) to incorporate them. in their products.
Credit: MicroVision 2020 10-K
They admit their shortcomings:
Although we have a well-known customer for one of these products that generates royalty income, the sales volume and resulting royalties for that product are not significant, and we were unable to secure additional customers for launch one of our products.
Credit: MicroVision 2020 10-K
And then they announce the kiss of death “strategic alternatives”, which amounts to admitting defeat:
As a result, since February 2020, we have focused our attention on strategic alternatives, including a sale or potential merger of the Company, the sale of part of the Company, a strategic minority investment, as well as licensing and ‘other transactions.
Credit: MicroVision 2020 10-K
Then they became a storehouse of memes. Or did they do it?
Is MicroVision a Memes Store?
Over the past year, the share price has skyrocketed + 890% compared to a Nasdaq return of + 58% over the same period. The same dire outlook has not changed. Some say what has changed is that the Reddit manipulators grabbed the MVIS stock and decided to do it.
a pump and a dump a stock of memes. Others argue that the stock has always had a solid base of followers on Reddit for a long time, and only now (wait for it) people are starting to realize the potential of this business. Well, everyone except the company itself, which recently admitted exploring strategic alternatives because they didn’t have much to show after spending nearly $ 600 million.
Asking whether or not MicroVision is a store of memes keeps people from focusing on what matters most. MicroVision clings to the straws in an attempt to have a product to sell (they currently do not manufacture any products) and a customer to buy it.
MicroVision Q2-2021 Results Call
You can skip the first few pages of the call as they contain little content. Yes, you test products and try to sell them to people. Yes, automotive LiDAR is a huge opportunity. Yes, this whole pandemic thing is definitely a doozy. What really matters is the amount of income made. That number comes to a paltry $ 746,000 which consisted solely of revenue from the April 2017 client they suddenly decided to name – Microsoft (MSFT). These royalties were credited to a Microsoft “non-refundable prepayment” that occurred in 2017, which currently has a balance of $ 6.5 million.
There is a temptation to start asking questions about this mysterious royalty stream. For example, when do royalties accumulate? What are they based on? Is there a time limit on these royalties, or a contractual limit? None of the analysts on the call raised these questions, one of them being the brokerage firm that is helping MicroVision raise up to $ 140 million from
future bag holders investors with a very high tolerance for risk.
MicroVision cannot be faulted for raising funds in its offering of ATMs in the market. Instead of issuing a batch of new shares and selling them at a fixed price, they work with a broker who takes their newly issued shares and sells them directly into the market, hopefully at the highest possible prices (MicroVision shares briefly eclipsed $ 26 per share in April 2021). During the last quarter, they sold shares at an average price of around $ 17 per share.
In the second quarter, we issued 4 million shares and raised $ 67.8 million in net proceeds.
Credit: MicroVision 10-Q
Just days ago, MicroVision had $ 135 million in cash and $ 72.2 million that it could raise through its ATM offering. When companies issue stocks and sell them, they dilute existing shareholders, but retail investors never seem to watch this. Just FYI.
The latest call talks about MicroVision’s sole focus on automotive LiDAR. Talk about a cramped space to squeeze into with a bevy of well-funded competitors. If we wanted to invest in liquidity-rich, publicly traded LiDAR companies, we are spoiled for choice, as discussed in our article on Four LiDAR actions that debuted in 2020.
A forecast of MVIS actions
How this company manages to have a market cap of $ 2.44 billion is beyond us. Our simple valuation ratio is simply out of the ordinary for MicroVision.
- Market cap of $ 2,440 million / annualized revenue of $ 3 million = 813
To put that number into perspective, the highest value we ever recorded was 100 for Desktop Metal. We will not touch any stock with a valuation ratio greater than 40, nor any stock that is being manipulated on Reddit. Since last year, this company was certainly in a world of absolute suffering. Now that they are able to fundraise thanks to Reddit
promoters investors, they plan to try to become something big. Good for them, but we wouldn’t touch this story with a ten foot post.
A year ago, MicroVision was trading at $ 1.50 per share. They managed to raise the money, but nothing else transpired. Their investor deck is probably one of the most terrible things we’ve seen in a while. Once Reddit manipulators unload all of their stock, there will be little to support inflated stock prices that will quickly revert to average. Many bag holders will continue to hang on hoping the ship will eventually be righted. We have seen this happen far too many times, and the result is always the same.
Wall Street analysts often try to set a target for future price that is virtually unnecessary. A simple prediction for the MVIS stock is that the stocks will trade at a price significantly lower than the current price of around $ 15 per share. While short term volatility can move MVIS stocks everywhere, in the long run stocks will return to their true value. That’s the beauty of the efficient market hypothesis.
Why not shorten MicroVision?
It is clear from where we are sitting that this stock is not going anywhere fast. If so, why not shorten it? Because the irrationality of the herd will always exceed your margin limits. Or, in the words of someone on Reddit, “we can stay retarded longer than you can stay solvent.” There is absolutely no way to short sell a stock of memes. Already. Sure, we could buy price jumps, but there’s also no way to tell how long this manipulative roller coaster will continue to work. Any attempt to try and bet on when this absolute mess comes back to the average is just speculation. We are investors, not speculators.
You might have bought this action because some morons on Reddit told you this was the opportunity of a lifetime, and now you’ve been caught holding the bag. The same morons now tell you to have “diamond hands” when they unload their actions, while telling the same worn-out stories of how a conspiracy explains your worries.
If you currently own MicroVision stock, sell it and get on with your life. What you are getting into is speculation. It is highly unlikely that a lack of capital will prevent this business from being successful. The leadership team is fighting to do the most important thing any business can do – survive – and we wish them the best in that pursuit.
In yesterday’s article on Robinhood Stock – An Expensive Free Trading App, we explained how attention-focused trading generates negative returns as investors seek performance. Newbie investors often confuse stock price movements resulting from manipulation with validating a company’s potential. In the case of MicroVision, it doesn’t matter what their share price is. Eventually it will revert to the mean, many investors will be caught holding the sack, and we will long ago be looking for bigger and better things.
Want to know what 30 tech stocks we currently own? Want to know which ones we think are too risky to hold? Become a Nanalyze Premium member and find out today!