Last year was not kind to the initial public offering market, with global IPO activity volume tumbling 45%, leading to a 61% decline in proceeds. In fact, only a little over 1,300 IPOs raised just $179.5 billion, according to Ernst & Young, though technology issues led the way, accounting for nearly a quarter of the total number.
In the U.S., there were just 214 IPOs that raised $21.8 billion in 2022, a far cry from the 1,091 offerings that raised $335 billion in 2021.
One of the biggest was Mobileye(NASDAQ: MBLY), the autonomous vehicle technology spinoff from Intel(NASDAQ: INTC) that went public on Oct. 26, issuing 51.9 million shares at a price of $21 per share. It generated a little over $1 billion in net proceeds for the tech stock.
In a little over two months of trading, the stock gained 59%, and though there are substantial risks for this business, this may be a tech IPO you'll want to buy this month.
Image source: Getty Images.
Driving to new heights
The autonomous vehicle market is exploding. Already a $25 billion opportunity that's growing at a near-26% compounded annual rate, it's expected the market could reach as high as $197 billion by 2030, depending upon who's counting. While analysts tend to extrapolate an industry's growth at a sharply rising angle, it's clear the self-driving vehicle market is one that could actually achieve the growth projected.
Mobileye is a leading player in the space and was always one of Intel's successful divisions from the time Intel acquired it in 2017, counting Ford, BMW, General Motors, Volkswagen, and Toyota among its customers.
The company makes chips that power not only the cameras and other driver assistance systems for self-driving vehicles, but according to Intel, Mobileye also offers a complete software platform that can enable the "entire stack" of assisted and autonomous driving technologies.
Mobileye generated almost $1.4 billion in revenue in 2021, but has already generated $1.3 billion through the first nine months of 2022, up 27% year over year.
CEO Amnon Shashua told the Consumer Electronics Show 2023 he expected Mobileye would see as much as $17 billion in assisted-driving product revenue by 2030, with 20% of that, or $3.5 billion, coming from its SuperVision product that was only launched in the fourth quarter of 2021.
SuperVision was developed by China's Geely Group and is an outgrowth of Mobileye's camera-only subsystems, offering premium, full-surround computer vision and operational point-to-point assisted driving navigation. It carries a higher price tag, which helped boost quarterly revenue and average system pricing to $53 million from $45.7 million last year, but it also sports lower margins due to the additional hardware it contains.
Image source: Getty Images.
Near-term headwinds
Despite all this upward momentum behind Mobileye, Wall Street is only looking for single-digit earnings growth in 2023, as it feels this will be something of a transition year for the tech stock. Still, Mobileye is the only autonomous driving pure-play stock and appears well positioned to deliver robust growth in the years ahead.
It's not only from Mobileye's SuperVision analysts are expecting big things, but also its EyeQ system on a chip (SoC), which is an integrated circuit that integrates most of a computer's systems. Although product revenue jumped 28% in the third quarter, it's been hampered by the global chip shortage and continuing supply chain problems. Mobileye purchases all of its SoC from a single supplier, and three Tier 1 auto companies -- ZF, Valeo, and Aptiv -- accounted for 35%, 19%, and 17%, respectively, of its revenue in 2021.
The stock is also not cheap, trading at 49 times next year's earnings, though it is already free-cash-flow positive, producing $316 million in the third quarter. Mobileye faces stiff competition from Tesla, Apple, and Sony, all of which have larger resources available to them.
The pure play in the space
Mobileye looks like a good, long-term tech IPO to buy, even if you ultimately don't get the lowest price on its stock right now.
A recession could hamper consumer spending and might delay just how fast the autonomous vehicle market takes off. Yet for investors willing to accept some degree of risk in their portfolios, Mobileye could ultimately drive higher returns down the road.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Aptiv Plc, Intel, Tesla, and Volkswagen Ag. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
