Mobileye Reports Positive Earnings and Strategic Focus Amid Market Normalization
Mobileye Global Inc. (NASDAQ: MBLY) stands as a leader in advanced driver assistance systems (ADAS), commonly used in both electric vehicles (EVs) and internal combustion engine (ICE) vehicles. The company’s EyeQ system-on-chips (SoCs) rely on vision-based technology and artificial intelligence (AI) to interpret the surrounding environment through cameras.
This approach gives Mobileye a competitive edge over original equipment manufacturers (OEMs) like Ford Motor Co. (NYSE: F), General Motors Co. (NYSE: GM), Volkswagen AG (OTCMKTS: VWAGY), Nissan, BMW, Honda, Audi, and Toyota Motor Co. (NYSE: TM). Consequently, Mobileye controls approximately 70% of the auto market in the auto/tires/trucks sector.
The company’s technology, known as True Redundancy, employs two complementary subsystems that include radar and lidar sensors. This dual system ensures reliability, as each subsystem develops a unique model of the driving environment.
Inventory Surplus May Be Coming to an End
A surge in demand post-pandemic, combined with supply chain issues, led OEMs to significantly over-order Mobileye’s SoCs, resulting in an inventory surplus. Investors have been keenly watching for signs of normalization in the company’s earnings reports. Recent recovery in the EV market in China has aided this process, particularly with the successful rollout of the SuperVision system. Mobileye’s third-quarter 2024 earnings report indicates that this normalization may finally be on the horizon.
CEO Prof. Amnon Shashua remarked on the 11% sequential revenue increase from Q2, suggesting a return to balance in customer inventories. Additionally, he recently acquired 631,963 shares of MBLY stock for $10.4 million, which fueled interest from insider buying alerts.
Securing Major Clients Through Long-Term Design Wins
The top ten clients of Mobileye comprise over 80% of its business and 50% of global auto production. The company has secured ADAS add-on design wins with all these automakers, most of which extend their collaborations into the 2030s. Although shipments to these clients fell 4% year-over-year, they outperformed the 9% decline in overall automotive production.
Volkswagen Group’s production plans remain steady, focusing on projects like SuperVision and Layover, along with the deployment of the next-generation EyeQ6-based systems in test vehicles.
Positive Trends Indicate a Recovery
In its Q3 2024 report, Mobileye posted earnings per share (EPS) of 10 cents, aligning with expectations. Revenue decreased by 8.3% year-over-year to $486 million, yet surpassed consensus estimates of $465.27 million. Notably, revenue showed an 11% sequential increase from Q2.
Progress is also evident in Mobileye’s Robotaxi project, which is nearing closed user-group testing with Volkswagen Commercial Vehicles, the lead brand for autonomous driving.
Cost Reduction Strategies and Future Goals
Mobileye plans to stop its in-house LiDAR development, opting for third-party solutions. This change, driven by improvements in its next-generation computer vision and radar technologies, aims to lower annualized operational costs to below $1 billion by 2025. Strong cash flow of $125 million in Q3 is expected to continue into Q4, compared to over $70 million last year.
Looking ahead, Mobileye aims to bolster its long-term position in ADAS while deploying EyeQ5-based SuperVision in China through ZEEKR Intelligent Technology Holding Ltd. (NYSE: ZK), which serves as a crucial growth point for international markets. The company is also focused on delivering EyeQ6-based products, incorporating advanced AI technology into its software stack.
MBLY Stock Forms a Cup Pattern
The chart analysis reveals a cup pattern emerging for MBLY. This pattern begins at the cup lip line—the peak—before the stock dips to a swing low, creating a rounded bottom, and rises back towards the lip line. After reaching this point, the stock might pull back slightly before potentially surging again, possibly leading to a cup-and-handle breakout.
The cup lip line stands at $18.45, with MBLY experiencing a swing low at $10.48. The stock is on a rally towards the cup lip line, propelled by a positive earnings report. Daily anchored VWAP is set at $12.95, while the daily RSI has reached the 66-band. Key Fibonacci pullback support levels are $14.29, $13.16, $11.92, and $10.48.
Analysts have an average price target of $23.25 for MBLY, suggesting a robust 49% upside potential, with the highest target reaching $53.00. Current ratings include 11 “Buy,” 11 “Hold,” and three “Sell,” alongside a short interest of 22.13%.
Potential Investment Strategies: Investors looking to enter MBLY might consider cash-secured puts at the Fibonacci support levels for a pullback, or a bullish call debit spread to limit capital investment while reducing downside risk and capping upside gains.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
