An E-mail to My Mom

Hola,

Listened to Mobileye’s (Israeli tech company) conference call today. They reported earnings as expected but are still a little overvalued which isn’t unusual in the current market, especially for an exciting tech momentum stock. They really are a fantastic company as they have technology that alerts drivers to dangerous conditions on the road and can employ the brakes to avoid accidents. They aren’t a fully automated driving machine but serve more as preventative insurance. Their main market right now is partnering with Auto’s (i.e. Tesla, BMW, GM) in installing their technology into the new lineup of these companies vehicles. Their secondary market is in after-market installations on new cars. It is a really small segment right now for them but this is where the real growth for them can come. The number one challenge for them is adoption, both in after-market and in their partnerships with the auto industry. Getting their product into automobiles is not an overnight thing. First off there is regulation they must pass, not an easy thing but more importantly not a fast thing. Their brass was quick to point out that the ball is moving in passing regulation, in fact they cited that many times. But I'm cautiously optimistic. Second, an automobile is obviously not an everyday purchase, leading to slower than realized adoption of their technology. Here is where the after-market can help them boost sales, but their products are still relatively expensive and not one deemed essential at this point. Mobileye envisions their after-market product offering to assimilate with consumers like GPS navigation systems but there is a little more risk involved in taking the wrong turn than avoiding an accident.  

The main problem facing the stock is expectations. When individuals see technology they immediately think speed, quickness, efficiency. Immediate gratification sets in. However, Mobileye's fate is innately tied to the state of the auto industry, adding more variability to the equation. This leaves Mobileye with very little margin for error- for example, the earnings beat the consensus estimate by 1 cent today, coming in at 5 cents a share, above expectations of 4 cents. But this wasn't enough for the investors as they sent the share price down 3% today.(of course it is up after-hours, but it tells you something about the volatility of the stock). It is also telling that a share earning 5 cents is priced in the $40 dollar range. Is this fair for Mobileye, after all they have been a public company for a little over a month now? No but the market could give a lick about what's fair. Overall I would wait for more information to come in before getting serious about this company. Let's turn to the Oracle right now: 

"You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!". 

Adding to this I would say that most of those heckles are coming from the cheap seats. 

Best,

Wesley