SaverOne: Publicly Traded Tech Startup With Highly Positively Skewed Risk-Reward Ratio
Tuesday, December 26, 2023 9:00 AM EST
https://talkmarkets.com/content/stocks--equities/saverone-publicly-traded-tech-startup-with-highly-positively-skewed-risk-reward-ratio?post=423342
It’s not often you come across a startup tech company focused on a niche in the self-driving/EV space, with revenue, in fact with revenue growth of 4X year-over-year, and with a valuation below its seed-round value when it was two guys with a good idea in a garage.
We have come across SaverOne, a Nasdaq listed company with ticker SVRE. Market cap is around $4m. (no mistake: million, not billion), that is. It is a nano-cap and to advance to a micro-cap company, it would have to go up by over 10x.
Valuation and Financials
Part of the reason for the tiny market cap is that this company is focused on growth rather than profitability and the capital markets have been particularly unforgiving in 2022 and 2023, for smaller companies that need to raise capital. SaverOne is no exception and looks like one of the extreme data-points in this regard.
While its difficult to really value these early stage companies in today’s market, at a $5m market cap, the company’s shares are almost like a long-dated option- they will either eventually go to zero given a lack of progress, or if SaverOne has success, it will end up at many multiples where it is today.
In terms of financials, the company reports twice a year. In its first half year 2023 results (to quote), it reported “Revenue up ~4X YoY in H1 2023 and expects continued growth in H2 2023”. H1 2023 revenue was $399k compared with $103k in H1 2022.
Even though typical for a company at this stage in its development, the market cap at near zero is in part due to the ongoing operating and net loss, which were $4.8m and a balance sheet cash only at $5.0m. This implies a cash position at a point where they need to raise some new capital. They have an equity-line in place, where they can issue shares at market price into volume in the market and via this we believe they have been raised some additional capital. Thus, a further reason for the low market cap is the expectations of ongoing dilution to shareholders until they reach breakeven. Even so, given the current market cap, all these risks are more than baked in already into the share price.
Bottom line, given the valuation, the risk-reward here is highly skewed: it is the full share price to the downside or many multiples of that to the upside.
SaverOne’s Solves the Major Cause of Car Accidents - Distracted Driving
Over the past decade, new cars have been adding sensors to enhance safety, by providing drivers with better situational awareness with the goal of ultimately lowering the chance of an accident. Examples are forward collision warnings, emergency braking, lane departure warnings, blind spot detection, backup cameras, etc.
However, human drivers still get distracted and distraction is a major cause of accidents causing almost a third of all car accidents according to the US National Highway Traffic and Safety Administration (NHTSA) . A major reason for distraction is the smartphone.
Over the years, there has been progress made through hands-free, voice-response technology to reduce the number of direct screen interactions with the handset. The significant growth of social media and messaging over the past decade makes the smartphone a major distraction to eyes fixed on the road. Despite trying to police and educating the public to the risks, many users (particularly younger drivers) continue to use their phones while operating a vehicle, believing that a short glance at a text is probably harmless.
According to a report by the NHTSA, in the year 2019, in the just the United States, crashes where the driver was identified as being distracted resulted in over 10,000 fatalities, 1.3 million injuries, costing $100 billion in economic losses, and were 29% of all crash costs.
SaverOne’s Solution
SaverOne’s technological advantage which has 20 patents, is built around locating and exactly pinpointing the source of radiofrequency (RF) waves from a cellphone.
SaverOne can pinpoint a cellphone just in the area of the driver’s seat blocking the potentially distracting apps only from the drivers phone, but not of any of the passengers. Useful apps such as hands free navigation can continue to be enabled.
The system is typically installed in the aftermarket, meaning a garage or installer will put in the system after the car has been purchased. In addition, the driver will need to have an app installed onto his smartphone to interact with the hardware, and if the system detects a driver without the phone app, the hardware can sound an alarm and/or potentially not allow the car to start.
SaverOne has also signed a memorandum of understanding (MoU) with Iveco, the truck subsidiary of Italian-car manufacturer, Fiat, to work to integrate the system into Iveco trucks as an OEM product prior to the sale of the vehicle. This will mean that to use the system, all the truck owner will have to do is contact SaverOne to sign up and have the driver install the app.
SaverOne has developed a second technological solution based on its core IP: an RF ADAS Sensor. This solution successfully passed the proof-of-concept stage at the end of 2022, under a test with another major Western European car manufacturer, and the plan is to develop this as an additional OEM sensor product. It allows a car to detect and accurately locate other vulnerable road users (VRUs) in the vicinity and around the vehicle, via their RF footprint. This can be cyclists, motorcyclists, pedestrians crossing the road, a driver exiting a parked car, etc. This is particularly useful in non-line of sight situation, parked cars hiding pedestrians from view, etc, where the driver or on-vehicle cameras may not see this person. Today, there is no other ADAS sensor that can deal with these cases. This product is currently under development and we would expect an update from SaverOne in the coming year.
SaverOne’s Addressable Market
SaverOne is targeting all players in the automotive market. Their first product, the in-cabin distraction prevention system (or DDPS for short) is targeted at both car fleets as well as the car OEM manufacturers. The second product, the RF ADAS sensor is targeting only towards OEMs and tier-one suppliers to those OEMs.
SaverOne’s DDPS customers are typically fleet owners. Their vehicles tend to be larger, more expensive, typically carrying valuable cargo or customers. They have an interest in ensuring that their vehicles which are driven by alert drivers which do not become distracted as the potential cost of an accident – apart from cost to human life - can be economically significant to the fleet owners. The return of investment on by installing the SaverOne system across the fleet, that even prevents one accident that otherwise would have happened, can be very significant.
SaverOne’s potential market is the hundreds of thousands of corporate and public service fleets globally containing tens of millions vehicles. With the cost of the system at approximately $15 per month, the potential addressable market is in the billions of dollars yearly. SaverOne would only need capture a tiny portion of this to be a resounding success.
To date SaverOne has signed up, we would estimate, a few tens of fleet customers judging by the press release volume, with most of them in Israel but increasingly in Europe, the US and elsewhere in the world. Their largest customer to date was announced in March 2023 with Elektra Afikim, an Israeli public bus company, installing the system across their full fleet of 1,200 buses. As of the announcement of their mid-year 2023 results, on August 29, 2023, they had completed 3,000 system installations and in comparison as of March 31, 2023 they had completed 1750 installations, which means installations growing by 70% in 5 months.
SaverOne has been marketing and selling the systems using a ‘land and expand’ strategy. They typically try to win a small and limited trial of a few vehicles with a company operating a large fleet (the land part of the strategy). Initially, they target the small part of the fleet of the local subsidiary of a major global company with multiple fleets across multiple countries.
Assuming a successful trial the pilot trial expands to cover a larger portion of the local fleet, the next stage would be the whole fleet, and ultimately SaverOne aims to use their foothold in the company to expand to the company’s additional fleets in additional companies. A classic example of this is the company’s success with customer Cemex Israel, a part of the Cemex Group, a global leader in the building materials industry, Following an initial successful trial in mid-2022, Cemex Israel installed the SaverOne system on an additional portion of its fleet at the end of 2022. Then in mid 2023, Cemex Israel deployed the SaverOne System across its full fleet in Israel, and at the end of 2023, announced an initial pilot trial with Cemex in Spain.
As for the RF ADAS sensor, the addressable market in this case is the entire auto market and the fast developing autonomous vehicle market, which will use an array of sensors including the RF ADAS sensor for detecting vulnerable road users.
Regulation Moving Towards SaverOne
A potential accelerator and tailwind for future business for SaverOne is potential regulation, particularly in the EU. New EU regulation from November 2023, mandates that from mid-2024, new cars need to have a device for monitoring, identifying and warning on driver distraction. Phase-II of this regulation, expected by July 2027, is to include distraction avoidance by technical means, with systems such as that developed by SaverOne. This will provide the legislative support for SaverOne’s solution. Ultimately, the US Department of Transport will have to EU regulation as well.
Bottom Line
SaverOne is a technology startup that is publicly traded on Nasdaq under the ticker SVRE. Anyone can invest in this startup. It has a solution for lowering the risk of accidents due to distracted driving caused by cellphones. It already has had success in selling its solution, reporting $400k in revenue in the first half of 2023 – up 4X year-over-year and the company reported that revenue growth continues.
There are upcoming catalysts. They have a potential OEM deal with lead truck manufacturer Iveco expected to be signed in the coming weeks. 2023 full year results will also likely report continued growth. They continue to announce new customer wins and expansion of projects with existing customers. And finally EU regulation is moving in their favor, adding a further tail-wind.
It is difficult to value the business. The market has decided that given that they trade at a share price of around $0.60, the entire value of the company is around $4m. At this price, should they ultimately fail, the downside from $4m to zero is not particularly far. Should they ultimately succeed- and capture a small portion of what will ultimately be a multi-billion dollar yearly revenue market, the upside is many multiples of the current valuation. Thus we see the risk-reward ratio very heavily skewed to the upside.
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