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Seeking Alpha article https://seekingalpha.com/article/4421238-aeye-not-just-another-lidar-spac

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WeTheMarket   Wednesday, 04/28/21 08:22:15 AM
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Seeking Alpha article AEye: Not Just Another Lidar SPAC
Apr. 26, 2021
Summary
- AEye plans to go public in combination with the CF Acquisition Corp. III SPAC.
- The stock currently trades at the $10 PIPE price where a strong list of strategic investors plan to acquire shares.
- The stock trades at ~3x '26 revenue targets.

AEye may have been the last of the Lidar technology companies to agree to a SPAC deal, but the company doesn't appear to be the least in the sector based on investors. About two months ago, AEye agreed to a business combination with CF Acquisition Corp. III (CFAC) to go public. My investment thesis is slightly bullish on this stock at the PIPE price of $10.

Big Strategic Partners
The Lidar sector is highly competitive with a handful of companies going public via SPACs in the last year. As all of the companies spin their own technology approach, one key differentiating factor in the sector are the strategic partners and investors of these companies.

AEye is backed by strategic investors such as Kleiner Perkins, Continental AG, and has GM Ventures, Subaru-SBI and Intel Capital investing in the PIPE offering for the SPAC. These investors are well connected and highly involved in the move towards AVs, especially with GM (GM) controlling Cruise Automation and Intel (INTC) owning Mobileye.

Of course, strong strategic partners don't ensure success in the Lidar sector. A competitor could build better sensors and even an investor such as GM could prefer the technology offerings of a competitor.

These strategic partners and investors wouldn't work with AEye if the research didn't show the company had a technology advantage. The company claims to have Lidar sensors with a max range of 1,000 meters and wider field of view than all of the top competitors.

Ramp Mode
As with most SPACs and especially in the Lidar sector, revenues aren't really expected to ramp until 2024 and beyond. AEye doesn't expect to top $50 million in combined revenues from now through 2023, so investors need a lot of faith that business soars in out years. A big question is whether the public market will continue to reward the stock with a premium valuation as the company reports quarters this year with only $1 million in revenues.

The company forecasts future strong gross profits reaching 84% margins in 2026 leading to a surprisingly high 55% EBITDA margin. AEye would generate a $337 million EBITDA in 2026, which would be impressive for the current $2.0 billion EV.

Investors should be skeptical that a competitive space with a handful of companies going public via SPACs in the last year will provide off the chart EBITDA margins. Most industries end up with pricing wars, though the nature of the technology may allow the Lidar sensor leaders to charge premium prices.

Unlike some of the other Lidar players, AEye doesn't provide any indication of current deals factoring into the revenue targets for 2024 through 2026. While automakers plan to build AVs in this timeframe, the revenue picture is highly speculative based on obtaining contracts from major OEMs and actual production timelines. Even Lidar companies with contracts in hand could see the production dates slip by years due to the complexities of self-driving technology and legalization in certain districts around the globe.

CFAC currently trades at exactly $10, so investors are paying the same price as the PIPE investors when the deal closes. The stock has an equity value of $2.4 billion with an EV of $2.0 billion as the company is expected to close with $420 million in cash on hand.

The stock trades at ~3x 2026 revenue targets. Luminar Tech. (LAZR) trades at ~9x 2025 revenue targets. Some analysts have already ordained Luminar as a favorite in the Lidar space due to their focus and leadership in the automotive sensor space. The stock has even fallen by 50% from all-time highs showcasing how this valuation is already based on a reduction of the hype in the sector.

Takeaway
The key investor takeaway is that AEye doesn't appear to be just another Lidar SPAC. The company, like the sector, still has a ton to prove being years away from material revenues. AEye has an impressive list of strategic partners and investors making the stock appealing when an investor can buy the stock alongside top tier institutional investors.


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