It's been several since Intel (INTC, $27.70) subsidiary Mobileye filed an S-1 registration statement with the Securities and Exchange Commission (SEC). Details around the public offering for the company, which makes processors for self-driving cars, are finally emerging. MBLY stock is expected to be priced between $18 and $20 per share, and is set to start trading on the Nasdaq this Wednesday, Oct. 26.
The question is whether investors should care about Mobileye's initial public offering (IPO)? Or is this simply another IPO that will make lawyers, accountants, and investment bankers money, but very few others?
There are two reasons why investors ought to care about the Mobileye IPO.
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Intel Wants to Unlock Value for Shareholders
Intel first announced its plans for Mobileye last December, stating it would maintain majority ownership of the market leader in self-driving car solutions.
"Intel's acquisition of Mobileye has been a great success," said Intel CEO Pat Gelsinger. "Mobileye has achieved record revenue year-over-year with 2021 gains expected to be more than 40 percent higher than 2020, highlighting the powerful benefits to both companies of our ongoing partnership. Amnon [Shashua, the CEO of Mobileye] and I determined that an IPO provides the best opportunity to build on Mobileye's track record for innovation and unlock value for shareholders."
Intel paid $14.5 billion, net of cash, for 97.3% of Mobileye on Aug. 21, 2017. It would acquire the remaining stock valued at $375 million later that year. When all was said and done, INTC paid approximately $15 billion for a company that generated revenue of $698 million in 2018, the Israeli-based business's first full year under Intel ownership.
So, the semiconductor giant paid more than 21x sales for Mobileye's innovative EyeQ System-on-Chips (SoCs) advanced driver assistance systems (ADAS).
Since the acquisition, Mobileye's revenues have grown to $854 million for the six months ended July 2, 2022 – up 21% over the year-ago period. However, it lost $36 million in these six months from operations. Over the past three fiscal years, its combined operating losses were $356 million.
If you annualize Mobileye's revenues so far in 2022, and then multiply that ($1.7 billion) by 21, the multiple Intel paid, you get a valuation of nearly $36 billion. This is almost 2.5 times higher than what it paid five years ago.
The self-driving car specialist was once estimated to be worth as much as $50 billion in an IPO. However, current estimates come in around $30 billion, or 17.5x sales.
Even still, one of the only ways to extract some of those gains is by spinning it off. So if you're an Intel shareholder, you should care about the Mobileye IPO.
Intel Has Other Plans
As the Financial Times recently pointed out, Mobileye only accounts for 3% of Intel's revenues. Further, it does little to make the Dow Jones stock more competitive with other chipmakers such as Advanced Micro Devices (AMD) and Nvidia (NVDA).
Earlier this year, Intel announced plans to invest $88 billion in Europe to balance its global semiconductor supply chain.
The plan includes expanding its manufacturing capacity in Europe by building a semiconductor fab site in Magdeburg, Germany. The plant will employ 3,000 people and be operational in 2027. In addition, it will spend 12 billion Euros on expanding its Ireland manufacturing capacity.
With Intel's stock down around 50% over the past 52 weeks and 35% over the past five years – the S&P 500 is up almost 45% over the same 60-month period – it has to focus on the efforts that can deliver more immediate returns than Mobileye can.
Wisely, the self-driving car company will have a dual-class structure where Intel holds all Class B shares, which come with 10 votes, while Class A will have one vote. The details of how many Class B shares will be issued by Mobileye has yet to be determined, but you can be sure there will be enough to allow Intel to retain control of Mobileye until it makes sense to sell off the rest.
The dual class structure might bring down Mobileye's valuation, but that's the price it must pay to ensure it doesn't entirely miss out on its future growth.
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