One Israeli Company Is Changing The Way We Drive

Aug 25, 2014

Timing is usually everything when it comes to initial public offerings (IPOs), as the company going public and the underwriters do not want anything to negatively impact demand.  But that didn’t seem to matter for Mobileye NV (NYSE:MBLY), the global leader in auto-collision avoidance systems.  As fighting raged in the Gaza Strip, the Israeli company debuted on the NYSE a couple weeks ago, raising close to $1 billion.  By this measure, this marks the most successful stock IPO ever for an Israeli company going public in the United States. 

Mobileye designs and develops software for camera-based Advanced Driver Assistance Systems (ADAS). The company’s products offer safety functions such as; lane departure and forward and pedestrian collision warnings; adaptive cruise control; headway monitoring and warning; and automatic emergency braking. Enhanced functions include traffic sign recognition and speed limit Indicator; intelligent high beam control; and hands-free driving.

Mobileye logo (Photo credit: Wikipedia)

Over the last six years Mobileye has been awarded 80% of the large quantity orders they have been asked to submit proposals for. The company estimates that its products are installed in over 3.3 million vehicles worldwide. In 2013 MBLY reported revenues of $81 million, comprised mainly of sales to General Motors, Honda Motor , BMW Group and Nissan Motor .  By the end of this year, Mobileye technology will be available in 160 car models from 18 different auto manufacturers. By 2016 Mobileye technology will be found in 237 car models and 20 auto manufacturers, including Tesla. Besides their growing deals with auto manufacturers, Mobileye also has relationships with all of the major auto parts suppliers, including TRW, Delphi Automotive and Magna International . These companies incorporate Mobileye software into their cameras.

Auto safety standards are driven by regulation and consumer desire to drive safer automobiles. This year Europe will require one or more advanced safety systems for a vehicle to achieve a 5-star rating and by 2017 auto makers will be required to have advanced safety functions just to receive a 4-star rating. The U.S. has also been moving in this direction by adding ADAS features to its ratings evaluation since 2011 and rearview cameras this year. Other large countries are expected to follow the European and U.S. lead.

Despite Mobileye’s rapid growth rate in revenues (over 100% in the past 2 years), the company has very little in the way of earnings or free cash flow and a market capitalization approaching $7 billion. Many things will have to go right to justify Mobileye’s current stock price. At the same time, there are significant barriers for entry into this market. The complex algorithms Mobileye uses in their technology are fifteen years in the making and their products have been available in vehicles since 2007. Mobileye is the only provider of ADAS to offer the whole bundle of safety and convenience functions that are sought in vehicles, while other competitors specialize in specific features.  Any new entrant–even one with considerable capital–would have to go through a five to seven year development timeline with an auto manufacturer just to validate their technology. In addition, auto parts suppliers have scaled back their own efforts to develop ADAS technology, partly due to Mobileye’s strategic policy of not working with suppliers that sell competing products. While it may be too early to determine who the winner will be in this race, Mobileye is currently in pole position.

Source: FORBES