After promising the move back in December, Intel announced yesterday that its Mobileye division has confidentially filed to go public. Intel bought the computer vision company focused on the self-driving sector back in 2017, before which it had been a public concern.
The move by Intel to free Mobileye has been long-telegraphed, which means it would be an easy item to set aside in the present news cycle. However, with today’s IPO market frozen like a glacier, any and all exit data is welcome. If Mobileye manages a smooth IPO at an attractive price, the company could help shake loose the exit market for tech companies. No single IPO will fix a bear market, but it would help.
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In contrast, if Mobileye struggles when it debuts, or its IPO is pushed back due to market conditions, we’ll know that the public markets remain pretty darn closed for unicorns and other late-stage startups.
The number of companies looking to exit is not small: Databricks (big data analytics, worth $38 billion) is one such company. Chime (consumer fintech, worth $25 billion) is another. Instacart (on-demand grocery services, worth $39 billion) is in there as well. Ditto GoPuff (on-demand CPGs, worth $15 billion). Also Egnyte (corporate file management and security with north of $150 million ARR, though its most recent private-market price is unclear). Among just that group, there’s more than $10 billion in invested capital waiting for an exit.
So the Mobileye IPO really does matter for the startup market’s largest players, and a host of smaller, less well-known tech startups that would also like to exit, thank you very much.
Let’s remind ourselves of the Mobileye story and how it wound up poised for a spinout from U.S. chip giant Intel. Then we’ll discuss what the company may be worth based on prior reporting and Intel earnings data. Finally, we’ll ask what a winning price might be in today’s markets, and what that range may mean for more mature startups. Sounds good? Let’s have some fun!
Full circle
Intel buying Mobileye was “the biggest-ever acquisition of an Israeli tech company,” our colleague Ingrid Lunden reported at the time. Announced in March 2017 and fully cleared by antitrust in August of that year, the deal then represented “a fully-diluted equity value of approximately $15.3 billion and an enterprise value of $14.7 billion.”
In a way, a public Mobileye would return to where it was a few years ago: The company had been listed on the New York Stock Exchange since 2014 at the time of its sale to the larger company. Mobileye’s market cap was about $10.5 billion when it was acquired. Intel paid $63.54 per share, a premium compared to market rate, but slightly below the stock’s all-time high closing price of $64.14 in August 2015, CNBC noted.
In Intel’s words, Mobileye had managed to become “the leading supplier for computer vision systems in the automotive industry” less than a decade after its creation in 1999. Given that the self-driving market was heating up at the time, and Intel was hunting for growth and diversification, the deal made some sense.
With the acquisition, Intel’s goal was to position itself “as a leading technology provider in the fast-growing market for highly and fully autonomous vehicles.” The latter was still a few years away at the time and, depending on whom you ask, it may still be. What has that meant for Mobileye?
Historical and recent results
If we think about $15.3 billion back in 2017, we’re discussing a very different technology market from what we saw last year. In 2021, we might have expected Mobileye to be worth a multiple of that original sale price, given how elevated the prices for tech companies were at the time. However, the value of tech revenue has come back to Earth in the interim, so we need to do some work.
In 2016, the final full year before Intel bought the company, Mobileye generated revenues of $358.2 million, a year-on-year gain of just under 49%. In the first quarter of 2017, around when the deal was announced, Mobileye had revenues of $124.7 million, up an even sharper 66%.
Turning to more recent data, here’s what Intel reported for Mobileye in its Q4 and full-year 2021 earnings:
- $356 million Q4 2021 revenue (+7% YoY)
- $1.39 billion 2021 revenue (+43% YoY)
- $500 million in 2021 operating income (up 150% YoY)
Mobileye’s growth feels somewhat impressive. It closed its final year as a solo company with growth in the high 40s, and it is heading back to the public markets at around 4x the size with a growth rate in the low 40s. Not bad.
Even more, Mobileye has consistently made more money as time has passed, from $100 million in 2018 after the sale to half a billion last year. Keep in mind that operating income is not free cash flow, so question marks remain for the company’s S-1 filing.
Good growth and profits – sounds like a recipe for a strong exit, yeah?
What is Mobileye worth today?
Mobileye is not a pure software company, nor does it appear to be an all-hardware conceit. From Intel’s most recent earnings report, here’s how its product lineup is described:
[Mobileye’s] product portfolio covers the entire stack required for assisted and autonomous driving, including compute platforms, computer vision and machine learning-based sensing, mapping and localization, driving policy, and active sensors in development.
So we can’t just slap a SaaS multiple atop its figures and call it a day. We have to do a little bit more thinking.
When Intel bought the company for $15.3 billion, Intel paid around 43x for its prior-year revenues. If we applied the same multiple to the company today, it would be worth a little more than $59 billion. However, 2022 is not 2021, when prices for tech companies were insane, nor is it 2017, when the world was not in a pandemic, suffering from a variety of economic shocks, and enduring a stock market selloff, war, and more. (Notably, the $50 billion price point has been discussed as a potential target for Mobileye at exit.)
Even more, the hype around self-driving a few years back was that autonomous cars were pretty close. Today, by our read of the market, that optimism is tempered. So there may be less of a hype premium attached to Mobileye when it does list. Still, the company does have good growth and operating income attached to a very, very high-tech product, so there is good reason to expect the company to have material value.
This lets us say that Mobileye will not lose Intel any money. The company would have to see its revenue multiple compress to around 10x for Intel to wind up underwater on the sale. For a company with Mobileye’s economics and market positioning, that feels low. Just spitballing, but 15x might be more of a lower end.
Intel doesn’t seem too worried about the company’s day-one IPO valuation. In an interview with CTech, Intel CEO Pat Gelsinger said the following:
The value on the day of Mobileye’s IPO does not worry me. I want it to be a good IPO, but it will not be at the level of ‘let’s wait another week and maybe get another 5%.’ We do the IPO because it’s the right thing to do for Mobileye […] Creating value for Intel and Mobileye’s new shareholders is what matters […]
This is perhaps the why when it comes to why the IPO is happening now. Intel is not timing the market, which is pretty bold of them. But we’re not complaining. We’re going to get data, and that is welcome. Period.
This is where our questions get more serious. Where the market sets the Mobileye IPO price will help explain the value of faster-growing and profitable tech companies. The multiple, therefore, should be attractive compared to tech companies with similar growth rates and lesser profitability. So in a sense, unicorns that currently lack similar profit metrics are going to want to see Mobileye stretch for the sky in pricing terms so that they can reach the mere hills.
This is why we are paying attention. Can Mobileye provide cover for other unicorns to reach the public markets? We’ll know soon enough. In the meantime, shoutout to Intel for braving a closed IPO market so that we can all learn where we really stand.