What’s Oxford Club’s “Patented ‘Cure’ That Could Save 1.5 Million Lives Annually?

by Travis Johnson, Stock Gumshoe | January 11, 2017 11:43 am

Lots of questions rolling in about this one — it’s a pitch for Sean Brodrick’s Oxford Resource Explorer, which these days is offered at $79 a year (or $49 for email-only)… though the letter is actually signed by David Fessler, one of their analysts who has generally been touted as an energy and resource expert in ads we’ve covered in the past.

Here’s how the ad starts:

“The Only Patented ‘Cure’ That Could Save 1.5 Million Lives Annually…

“IN THIS TINY SQUARE

“Surprisingly, the company behind this square technology has NOTHING to do with healthcare.

“Yet is is poised to lead from $340 million in revenue… to $19.2 BILLION… an astonishing 5,547% increase!”

That’s accompanied by a photo of what looks like a fairly large semiconductor chip being held in a gloved hand (2cm by 2cm is far, far larger than the chips in your phone or tablet, for example, we’re used to seeing tiny stuff pitched these days).

And the health bit gets pushed further still:

“It may appear unimpressive, but inside this tiny square lies a major technological breakthrough.

“It’s not a new microprocessor… or a new pacemaker… and it’s not a magnetic cancer-fighting device or anything like that.

“But thanks to this 2.5 by 2.5 centimeter square, you can have virtual immunity from one of the most preventable causes of death in the world.

“One that, according to the World Health Organization, kills 1.5 million people every year.”

We’ll skip ahead a bit and say that yes, what they’re talking about is auto accidents. Humans, on average, are terrible drivers… and despite the fact that cars have gotten much safer over the years with airbags and seat belts and anti lock brakes and safer roads and all kinds of other automotive safety features, auto accidents still kill a lot of people. The promise here is that reducing reliance on human attention, reaction time, and instant and precise decision making will improve driving — just like it has improved factory automation and so many other aspects of modern life.

More on this hinted-at company:

“And one company has a patent moat around this entire lifesaving technology.

“It has 18 U.S. patents and six European patents and has applied for 52 others worldwide.

“Analysts call it ‘An intellectual property powerhouse.’

“In short, it’s locked out ALL competition for the foreseeable future.

“In fact, the CEO of Baron Capital (which manages $26 billion in assets) flat-out says this company ‘has a monopoly.’

“Now, I should tell you… the company in control of this lifesaving technology is NOT a biotech or a healthcare company.

“But it’s about to change our world in ways never before imagined.”

What investor wouldn’t want that, right? A big trend, a patent moat, locking out all competition… what could go wrong?

Fessler then goes on to explain how much money is pouring into this industry… which, if you’re a thoughtful investor, should make you wary. The fact that Andreessen Horowitz, Google, Apple, and the U.S. Government are all investing billions into this industry does not reassure me that “one company and its tiny square” are at the forefront and poised to maintain a monopoly.

But let’s set that skepticism aside for just a moment and get a few more clues from the ad so we can ID the stock for you… that way, you can think for yourself and leave the marketing pitch behind before you even consider investing in the company. Here’s a bit more from Fessler:

“You see, there’s one company with a heavily patented solution to this massive problem.

“18 patents in the U.S, six in Europe and 52 pending worldwide.

“This technology can… and will… virtually ELIMINATE every single car, truck and bus accident.

“One company with the real potential to ‘reduce accidents to zero… [and] save close to 1.5 million fatalities,’ according to its CEO…

“To cut the cost of car accidents in America from $1.3 TRILLION to next to nothing…

“To end the sort of chronic back and neck injuries that keep people in long-term hospital care and out of the workforce.

“This company has the perfect technology – contained in that little square I showed you earlier…

“It’s actually a system on a chip that will finally make driverless technology a reality.”

This is what newsletter ad copywriters do better than anyone else: take a big trend, use huge numbers for economic impact… and then skip a few dozen steps and conclude that all of that economic impact (or a huge portion of it) will go to blowing up the revenue of one specific company that’s a part of that trend.

That never happens… or almost never. Apple captured most of the profits in the smartphone industry for several years, Intel captured a huge portion of desktop computer chip revenue (and Microsoft the operating system revenue) for a couple decades… but the reason we know those stories is because they’re a rarity: Huge markets with monopolies or near-monopolies. Most of the time, that’s not how real life works… and we very easily forget all the could-have-been companies whose technology or marketing wasn’t good enough (Blackberry, AMD and IBM in computer chips, Apple in operating systems from 1980 to 2005, etc, to say nothing of all the companies that failed early on, and failed to shift their business, and have been completely forgotten by the forward-thinking markets). All those companies had real potential, strong market positioning, and patents… and it didn’t really matter.

So that’s my last bit of big picture warning — just remember to apply a dollop of that skepticism whenever anyone gives you percentage increases that have a comma in them. There are several charts and bold type assertions that the driverless car market will go from $3 billion to $96 billion (from 2015-2025), and that this increase (which is 3,100%, if you’re keeping track) will lead to “an astronomical 5,547% jump in revenue for the single company at the forefront of a revolution.”

By way of comparison, Apple’s increase in revenue during the iPhone era, which has now been ten years, was almost exactly 1,000% at the peak last year (revenue fell a bit this year). That’s for what has arguably been the most successful consumer product in history, with unusually strong brand power and persistent margin strength (meaning, unlike most consumer and technological products, that they staved off competitors and kept pricing power better than anyone would have guessed a decade ago). So these kinds of gains are possible for strong brands who maintain strong market share and avoid margin erosion, and they can trickle down to the share price (AAPL stock’s total return over those ten years was about 950%). But “possible” doesn’t mean “frequent” or “likely” or even “predictable.”

So… what’s the company Fessler is pitching? Final clues:

“Its product will be in almost every single driverless vehicle…

“It’s contracted with 90% of every big-name auto company you know…

Jaguar Land Rover
Mitsubishi
Hyundai
Kia
Audi
Rolls-Royce
Chrysler
And Honda (to name a handful).

“And every one of these major auto companies is currently developing driverless cars using this tiny patented chip.

“That’s why we expect its revenue to jump 5,547%….

“… by the start of 2017, 100 of the DTR Company-fitted Volvo XC90s will be available to consumers in Gothenburg, Sweden, ‘for use in everyday driving conditions,’ according to Fortune.”

And what is it that this tiny chip does? Clues:

“In simplest terms, it works like this…

“The software inside the square analyzes video in real time… and is able to detect anything in the car’s path.

“From pedestrians… to wildlife…

“To other cars on the road…

“The system then makes real-time adjustments to avoid a potential accident… at speeds much faster than any human reaction….

“The U.S. Department of Transportation was so impressed with the DTR Company’s technology that it decided to contribute eight-figure funds to a multiyear partnership.

“That’s because it’s ‘the future of transportation,’ Secretary Foxx said.”

That DoT “eight figure funds” partnership was not just with this “secret” company, that’s part of the “subject to future appropriations” $40 million fund that is going toward the “Smart City Challenge” … one piece of which will likely include smarter vehicles, of which one small piece will be the actual sensors used on those vehicles. The “Smart City” winner was Columbus, Ohio, by the way… and the company being teased here is one of the partners in that “Smart City” venture, Mobileye (MBLY).

Yes, good ol’ Mobileye, being teased again as the leader in driverless cars. And they do have a commanding market lead in some segments of this still-very-small market, thanks to the software they created that allows them to process visual signals from a single front-mounted camera and interpret those signals quickly to allow responses without other sensors or binocular vision. That single-camera solution was cheaper and simpler, so it got quick adoption by some luxury carmakers and has been a pretty successful aftermarket solution, though there are also lots of other sensor technologies out there (from multi-camera systems, to radar and lidar sensors, and probably including lots of stuff that I don’t understand at all).

And just to take one example, those “eight figure funds” from the Department of Transportation won’t be material to MBLY… that’s just an example. What Mobileye is contributing to the partnership are sensors for buses, which they call Mobileye Shield Plus, and those sensors are built into new buses and add about $5,000-6,000 in cost per bus. Columbus has about 300 buses, so if they replaced all of them right away that would be $1.5 million in potential revenue for Mobileye — though, of course, they’re not going to scrap a new bus and buy a new $300,000+ vehicle just for this safety and connection feature. Perhaps safety features will speed up the upgrading and recycling of the bus fleet in major cities, as we’ve seen that electric buses and more efficient buses have sped up new adoption from time to time, and buses don’t last that long (10-12 years is typical) so there is a constant upgrade cycle… but this isn’t going to drive Mobileye’s revenue into the stratosphere.

What investors are hoping for is that Mobileye’s technology will become standard on all vehicles and drive revenue higher — and it’s still fairly early. Worrisome things pop up all the time to counter the positives (like the large number of cars that are already equipped with Mobileye sensors, and the number of auto companies that Mobileye is working with)… negatives include the fact that Tesla has dropped Mobileye[1], and Alphabet’s newly separated Waymo has developed its own hardware and software and sensors (including cameras) that don’t require Mobileye’s technology (that worried MBLY investors this week when more details were announced by Waymo at the North American Auto Show[2], helping MBLY shares to take a little dip of 5% or so on Monday).

But even given those negatives, MBLY has gotten a little bit more reasonable in price of late, partly because the shares are down a bit from their highs of a year or two ago when they were newly public and “hot” and partly because the earnings growth expectations have firmed up. There isn’t a huge amount of earnings growth yet, but analysts expect earnings growth to be substantial this year and for the next several years — estimates range pretty widely, but generally the expectation is that MBLY will post earnings growth of 40-50% both for 2016 when it’s final and for 2017 and 2018, getting them $1.03 in earnings this coming year and $1.57 in 2018. So the forward-looking PE ratio, using those 2018 numbers, is 26 — not bad for a company that’s growing earnings at 40-50% a year.

The trailing PE ratio, of course, is more sobering at about 100. So, the rub is that this is all about growth and expected persistent growth… and that relies on both strong revenue growth and strong margins, which means they have to be able to hold off whatever competition there is from other sensor technologies in what seems to me to be a very fluid industry. I would hesitate to say they’re going to fail, because unlike most other technologies they are actually selling products that are built into cars and being used on the road, with a track record of increasing safety… but I would hesitate to assume that they’re going to dominate the driverless car industry.

Where does Fessler get his estimates about MBLY’s revenue growth? Here are the details he gives:

“The entire driverless market will explode into a $96 BILLION industry in the years ahead, according to Goldman Sachs.

“That means if the DTR Company at the forefront of this revolution were to capture just 20% of this growing market…

“It would lead to a 5,547% revenue boost from its current $340 million figure.”

There are a lot of assumptions built into that — the Goldman Sachs estimate he cites was that driverless cars are currently a $3 billion business (as of 2015) and will grow to $96 billion by 2025… and that’s obviously just a made-up forecast, since no one really knows, but you have to start somewhere.

If we use that same rationale to look at Mobileye, which was an early mover in sensors and had probably at least as strong a market share in 2015 as they do in 2016, then we have to use MBLY’s 2015 revenue, which was a $240 million. So by that measure, MBLY had 8% of the revenue in the driverless car market. If they keep that market share and Goldman Sachs is right, that would be $7 billion in revenue for them in 2025. Which is awfully close to where their revenue would be if it grows at 40% a year for the next nine years. So there’s perhaps a path to thinking about this as a feasible future, but you’re also talking about a $9 billion company that relies heavily on patents to protect it’s small slice of the camera sensing market, and the two most well-known companies in next-generation “autopilot” technology, Tesla and Alphabet/Google, have decided they don’t need Mobileye.

So there you have it — a company with a strong position in the early stages of a major trend… but some real questions about whether it will maintain that strong position over the coming years as autonomous cars gain traction and speed ahead. I haven’t been able to get confident enough in Mobileye’s future market share to be willing to pay what is still a premium growth-stock price for the shares personally, but it is certainly a company with a lot of partners, some honest potential, and a very strong analyst forecast of growth over the next couple years.

And with that, you can go forth, researchify, and make your own call — and please do come back and tell us what you think about MBLY’s prospects by adding a comment below, every bit of knowledge and input makes us just a wee bit wiser. Thanks for reading!


Endnotes:
  1. Tesla has dropped Mobileye: http://www.cnbc.com/2016/09/16/tesla-says-mobileye-balked-after-learning-carmaker-to-make-own-cameras.html
  2. more details were announced by Waymo at the North American Auto Show: https://www.bloomberg.com/news/articles/2017-01-09/alphabet-s-waymo-may-sell-autonomous-hardware-to-other-companies

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  1. thinairmony
    Jan 11 2017, 03:17:03 pm

    If a group would justreally think it through( brain storming 6 sigma) total driverless vehicles on the road. I’m doubtful. I see mass transit as the green way of the main future of traveling. And the idea of driverless cars is a money pit. And the trade off will be having to give up some independence.

    • Steve B.
      Jan 11 2017, 06:43:23 pm

      Agreed about mass transit, meaning that even bus manufacturers have a more logical future as investments.
      — The concept of driverless cars is a brilliant advertising ploy for companies to get free news coverage, perhaps as well as taxpayer grants for their dangerous experiments.
      — Are they really practical? They might work in environments that have controlled/known geography where the vehicle is trained on a route which it then follows slavishly – perhaps for a small bus on a fixed local route.
      — But they are all shown driving in nice climates like California. Show me one of them coping with our northern drifting, heavy snow covered roads where the lane markings are totally obscured and human drivers have to guess where the roadway actually is. (Even for half of the short summer we still have to guess where the lanes are because the paint was scraped off last winter by relentless snowplowing.)
      — Somewhat parallel is the free TV publicity generated by Amazon showing a drone delivering a package. Phooey.
      — My concern is how many folks will be killed by driverless vehicles before some government stops the madness?

    • Mike
      Jan 12 2017, 08:37:34 am

      This comment is not very well ‘brain stormed’. Most of this country is RURAL – and yes those people still need to get to work/school/shopping etc.. Think outside your big city . You will never get mass transit to every rural county.

      • 20 |
        Marco Polo
        Jan 13 2017, 07:45:01 am

        Your observation is correct. However, I would offer that personal transportation is more about people than geography. That is, most of the country is rural land, but most of the people don’t live on 1,000 acre farms/woods; they live in cities and SMSA’s.
        Driving in NJ shows me that driverless isn’t going to happen…ever:-)
        There will likely always be a form of personal transportation, but like thinairmony, mass transit is the most likely form of transportation in the future. In Japan, you can get just about everywhere by train, and maybe a bicycle (without a coronary episode). Their mass transit is superb.
        I’ve been professionally involved in the whole driverless car discussion for over a decade, but from the insurance angle. When your “driverless” car has a software glitch, who pays? Mobileye? Ford? the interface software manufacturer? The guy living next to the highway who turned on his microwave? No one has figured that out yet and there are more lawyers in Fla trying to determine “who pays” for the Tesla mishap-regardless of watching a dvd movie.
        Rail and its offspring (tubes, etc.) at higher speeds will lower the cost, fuel consumption, and schedule limitations of travel over distances vs. air (flying busses). That’s a capital intensive business, and living in Columbus, there’s not one darn train anywhere. You drive or take a bus.
        That has to change.
        Will it? I don’t know. But given the discussion in driverless car space, I would expect to see high speed mass transit well before driverless cars.
        Likely in either case, I’ll be dead, so I seek investments that will provide personal capital improvement earlier;-)

    • Donald Castle
      Apr 13 2017, 03:00:14 pm

      That’s what was said about car’s when they were replacing the horse ! If your right I hope I’m dead and gone before people are moved around like cattle in a truck.

  2. Carbon Bigfoot
    Jan 11 2017, 03:59:05 pm

    Let me say that David Kessler was one of the reasons I left Oxford Club. If I recall he is a degreed Electrical Engineer and allegedly ran a large company B4 joining OC. One of his shticks was Renewable Energy and 7-9 years ago with oil and gas at high levels it was not competitive and yet he still pushed this meme. Based on my experience with Kessler I would not trust anything he’s pushing but on the flip flop as an Electrical Engineer he should have the CV to thoroughly evaluated this issue. But IMHO given my failures with Oxford’s teases I’d avoid it like the PLAGUE.

  3. edw2269
    Jan 11 2017, 06:19:31 pm

    NIO and Mobileye sign MOU for a strategic partnership to jointly develop L4 autonomy using the Mobileye solution portfolio for NIO USA vehicles by 2019.– As part of the partnership, NIO engineering will develop and deliver for NIO customers unique L4 features, built leveraging the Mobileye platform in conjunction with other sensors and technologies.

  4. alpha2
    Jan 12 2017, 01:40:53 am

    I too am a self driving car sceptic for European urban areas. I live about 2.5 miles from the centre of London.

    To get anywhere from here as in most of Greater London I have to drive through mostly narrow streets of Georgian, Victorian and Edwardian buildings with cars parked on both sides of the road.

    The sensors on my Merc are constantly bleeping as I squeeze into a gap on one side to let oncoming traffic pass within a couple of centimetres or am squeezing past someone parked on the other side.

    I cannot believe that the sensors safety margin on driverless would allow these type of maneuvers to the tolerance necessary.

    As far as drones are concerned I am equally sceptical. In densely poulated areas such as this where online deliveries appear to have an enormous uptake the noise pollution would be completely unacceptable. Never mind the fact that a majority of properties are multiple occupancy.

  5. Christopher
    Jan 12 2017, 10:12:46 am

    How are they going to stop drivers from playing “chicken” with a driverless car knowing it will always give in to avoid an accident?

  6. Christopher
    Jan 12 2017, 10:43:26 am

    How will the industries pushing driverless cars keep other drivers from playing “chicken” with driverless cars since they will always give in to avoid an accident?

  7. thinairmony
    Jan 12 2017, 10:51:53 pm

    Just like to add one point my wife made about the death rate being cut down with self driving cars. And she added another angle, she being in the medical field commented about the amounts of organ donors that come from automobile fatalities would decrease. So in reality it’s a double edged sword. The big picture of reality.MMMM thinairmony!

  8. 5616 |
    Travis Johnson, Stock Gumshoe
    Mar 13 2017, 09:38:06 am

    Looks like Intel is really fairly desperate to build up their auto business — MBLY to be taken over by INTC at 40X 2018 earnings (or 60X anticipated 2017 earnings).

    And yet, it will still be accretive for Intel… because they have $17 billion in cash, so they’re buying a money-making business with money that hadn’t been earning anything for them previously. Like Qualcomm with its takeover of NXPI, Intel wasn’t getting any credit from investors for that excess cash anyway.

    Not dramatically accretive — it will increase Intel’s EBITDA for 2018 by about 1.5% over the current estimates (assuming that estimates for both INTC and MBLY are accurate — Intel is expected to have EBITDA of $26 billion in 2018, MBLY about $420 million) … but that’s quite likely more than they’re making on their cash, so it’s still at least better than nothing. Unless, of course, Mobileye fails to grow revenue and earnings as analysts estimate.

    • MachineGhost
      Mar 19 2017, 12:02:47 pm

      It was a very smart move. Self-driving cars have already successfully navigated dense urban and suburban environments. Just the legalities need to be finalized (i.e. insurance and government bureaucrats). Eventually, no one will bother owning cars anymore as it it will not be cost effective as just renting one on demand via your smartphone. Mass transit is never going to happen in America the way it is so poorly sprawled around the car.

  9. 155 |
    backoffice
    May 1 2017, 11:19:14 pm

    What about $STM and $AMD? Are the driverless going to be able to deal with drivers? That’s a scary thought.

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