First it was SaaS, then CaaS, PaaS, FaaS… some of them have stuck in our minds as investors, some haven’t yet caught on as acronyms for the continuation of the “just in time” and “just what you need” subscription economy, but certainly the world’s shift from selling software and technical services from a contract or purchase model to a subscription model has enchanted the investing world. Investors love nothing more than recurring and somewhat predictable revenue streams.
And the latest iteration of that, at least among pundits, has been transportation — among newsletter hypesters, Whitney Tilson took the lead on this a year and a half ago with his TaaS pitch, saying that we’re going to stop buying cars and will soon be entering a world where we buy “Transportation as a Service” just like we buy computing power or software or a Netflix subscription or whatever else.
That’s a popular idea, of course, the notion that we’ll move past the “I need to own a car” and to “I’ll just buy transportation from place to place, when I need it” is just as sensible as going from “I have to own a data center” to “I need to be able to call on the resources of a data center on demand.” It’s a little tougher when we talk about a consumer product that is tightly engrained in the national psyche like automobiles are in the United States, but the wild success of Uber over the past decade gives some credence to the idea that this will be a persistent trend. We don’t know the timeline, but the trend certainly makes sense.
And Ian King over at Banyan Hill is now jumping on that bandwagon, with his variation being pitched as “Mobility as a Service” (MaaS) in ads that are dated December 2020 (though I just started seeing them this week — so it might be that this pitch is recycled from a newsletter issue of a couple months ago, as sometimes happens).
So is MaaS the same thing as TaaS? Pretty much. Can I get through a whole article on this without referencing Roberto Duran’s “No más” moment? (Nope, too late).
MaaS is not a brand-new term, of course, futurists and others have been using it for a while… whether it will really catch on in the end like SaaS has, I don’t know.
The ad is for King’s Automatic Fortunes newsletter, which is one of the entry-level newsletters over at Banyan Hill (currently $47/yr) — like Paul Mampilly and the other pundits at that publisher, and indeed like most financial publishers, there is always a huge push for these lower-end services to feed new subscribers into the top end of the marketing funnel — with the goal generally being to get those subscribers in at near break-even (ie, having the customer acquisition cost be close to the first year subscription), and then making money from those readers either with ongoing renewals (meaning they have to keep subscribers happy) or by getting them excited in their first months of membership, hopefully with great investing ideas, and then upgrading them to one of the much more expensive services (which generally do not offer refunds or guarantees). Ian King helms three different services at Banyan Hill at the moment, so if you do sign up for Automatic Fortunes for $47, I’d expect a big push to upgrade to New Era Fortunes (usually around $2,000/yr). Or maybe he’ll have a new service or two this year — his colleague Paul Mampilly was up to nine different newsletters running under his name, last time I checked.
If you’re not familiar with Ian King, he’s been around for a few years as a newsletter guy — his most recent pitch for this same newsletter was his “#1 stock for 2021″ pitched in January, which was Square (SQ), and he’s had promos running pretty hot and heavy for stocks like Splunk (SPLK) and Inseego (INSG) since well before the pandemic hit a year ago. This is what he says he looks for in making recommendations in Automatic Fortunes:
“For a stock to be recommended to my readers, it must meet four very specific criteria.
“The company must:
- Target a multibillion-dollar industry at a tipping point. We want to invest where the biggest changes are about to occur.
- Have an X-factor. A line of business that will accelerate from a technological change such as 5G, AI or precision medicine.
- Have revenue growing at a clip of at least 20% each year. This is straightforward. If a company is not making money, it will not make money for investors.
- Has strong momentum. I want to find the stocks that people are just beginning to recognize the opportunity ahead.”
So what’s the pitch for this time?
King says this “MaaS” is the spearhead of three trends converging… electric vehicles to speed up the turnover to new cars and make them more efficient, autonomous driving technology and artificial intelligence that makes roving fleets of “on demand” cars possible, and faster semiconductors (which is really mostly part of the “autonomous” bit, I’d argue, though certainly cars have been trending toward computerization for decades).
Here’s a bit of the spiel, just to share where he’s coming from:
“We are on the precipice of the biggest revolution in 130 years.
“With the convergence of electric vehicles, self-driving technology and semiconductors, the Mobility-as-a-Service industry is about to explode onto the scene.
“Most of us won’t even need cars.
“And much like how the iPhone completely changed how we communicate, MaaS will completely change how we get around.
“You’ll be able to get from Point A to Point B at a fraction of what it currently costs, and be able to do whatever you want instead of drive.”
And King says he’s been focused on this area for some time, including with a recommendation to buy Tesla (TSLA) a couple years ago at something close to $50, which obviously has worked out well (TSLA is around $700 at the moment, despite yours truly being skeptically fuddy-duddyish about it). So what does he think investors should do now?
“How to Take Advantage of This Revolution Right Away
“There is no doubt in my mind … this mobility revolution will have a major impact on our society.
“Google, Microsoft and Amazon are some of the ‘safer’ investments in this space.Are you getting our free Daily Update
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“However the biggest gainers are not featured in news headlines.
“You need to look past the headlines to identify companies not many people know about, yet.
“This tech is called “LiDAR,” and it’s a critical component for self-driving.
“And my No. 1 stock for the mobility revolution is the biggest player in this space.”
OK so we must be looking at one of the LiDAR SPAC darlings here, several of the companies who are trying to develop and commercialize next-generation LiDAR systems for autonomous driving went public over the past year or so by merging with Special Purpose Acquisition Companies (SPACs), and investors fell immediately in love with the promise — LiDAR went from being an expensive toy that nobody thought would ever be feasible in a mass-production car, to something that investors are now assuming will be mainstream within a few years.
What is LiDAR? Think of it as being like radar, only on a different spectrum — the term stands for Light Detection and Ranging, and it uses lasers and light instead of radio waves. There are different wavelengths of LiDAR used for different purposes, but the advantage of light is that it can be much more precise and fast than radar, so it has a special appeal for real-time continuous 3D mapping of the constantly-changing world around your self-driving car (radar doesn’t have the same resolution, video can be stymied by rain or mud). There’s a lot of debate among car folks about whether full-on LiDAR is really necessary for autonomous cars, since it has been prohibitively expensive, it requires funny-looking sensors on the roof for 360 degree coverage (so far, at least), and there are much cheaper radar and video technologies that can do similar things… Elon Musk in recent years has particularly been trying to shout down the LiDAR crowd for going down the wrong path, but there seems to be some consensus among most car companies that it will be a key enabler of autonomous driving. And, of course, there is the faith that technological progress will bring down both the size and cost of LiDAR sensors to a manageable level soon, as it has for pretty much every other electronic device you can imagine over the last 50 years.
(We haven’t really settled on whether this has become a common noun yet, like past acronyms radar, scuba or laser, so if you are convinced that it should be LIDAR or lidar or even, for the Europeans, LADAR, then sure, I apologize for angering the grammar gods and I agree with you, I’m just trying to be consistent even if it’s consistently wrong… you don’t have to contact me regarding my error :))
But which LiDAR name are we talking about here? There are a half-dozen or so competing in this segment right now, just among public (or in the process of going public) companies. We do get a few clues…
“This firm already has 55 LiDAR technology patents…
“And it already has contracts in place to supply this technology to major car companies like Uber, Volkswagen and Toyota, just to name a few.
“Waymo uses this company’s LiDAR tech.
“And GM relies on it for the self-driving Cruise model.”
OK, so most of the car companies I’ve noticed have been experimenting with lots of different suppliers and technologies — they’re willing to invest in cutting-edge stuff, but they presumably don’t want to be tied down to a sole-source supplier for a particular tech if they can help it. The dream for automakers, of course, is that LiDAR sensors become commoditized and cheap and they can spur competition among suppliers.
“It already has $800 million in contracts booked through 2024 … but the company has a market cap of just $3.8 billion dollars, which is tiny compared to other tech behemoths.”
Well, $800 million in bookings is also tiny compared to “other tech behemoths” — everything is relative, after all. Other hints?
“… its revenue is expected to surge over six times between now and 2024.
“Bottom line, the time to invest in this stock is NOW.
“Its stock trades for under $30 a share, but I do not expect it to stay there for long.
“If you picked up shares of this company today, you could double your money in the coming months … and possibly 10-fold by 2030 … if not perhaps even sooner.”
And King does show a video in the ad…
“The car in this video is using LiDAR tech from my No. 1 stock to successfully make 1,400 left turns in under 24 hours during a test.
“And it did this with ZERO accidents.
“That’s why the time to invest in this company is now.
“I see serious growth potential here.
“In fact, I expect this company to be the dominant force in the LiDAR market.”
King has recommended “LiDAR SPACs” before, as you might remember — he was pitching one of the slightly newer ones, Aeva, just a few months ago for his pricier New Era Fortunes newsletter… so is this a repeat of Aeva, or something else?
That’s “door number two” for us, dear friends — I had to move the construction equipment out of the way in the garage as our renovations continue, and it took a few minutes to get her started on this cold morning, but the Thinkolator eventually chugged to life, chewed on those clues for a minute, and told me that this ad points us squarely at… Velodyne Lidar (VLDR), which in the world of LiDAR I guess counts as a granddaddy. Velodyne is credited with essentially inventing the business of live 3D laser sensing, and has been the leading LiDAR company in terms of actual contracts and sales for many years, largely because they were in early and it has been a niche business… and they’re hoping to transform that early leadership into the automotive realm as LiDAR begins to be commercialized in regular consumer automobiles, and perhaps becomes a much larger market over the next few years.
How does it match? Well, they aren’t the biggest company in this space by market cap (that would be Luminar, which is by far the most valuable LiDAR stock), but they are the biggest business by any current operational measure — they actually have revenues, about $95 million last year per last week’s earnings report (slightly disappointing, mostly because price cuts led to higher losses).
They don’t supply the LiDAR sensors to Alphabet’s Waymo any longer, Waymo famously started building their own LiDAR sensors in an effort to cut costs, but they certainly have in the past, as they were pretty much the sole source for reliable LiDAR a few years ago when autonomous vehicle programs were just starting up, and I’m sure there are plenty of Waymo cars on the road with Velodyne parts still aboard.
Likewise, they aren’t guaranteed to be the LiDAR supplier for GM, which bought a LiDAR startup called Strobe a couple years ago in an effort to push costs lower…. but Velodyne’s sensors have certainly been used on GM Cruise autonomous test cars. Whether they were the critical sensors used on the car that took 1,400 left turns in San Francisco without killing anyone, I can’t confirm… but I’ll take King’s word for it.
The stock is firmly under $30 a share, as are most of the LiDAR SPAC stocks (other than Luminar (LAZR), the sexiest story in the bunch, which is right around $30 now and got to $40 in December). And they do project out roughly 6X more revenue in 2024 than they had in 2020 (the forecast as of their investor presentation last year was that they would have $102 million in revenue in 2020, growing to $684 million in 2024 based on “awarded multi-year contracts” — not as firm as “purchase orders” or “commitments,” but certainly better than nothing).
How is this all going to work out? It’s clearly a growing technology, though that near-term growth is mostly in the stepping stones to autonomous driving now, not real self-driving cars — what we’d usually call “driver assistance” systems, like collision and lane alerts and pedestrian or obstacle warnings. LiDAR has the potential to explode into uses that we can’t imagine right now, as all of the emerging suppliers try to break through and slash costs and get contracts and produce commercial sensors that get designed into actual cars, and most of the LiDAR companies are both trying to develop the best sensor systems AND trying to develop the software systems that integrate LiDAR, radar, video and other car sensors to make it work as seamlessly as possible, often with a dollop of artificial intelligence processing on top for extra coolness.
This technology has been advancing for a long time, and we can all kind of see the future even if we might disagree about how fast it’s coming… but changing technology in cars is a tough challenge, and it often takes much longer than you might expect, at least for legacy automakers (I guess Tesla is a bit faster, since Elon Musk operates without fear). Breaking in as an auto supplier is hard for tech companies — the requirements for a product that has to last 10 years and a couple hundred thousand miles, in all weather and conditions, are a lot different than the requirements for a phone that you’ll probably replace every two years… and which probably won’t kill anyone if it fails at the wrong time.
The future is coming, live 3D LiDAR scanning technology is real, it has proven itself in a lot of test miles for autonomous vehicles, and it seems pretty well inevitable that it will be commonplace at some point in the foreseeable future as the costs come down and the products and the driving software continue to improve. That’s the potential that underlies the investment case for all of the LiDAR names, including both the public and near-public ones (like the ones who are in the process of merging with a SPAC but haven’t done so) as well as a few other fairly young companies who remain private and venture funded (like Quanergy, though there are tons of little ones), and lots of fairly invisible (at least to investors) projects at the major auto suppliers (like Bosch).
It’s a fascinating technology, but it’s also possible to get wrapped up in the idea of an early winner, so we should keep in mind that there are a lot of other names involved with or working on industrial and automotive LiDAR solutions, including names like Faro, Riegl, Sick, Hexagon, Trimble, LeddarTech, Valeo, Leosphere, Hokuyo, Ouster, BEA, RoboSense, and the list goes on. Velodyne Lidar is one of the few “pure play” public LiDAR companies that doesn’t do much other than that, and it has a lot more experience in this area than most startups, but they aren’t alone. Yole Development estimated that Velodyne Lidar had about 6% market share in 2019, falling from 2018 as more competitors tried to grow. A lot of the biggest current businesses in that list, like Trimble or Faro, don’t have anything to do with automotive sensors, they’re used for precision measurement and scanning and civil engineering and construction projects, but quite a few of them are going after the same kinds of equipment and software… and that doesn’t even include most of the automotive startup competitors for Velodyne, firms like Luminar and Aeva, because those younger firms don’t really have a business yet, so they don’t have market share.
And interestingly, Kyle Vogt over at GM’s Cruise division had a post on this challenging funnel of LiDAR competition as well, arguing (in part) that it might be that all of these SPAC-financed LiDAR startups are making the same assumptions about future growth, and using similar end markets, so it might be that there are five (or more) companies each asserting that they’ll be the dominant provider in 2025 or so, when this business is expected to reach some kind of commercial scale, and they probably won’t all win. Eventually, there will be competition and pricing pressure from the buyers. This is the first Tweet in his thread on that point, from back in early January, in case you’re curious to follow his reasoning (plenty of people disagree, of course, and Cruise obviously would like to see all these LiDAR companies compete themselves to death to cut prices):
1/ Interesting thing happening in the LIDAR industry right now. 5+ companies will soon or have SPAC'd. Their value is based on *projected* revenue that comes from *entirely overlapping* potential customers, with very little discount applied to future projections. Is this bad?
— Kyle Vogt (@kvogt) January 6, 2021
The recent market weakness has brought at least a little bit of welcome skepticism to the LiDAR SPAC stocks (and to lots of other speculative growth stocks and SPAC names) — they’re all still priced at hefty valuations and are being promoted based on still-pretty-hypothetical end products and markets for the most part, but at least they’ve come down a bit. VLDR was in the mid-$20s for much of January and February, when it did (as teased) have a market cap of about $3.8 billion, but as a little SPAC skepticism took hold in mid-February it dropped the mid-teens, so it’s around $16 and $2.9 billion as I type.
The most consistently crazy-priced LiDAR name has been Luminar (LAZR), which is a much younger company than Velodyne but also has a much better story behind it to attract investors. I put these stocks on my watchlist back in August, and never ended up buying either of them, but this is what I noted at the tim