This article was originally published on August 25, when the teaser ads were initially running — but they ran heavily again recently with a “you have to get in by September 29 before the secret gets out” pitch, so most of what follows is the same as when I first covered the pitch… but I’ve added some updates here and there.

This pitch is a little bit of a follow-on to the still oft-requested “TaaS” piece by Whitney Tilson — Tilson began teasing his “Transportation as a Service” idea for his Empire Stock Investor newsletter, and some stocks that play on that, in “presentations” that primarily recommended Waymo (a division of Alphabet (GOOG)), Aptiv (APTV) and NVIDIA (NVDA) starting about four months ago, and the ad is still being pretty heavily distributed (my article about that pitch is here, if you missed it the first time around), but recently Tilson’s colleague Enrique Abeyta was hinting at another play on the “autonomous vehicle” technology that will make TaaS possible.

This tease I saw first was dated August 20, and it’s in ads for Abeyta’s Empire Elite Growth newsletter ($2,000 for first year, renews at $3,000/yr), one of the “upgrade” offerings of Tilson/Stansberry’s Empire Financial group (direct marketing publishers are like sharks… if they stop “upgrading” you, they die)… and the pitch is no doubt exciting some folks because it combines three hot “themes”: electric cars, IPOs, and autonomous vehicles.

This is how the tease gets rolling:

“You can think of LIDAR as the ‘eyes’ of an autonomous vehicle.

“These ‘eyes’ are going to be some of the most valuable pieces of technology of the century.

“Even after the roads are packed with self-driving cars, all using the same “eyes,” it’ll be just the beginning for LIDAR technology.

“Any dynamic vehicle and robot will need to have LIDAR to react to the world around it.

“That’s why my recommendation for you today is one of the top LIDAR suppliers in the world.”

Lidar is a remote sensing technology, sort of like radar but using light instead of sound, and it is being used by most of the autonomous vehicle developers, often in combination with radar and camera sensing technologies — it has limitations, and Tesla hasn’t been using it in its own autonomous technology (Musk got a huge amount of attention last year for saying “Anyone relying on lidar is doomed”), but almost everyone else uses it… with the expectation that the costs, which are still far too high to include in production cars (probably why Tesla isn’t using it… yet), will come down dramatically over time.

There are a bunch of companies that sell lidar sensors and systems, and many more coming up through the startup ranks as they try to reduce the costs of lidar for the perceived huge market that will emerge, so which one is Abeyta talking about? We do get some clues, thankfully…

“This company is already working with brand-name companies like Ford, Baidu, Hyundai Motors, and Nikon….

“This company already has more than 300 customers and has generated more than $500 million in revenue over the last decade.

“Most of that has come from technologies outside autonomous vehicles….”

OK, so it’s not one of the brand-new startups. What else? Apparently it’s a leader in the business in some meaningful way… Abeyta says:

“It also has a ton of healthy advantages versus its competition: it’s a first mover, has dominant market share, and a moat of patents and repeat customers to dominate the field for years to come.”

And their own management, we’re told, is projecting 60% annual revenue growth for the next four years.

And then we get to the “IPO” bit…

“This company quietly went public just last month… And yet there wasn’t more than a peep from the financial media.

“That’s because it decided not to IPO with all the fanfare – and pressure – that comes with it.

“Instead, it went public via a little-known ‘reverse merger.'”

Ah, so it’s probably part of the SPAC conversion mania… Special Purpose Acquisition Corporations, often called “blank check” companies, have been snapping up stocks related to any kind of hot technology, helping them to go public quickly during this crazy market mania — and that has certainly included a bunch of “future of transportation” stocks that would love to be the “next Tesla” or get that Tesla halo in some way, including the electric truck startup Nikola (NKLA) that got everyone all hot and bothered earlier this year.

If you’re not familiar with how SPACs work, they are publicly traded pools of cash — they are brought public by a manager who raises cash with the intention of spending it (within two years) to merge with or acquire a business. Once they go public they then have two meaningful assets: a major exchange listing, and a pool of cash on the books, and they offer both of those things to a company that wants to go public. They can bring a new company public by merging with them, and do so much more quickly, with much less scrutiny and often less cost, than a traditional underwritten IPO.

And while SPACs have been a fun backwater of the investment world for decades, occasionally surfacing a compelling investment idea but more commonly withering on the vine, they have become “hot” in the past year or two, thanks to the high-profile SPAC conversions that have amply rewarded shareholders like Nikola (NKLA), Virgin Galactic (SPCE, which is the second stock Abeyta hints at as his “space tourism” play), and DraftKings (DKNG). So I imagine this one Abeyta is talking about is probably not as “unheard of” as you might imagine, though if the deal hasn’t been consummated yet, and the name change hasn’t happened, it might still be under the radar (or lidar, ha!) for folks who aren’t really following the SPAC world.

Which leads us to the final question… which one is it? A couple more clues…

“… this company’s leadership was invited to present to J.P. Morgan’s popular Auto Conference earlier this month…

“It’s as easy as buying a stock in a normal brokerage account, and you can do it for less than $20 right now.”

And, more recently, that news that “the secret will be out” on September 29.

Thinkolator sez that this time he’s teasing Velodyne Lidar, a pioneer in lidar systems that was planning, upon first publication of this article, to go public through a reverse merger with the SPAC Graf Industrial (GRAF), in a deal that was announced in early July. It’s certainly not a secret move, but the shareholder vote did take place and give it the rubber stamp of approval yesterday, and today Graf officially became Velodyne Lidar, with the new Nasdaq ticker VLDR.

Velodyne does indeed expect revenue to hit $600 million by 2024 as autonomous vehicles become more mainstream, a substantial jump from the roughly $100 million in revenue they have now — most of the current revenue is from mapping companies and technology, robotics, and earlier-stage driver assistance technologies, not from active lidar systems for production cars. VLDR was expected to have a market cap of about $1.8 billion when the deal is finalized (assuming a share price near the $10 fair value of GRAF, which they haven’t seen in a long time), and Velodyne’s existing investors will own the lion’s share of the business (80%+ of the shares). GRAF shareholders got excited about the deal, on the day it was announced GRAF shares jumped from $13 to $20, and they had already gotten a little “rumor” buzz in the days before that (it looks like rumors of the negotiations between the two companies leaked out starting around June 27), so the pro forma value of the public company for a while got up to nearly $5 billion during the height of SPAC mania a month ago (GRAF briefly got above $30), but will probably fluctuate quite a bit as investors begin to settle on a rational valuation.

There was a little risk, I suppose, since the company had failed to consummate a deal before — Graf’s last attempt at a merger, with a plastic company, died a couple months earlier. But now that risk is gone — the deal is done, shareholders gave it the OK, they have started trading as VLDR, and it’s all over but the shouting.

And as we probably should have anticipated, given the fact that SPACs trade like poker chips right now as people lust over “new” IPO ideas, there was some “sell the news” action as soon as the ticker shifted over to VLDR — the shares at $21.50 or so are now down about 12% on their first official day as Velodyne Lidar, though still up 50% or so from when the deal was announced in July.

What does the valuation look like? This is from the press release announcing the deal:

“As a market leader, Velodyne has served more than 300 customers including nearly all of the leading global automotive original equipment manufacturers (“OEMs”). It has booked over $500 million in revenues since its inception. Estimated revenues under existing customer contracts are expected to exceed $800 million from 2020 to 2024. Velodyne is expected to generate revenues of approximately $100 million in 2020, increasing to approximately $680 million in 2024 with existing contracts expected to drive just under 50% of the estimated 2024 revenues. EBITDA and free cash flow are expected to be positive in 2022.”

So that does represent some very strong revenue growth, which investors might be willing to pay up for once the shares go public, though current buyers in the low $20s are still paying a lot for that growth. Assuming no redemptions of SPAC shares (no sense in redeeming for $10 when you can just sell for $20), and no redemptions from the limited facility for existing Velodyne shareholders to redeem their shares, the pro forma share count of about 168 million now means that the market cap of the company would approach $3.6 billion.

So at ~$21 a share, you’re effectively paying more than 35X 2020 revenues for this company… not completely outlandish in these times, perhaps, but that’s a big bet on a company that is expecting revenue growth but has not yet actually achieved revenue growth — Velodyne’s revenue has been falling for years, according to the SEC filings associated with the merger, from $182 million in 2017 to $101 million last year, and they’re on track to be below $100 million in 2020 (they were at $45 million for the first six months). That doesn’t mean it can’t work out, but it means you’re paying for dramatic growth that they think they’ll achieve, not for growth they’ve already shown.

Some of that growth is probably very likely, since they say half of their expected $680 million in revenue in 2024 is from existing customers with whom they presumably have some sort of longer-term demand visibility — but what that likely-but-not-yet-proven growth should be worth, you’ll have to decide. Really, what you’re paying for is their existing base of customer relationships, most of which are still largely R&D projects, and the perceived “first mover” and “leader” status of the company, and you’re betting that lidar will go mainstream in vehicles and that Velodyne will maintain its “first mover” status and be the safe go-to bet for automakers. If that happens over the next few years, then Velodyne even at $3 billion might be a reasonable value… if it takes 15 years, or there’s more competition than expected, then we’d probably be overpaying for promises right now.

And it’s also true that only a very small slice of the company will be freely tradeable in the first few months, before all the insider shares are registered and any insider sales can take place, so it might be that the price goes crazy for a little while — as, indeed, it already has to some degree, essentially doubling in anticipation of the possible craziness. Personally, I don’t find the long-term prospects all that appealing… but it might be that the shares trade up in some nutty limited-liquidity fashion for a little while after the deal closes, that has certainly happened before (though the SPAC craziness has calmed down a little bit from where it was a few months ago, Barron’s even tried to mark the moment by saying “The SPAC Market is Deflating” in mid-August).

Like almost all SPACs, GRAF/VLDR also went public with warrants — so there are also warrants on this possible deal, with VLDRW currently trading at about $5 or so and representing the right to buy 3/4 of a VLDN share at $11.50. As is typical, there’s an early forced redemption clause in the warrant agreement, so if the shares trade above $18 for 20 days in any 30-day period they can require an immediate redemption or do a cashless redemption (turning the warrants into shares, at whatever the fair price at that time is). So the leverage is capped, at $3.50 when I first covered this pitch the warrants did represent a little leverage with the shares between $15 and $20 or so if the price surges dramatically higher in a hurry (and much higher risk, of course, since if the deal fails to go through the warrants would expire worthless… and if the stock trades well below $15 for a long period of time the warrants could decline in value, perhaps to zero in the end). If the stock stays at $21 or so the warrants could easily almost double from here — the way I figure the math, you would essentially need 1-1/3 warrants plus $11.50 to exercise for shares, and at current prices that would mean $6.90 worth of warrants, so the “in the money” share price would be $18.40… which is still below the current $21.50.

That’s like doing math on an etch-a-sketch, though, the warrants won’t be exercisable until a period of time after the deal is done (the shares underlying those warrants have be registered), so you never know whether someone will give your workspace a good shake and the stock could be at $12 in two months, making your warrants worth drop to probably $1 a or so, or soar to $30 and give you the chance to cash out with a big gain.

And while they may not have convinced Elon Musk to include lidar in the next wave of Teslas, they have put Velodyne Velarray sensors in a Tesla as a demo for at least one auto show, last year… maybe just to try to get a rise out of Elon.

And Velodyne is not necessarily the sexiest deal in lidar, I should note… they might not even be the biggest deal in lidar-related mergers — Luminar, which is the hot new startup in the lidar world, is also going public through a SPAC merger, in their case with blank check company Gores Metropoulos (GMHI), that will result on a company with a similar capitalization of roughly $3.5 billion. Luminar, like Velodyne, has raised capital from existing shareholders as well, as part of their planned deal, and will have more cash — probably something in the $600 million range — as well as participation from some well-known names like Peter Thiel and Nick Woodman (founder of GoPro).

Luminar is nowhere near as established as Velodyne, they were started up just in 2012 (when Austin Russell, the founder, was 16) and operated in secret until they got backing from Peter Thiel and some others in 2017. but they do have a deal with Volvo that will have Luminar lidar and software in Volvo cars starting in 2022, intended for autonomous highway driving. That merger deal, with Gores Metropoulos, is a couple months behind Velodyne’s in generating “buzz,” but the market reacted positively right away, sending the shares up more than 10% when the deal was announced in late August.

You can see the Luminar investor presentation associated with the deal here. Like Velodyne, they are modeling out for meaningful growth hitting in several years, with 2024 and 2025 being key for Luminar — they think they have a “forward looking order book” of $1 billion now, though revenue for this year will only be about $15 million from R&D and test projects, and they see revenue ramping up dramatically to $124 million in 2023 and $418 million in 2024, then doubling from there in 2025, with gradually the revenue split getting close to 50/50 software (they offer safety/autonomy processing software on top of the lidar hardware). They are growing revenue right now, unlike Velodyne… but from an inconsequential base, and they don’t have any of the established level of business that Velodyne does with other sectors.

So with Luminar, you get a company that’s an earlier-stage tech company, in roughly the same business, and with a smaller number of partners but one production deal already signed (and with Volvo, which has always been a safety leader, so perhaps that will end up being significant). And Gores has been an effective SPAC promoter in the past, they’re the ones who brought Hostess Brands public in a SPAC merger back in 2016 to re-start the current fascination with SPACs after some long doldrums, so they probably have a good chance of getting the deal done — probably in the fourth quarter of this year, so a couple months behind Velodyne/Graf.

And if it’s warrants you fancy, Gores Metropoulos does also have warrants trading. The warrants have the same “above $18 for 20 of 30 days” early redemption terms, and as of this moment I’d say they are a little overpriced at $3 given the $12 share price. The warrants will likely have a forced redemption if the shares are near or over $20 for any length of time, so there is the potential for a big return if the stock shoots higher on enthusiasm, like with DraftKings or Nikola, but the speed of movement of recent SPACs, tied to that $18 early redemption clause, gets rid of some of what should be the time value in five-year warrants. The stock, so far, is not showing the same kind of enthusiasm as with Velodyne/Graf, perhaps because it’s more of a startup and has less of a revenue base right now — if it does capture investor fascination in the coming months, the stock going to $20 would give a return of 80% or so for shareholders and 200% or so for warrantholders, so there is leverage if that happens fairly quickly… or much higher leverage if the price goes truly bonkers very fast (like with Nikola, which had the early redemption but was also so elevated, even after coming back down, that the shares were close to $40 when that redemption happened in August, so the warrants should have reached $25-30 pre-redemption).

If you do dabble in warrants, watch them closely — there are probably at least tens of thousands of Nikola warrants that expired worthless or were redeemed at a value of one cent (instead of their real value of $25+) because investors didn’t know that with the forced early redemption they had to act before that deadline. Warrants are not passive investments, your broker can not be counted on to automatically act on your behalf if there’s a corporate action required, and warrants that are not exercised or sold by the deadline (either the original five-year expiration date, or the accelerated redemption deadline or other adjustment to the contract) can and do expire worthless. The company should notify you, but you need to pay attention and take action. I do love warrants, and it used to be that they were routinely underpriced because investors underestimated the value of the five-year term of most SPAC warrants, but the SPAC mania this year has created a lot more enthusiasm for warrants as speculative trading vehicles, and they’re not as often available at really appealing prices these days. The still often provide fun leverage for traders, but they’re not great for folks who get heartburn on days when the market falls by 2%.

So that’s the world of lidar IPOs this year… the two names that are arguably the highest profile “pure play” lidar companies are both going public, both striking while the iron is hot and using SPAC mergers instead of the traditional IPO process, and you can buy into either one right now if you want to — though only Velodyne (VLDN) has officially completed its merger as of today. Abeyta has been teasing Velodyne/Graf specifically, and that’s the more established industry leader… but that promo was also put together before the Luminar deal was announced, so I don’t know if he’d have an opinion on one versus the other (he doesn’t mention the competition in the new version of the ad, either).

I’m not personally buying either of these lidar leaders in their initial entry to the public markets… but both are interesting if the valuation falls, or if the lidar adoption pace speeds up, Velodyne because of its established “first mover” position and established level of revenue (declining though it has been), Luminar because of its lower cost re-innovation of the lidar space, the focus on software, and the somewhat more interesting story (to me, at least).

I’m far from being an expert on the competing technologies in sensing here, so I would hesitate to opine a lot more before reading up much more on this topic… but story is huge when it comes to startup tech stocks, so my first impression is that I’d be slightly more likely to dabble in Luminar than Velodyne at current prices, particularly given Luminar’s better SPAC deal (more cash, stronger backers, Volvo commitment), more “pure play” focus on autonomous driving, and the relatively similar valuation based on revenues four or five years out (Velodyne is at just under 5X projected 2024 revenues… Luminar at about 4X 2025 revenues…and both of them are really guessing, given the uncertain pace of adoption and production for their customers). But since this is all early stage ‘five years out’ thinking, and the SPAC stocks sometimes go crazy both up and down in the months around the deal closing (SPCE, for example, fell 30% at one point between its deal announcement and the consummation of the merger, before rising 300% at the peak), I won’t rush into either speculation today.

Maybe you can talk me into it one way or the other, though, so I’ll turn it over to you — ready to bet on lidar’s future with Abeyta’s pick of Velodyne? Prefer the crazier startup story of Luminar (Gores Metropoulos)? Think they’re both great, or that neither is ready for prime time in the world of autonomous vehicles? Let us know with a comment below. I’ve left the original comments from August attached here, so you can see if our readers had any valuable insights that might inspire you.