Arbe Robotics: A First Assessment

When robots reproduce, man will become the midwife in his own society.”― Anthony T. Hincks.

Today, we shine the spotlight on Arbe Robotics Ltd. (NASDAQ:ARBE) for the first time. Despite a pristine balance sheet and huge revenue growth projected for FY2024, ARBE stock finds itself deep in Busted IPO territory just after coming public a little over a year and a half ago. Are ARBE shares oversold or more pain for shareholders on the horizon? An analysis follows below.

Company Overview:

Arbe Robotics Ltd is a semiconductor manufacturer based in Tel Aviv, Israel. The company provides 4D imaging radar solutions for tier 1 automotive suppliers and automotive manufacturers. The company primarily manufactures 4D radar on a chip. The equity is down more than 75% from its first went public late in 2021 at the tail end of the SPAC/IPO boom in 2020 and 2021, fueled to a large degree by the Federal Reserve's easy money policy at the time. The company was "birthed" onto the market via a SPAC in early October of 2021. The stock currently trades around $2.25 a share and sports an approximate market capitalization of $150 million.

In late summer of last year, Arbe's chipset was chosen by HiRain Technologies to be part of its perception radar offering. HiRain is the leading Chinese ADAS Tier 1 supplier. Perception radar autonomous driving capabilities and is being used in autonomous trucks at shipping ports across China currently.

A few weeks later, Veoneer announced it would integrate Arbe's chipset within its 2K high resolution industry-leading surround radar. This will enhance their perception system and sensor fusion. This radar sensor is designed to be modular, reliable and affordable. Valeo SE (OTCPK:VLEEY) has also selected the Arbe chipset to add to its market-leading LIDAR offering and Arbe's chipset is also in some of Weifu Group's offerings. Weifu is also a leading Tier 1 supplier in China. Weifu has established a mass production line that has a current capacity to manufacture tens of thousands of these units per year. That company is also in the final stages of upgrading their production line to allow the company to manufacture hundreds of thousands of radars annually.

First Quarter Results:

On May 17th, Arbe Robotics Ltd. reported first quarter results. The company had a 15 cent a share GAAP loss in the quarter on minimal revenue.

Management has guided that it expects revenue to be between $5 million to $7 million which will be heavily tilted to the back of FY2023 as the company focuses on producing chips. Leadership expects an adjusted EBITDA loss of between $32 million and $35 million for this fiscal year.

Analyst Commentary & Balance Sheet:

Since first quarter results hit the wires, R.F. Lafferty ($9 price target), Maxim Group and TD Cowen ($6 price target, down from $8 previously) have reiterated Buy ratings on this equity

Just under two percent of the outstanding float in the shares are currently held short. There has no insider activity in the shares so far in 2023. The company ended the first quarter of this year with just under $45 million in cash and marketable securities on its balance sheet against no long-term debt. Arbe Robotics had a net loss of $9.9 million for 1Q2023.

Verdict:

The current analyst consensus has the company losing 63 cents a share in FY2023 on revenues of just $6 million. Revenues are projected to jump to $45 million in FY2024 and losses reduced to 35 cents a share.

Management's goal is to achieve 4 design-ins with automakers by the end of this fiscal year. Leadership also continues to engage with potential customers across Europe, the U.S., and Asia.

The hard part in trying to value Arbe Robotics Ltd. here are manifold and mostly relates to production ramp. Among the questions that need to be answered is how fast will its current partners ramp up their production relying on Arbe's 4D chipsets. Not to mention how quickly Arbe will be able to ramp up their own production as well as what new partners the company might sign in the near future. One recent article on Seeking Alpha speculated that Tesla, Inc. (TSLA) could be a potential partner, which obviously would be a game changer.

Arbe Robotics Ltd. has little in the way of order backlog and will have a need (at the current quarterly cash burn rate) to raise additional capital over the next year. Combined with a hard to model sales ramp, leaves me ambivalent around the shares. Arbe Robotics Ltd.'s partnership wins over the past year have helped validate its technical approach, but I want to see how that translates to revenues before taking a small position in the stock. That said, the story is worth monitoring and we will probably circle back on Arbe Robotics Ltd. a year or so down the line.

The first thing that you can learn as a leader is that you’re not working with robots but with emotional beings.”― Pooja. Agnihotri

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