Aurora Innovation (NASDAQ:AUR) was formerly considered one of the most promising startups in autonomous driving technology. The stock sells below $2, and the CEO advocates a buyout from a tech behemoth. My investment premise remains unchanged. Bearish on the stock owing to extremely high costs, while a takeover is not a good investment argument.
The Buyout Hype
According to Bloomberg, a document from Aurora Innovation CEO Chris Urmson outlined probable scenarios for Apple (AAPL) and Microsoft (MSFT) buyouts. While Apple is focused on creating self-driving cars, the firm may not be interested in acquiring Aurora at a premium rate. Apple has a net cash position of $60 billion and generates a significant amount of free cash flow yearly. Thus the business could easily afford a cash payout to acquire Aurora. In addition, the stock has a market capitalization of only $3 billion, and a 30% premium would need one of the tech titans to pay only $4 billion for the company.
Apple has made multiple transactions in this area, including purchasing Beats for $3 billion to join the headphone and audio software markets and paying $1 billion to acquire Intel’s modem technology unit (INTC).
Ultimately, the tech behemoth is still working on 5G modems to replace Qualcomm (QCOM) processors several years later. Still, Apple turned the headphone technology into a profitable company with AirPods.
The issue with Aurora Innovation is that the company concentrates on autonomous highway travel with trucks rather than the AVs on which Apple is focused with an Apple Car. In China, Baidu (BIDU) has already deployed robotaxis, and Tesla (TSLA) is encouraging the release of self-driving technology before the end of the year. Aurora Innovation was formerly touted as having the technology to compete in the industry with Waymo (GOOG, GOOGL) and Tesla. Now, the CEO looks to be scrambling for a means to cash out in a difficult market.
The CEO highlighted other possibilities for financing the company in the document, including a decrease in force or a merger with another AV company. Neither choice appears to be enticing. The company’s Aurora Driver technology is mainly focused on commercial transportation operations. The business is doing an AV test with FedEx (FDX), among others, on numerous routes in Texas using a safety driver.
Again, this isn’t an area in which Apple would be interested. Apple is considerably more focused on consumer applications, and an Apple Car development talk is on the software side for the infotainment system or a real EV with AV technology. Microsoft is more focused on enterprise clients, so perhaps AV technology aimed toward corporate transportation customers might pique Microsoft’s interest.
Wild Cash Burn
Aurora reported $171 million in cash operating expenditures for the second quarter of 22 while receiving around $21 million in partnership income from Toyota (TM). Due to an extra $46 million in stock-based compensation charges, total expenses were $217 million. The corporation spends close to $900 million every year on average. Aurora burnt $225 million in cash from operations and another $9 million from property and equipment in the year’s first half, anticipating a cumulative cash burn of $3.7 billion through 2027 when the business is expected to turn profitable.
The stock rose 15% on Friday due to the document release, but Aurora still trades at $2.43. However, due to the document leak, the company’s survival has been called into doubt.
The major investor conclusion is that CEO Chris Urmson’s internal message has to seriously call Aurora Innovation’s commercial prospects into doubt. The AV technology company, which was valued at $11 billion in the SPAC deal and was rumored to be worth even more in the private markets, now appears to be a shell of its former self, with an odd claim that a tech behemoth might buy the company when its stock is trading at a fraction of the previous amount.
Investors should continue to shun this stock, particularly if a takeover is in the works.
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