Aurora Innovation's Valuation Risks And The Lessons From Luminar

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Aurora's commercialization delays and high operational costs, similar to Luminar's struggles, justify a sell rating due to significant risks and inflated valuation.Luminar's devaluation and financial ...

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The company has accumulated $4.1B in losses, compared to $2.06B for Lumina","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AUR":"Aurora Innovation","BK4023":"应用软件","BK4137":"综合支持服务"},"translate_title":"Aurora Innovation的估值风险以及Luminar的教训","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AUR":0.9},"content_text":"Aurora's commercialization delays and high operational costs, similar to Luminar's struggles, justify a sell rating due to significant risks and inflated valuation.Luminar's devaluation and financial instability highlight the challenges in the autonomous sector, with Aurora potentially facing similar issues despite its partnerships and technology.Aurora's high spending and low revenue projections question its $10.4B market cap, with significant dilution expected to sustain operations until profitability.   gremlin  Autonomous spending, the case of Luminar I wrote an article about the autonomous trucking landscape in August, focusing on Aurora Innovation (NASDAQ:AUR). I rated the company as a hold mainly because of its ability to finance its operations while questioning the uncertainty of the commercialization timeline. In Q3, Aurora announced a delay in its commercial rollout until April 2025, which drew parallels for me with another company struggling with timelines, Luminar (LAZR). Until recently, the market saw Luminar as a leading player in LiDAR hardware and perception software, which are components enabling autonomous applications. The company, however, suffered a dramatic devaluation in the last six months, with the delay in its revenue growth. The potential of billions of dollars declared in its order book has not materialized, while the spending continues to hemorrhage significant amounts of cash. At this point, and at least until 2028, when the company is projected to be profitable, Luminar cannot generate enough revenue to offset the spending. Worse, with the diminishing forecast landscape, the one four years away from now remains even more elusive. In contrast, the company's operational expenses and cash flow consumption are actual and based on past expenses. As a result, the company is expected to create significant dilution for the next few years to ensure survival while its growth is unpredictable. The market has not been kind to the stock. When I wrote about it in August, it had already slipped below $1. Last week, Luminar reversed-split it in a 15-to-1 ratio, losing 23% of its value. It has become apparent that the market doubts the company's potential. Aurora vs Luminar Aurora, for many, holds a first-mover advantage, receiving validation through other companies in the sector who share the company's pursuit. However, new technologies have an inherent risk of failing to work. The time and effort involved in achieving them are often very costly, which creates plenty of risk for early investors. Ultimately, long-term investment success hinges on clear business fundamentals, sizable revenue creation, and profitability. What has happened to Luminar is more of a norm. Therefore, how is Aurora differentiated from Luminar? Specifically, is Aurora's $10.4B market capitalization justified by its revenue projections? Aurora's spending has been higher than Luminar's. The company has accumulated $4.1B in losses, compared to $2.06B for Luminar. As a startup with no current revenues, Aurora's operational model shows the same pattern, without revenue and equity remaining as its only source of operational cash flow. In my previous article, I highlighted Aurora's insignificant revenue trajectory, starting at $1.4M in 2024 and growing to $17.7M in 2025, followed by an estimated $97M in 2026. The most substantial growth was seen in 2027, with revenues expected to reach $470M. By 2029, the forecast indicated a significant increase to $1.74B, expecting profitability. But forecasts change. Post Q3, 2023, Luminar was seen to have revenue of $590.9M in 2025 and $1.1B in 2026. As the table below illustrates, today, 2025 is expected to have $113.4M, and in 2026, $215.80M based on adjustments made this past quarter. Last November, Luminar was worth $1.5B, but the reduced forecasts, delays, and deepening dire financial condition took the mentioned toll on its value, now showing a $301M market cap. Similarly, the analysts who cover Aurora have made reductions for the next few years. There is no point in mentioning the negligible 2024 amount, but 2025 has only $7.7M, 2026 has $60.7M, and 2027 has $411M. 2029 has now been forecasted at $2.03B, a surprising increase, but the year remains profitable with $0.10 per share but no longer $0.46 per share. The tables below illustrate the revenue estimates for Aurora and Luminar and the annual EPS. Aurora's Revenue Forecasts (SA)Aurora's EPS Forecasts (SA)Luminar's Revenue Forecasts (SA)Luminar's EPS Forecasts (SA) During this Q3, Aurora had a public equity offering, selling 136M shares at $3.60 per share, generating $466M. During Q3 2023, the company raised $853M through equity sale, resulting in $828M in net proceeds. By the end of Q3 2024, Aurora reported $263M in cash, $985M in short-term investments, and $104M in long-term investments, amounting to a total liquidity of $1.35B. Those amounts of equity sold have created an extremely high number of shares outstanding for the startup, at 1.71B. In the first nine months of 2023, Aurora consumed $465M in net cash used in operating activities, slightly lower than the current year's nine months, at $469M. The full 2023 OCF consumption was $598M, and in 2022, $508M. In Aurora's shareholder letter published for Q3, CFO David Maday estimated cash expenditures for Q4 to range between $175M and $185M, further noting that this level of spending would likely continue as an average through 2025. He concluded that Aurora will be well-funded into 2026. To facilitate OCF consumption during 2025, Aurora could spend as much as a staggering $740M, illustrating that the spending trend may continue to increase with commercialization efforts. Using quarterly OCF to divide $1.35B cash or near cash liquidity on hand indicates Aurora has approximately seven quarters of runway, placing its cash depletion point in Q2 2026. That year is the year Aurora projects $60.7M in revenue, less than Luminar will have in 2024. To sustain operations for an additional nine quarters, reaching the early days of assumed profitability in 2029, Aurora would need to raise an estimated $1.65B if it kept its quarterly spending as one in 2025. The lesson Luminar's price-to-sales ratio for 2025 is 2.64, reflecting its low cash reserves and negative equity and, with all those conditions, the increasing risk of insolvency. In stark contrast, Aurora's P/S ratio for 2025 is an astonishing 1732 times. I have used Ouster (OUST) as a comparative reference since Luminar lacks a book value due to negative equity. Ouster is currently valued at a 2.71 price-to-book ratio, with a book value of $3.45 per share. By comparison, Aurora's book value is $1.17, resulting in a price-to-book ratio of 5.54—nearly double that of Ouster. However, Aurora's rapid cash depletion will erode its book value in the next 12 months, losing 37% due to estimated OCF consumption. Considering limited revenue expectations and high operational costs, it would not be hard to call Aurora's valuation inflated. Therefore, the significant losses endured by Luminar's shareholders could become possible for Aurora investors if enthusiasm for the company turns into frustration due to further delays or unexpected challenges. For now, enthusiasm is fueled by the narrative of diversified partnerships with PACCAR, Volvo Trucks, part of AB Volvo (OTCPK:VOLAF), and Toyota (TM), which appear more attractive than Luminar's role as a vendor to Volvo Cars owned by Chinese Geely (OTCPK:GELYF). Unlike Luminar, Aurora provides a complete autonomy stack, not just sensors and perception software managing the data. I believe the autonomous trucking sector has more significant adoption potential than consumer auto ADAS, even though the revenue timelines shown in the attached tables appear to have the same level of acceleration. Aurora's driver-as-a-service offering promises recurring revenue, a feature with the potential for high gross margins. In my view, Luminar's attempt to offer car insurance as an add-on is somewhat outlandish and almost out of scope for the LiDAR hardware company, but it could provide a similar benefit. Lastly, Aurora's efforts are likely seen by the market as more credible under the leadership of Chris Urmson, a former Waymo CTO and a pioneer in autonomous driving. Investors who do not mind paying the share price connect the dots, viewing Aurora as likely to repeat Waymo's current success. Perhaps its valuation is expected to be influenced by Waymo's, at some $35B, with some sky-high predictions for the future. A fully autonomous driving company, the only one listed on the public market, is expected to receive much attention, conviction, and an elevated price. The bottom line of those positives is that Aurora continues to operate within a future-oriented ecosystem where valuation is driven by a very attractive narrative rather than traditional metrics. However, the lesson here is that this was also true for Luminar. Unfortunately, the focus has shifted from potential to now, and nothing seems to have old predictions anymore. While Aurora still has time, Luminar is a cautionary tale that time is not infinite. The delays and uncertainty surrounding Aurora's forecasts could eventually be a countdown to the bursting of the valuation bubble. I rate Aurora as a sell accounting for those concerns. While I acknowledge the challenges of developing groundbreaking technology and admire the complexity of creating an autonomous driving platform, for me, Aurora's prospects remain unconvincing with the insignificant revenues and $10.4B valuation. Until the company begins commercialization and demonstrates success beyond its current state, the risks are too great to pay top dollar for the shares.  Analysts currently provide an average price target of $4.42, which still seems high but is a significant drop from the current price of $6.05.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.4","shortVersion":"4.29.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486817349"}