What’s Behind the Massive 91% Crash and Is This Beaten-Down Tech Stock a Buy?
Stockholm, Sweden — Neonode Inc. (NASDAQ: NEON), a pioneering developer of advanced optical sensing solutions, has seen its share price absolutely decimated over the past year, plunging a gut-wrenching 91% from its record high. The stock recently hit an all-time low of $1.10 and now trades as a penny stock with a miniscule market cap barely over $20 million.
Neonode’s precipitous decline stands out even in the currently brutal market environment. As soaring inflation and rising rates pound risk assets, most tech stocks are deep in the red. But few have been razed as thoroughly as Neonode.
So what exactly happened to this once-promising Swedish sensor innovator? And with shares flirting with $1, does this represent a rare opportunity to scoop up a potential turnaround story on the cheap? Or is Neonode simply too far gone and heading for insolvency?
Cutting Edge Tech Meets Cold Hard Reality
Neonode designs and develops optical sensing solutions based on its patented zForce and MultiSensing technologies. The company’s solutions enable advanced touchless human-machine interfaces for a wide array of applications from interactive kiosks and self-checkout terminals to consumer electronics and automotive interfaces.
Neonode burst onto the scene in the early 2000s with its bleeding edge touch technology and visions of disrupting dominant touch leaders like Apple. The company promised its solutions would enable thinner, cheaper, more durable, and more functional touch experiences compared to resistive or capacitive touch technology.
Neonode landed high-profile partnerships with consumer electronics giants like Sony and LG in the late 2000s and appeared positioned to fulfil its disruptive potential. However, the company was ultimately unable to scale up effectively and saw minimal adoption. As capacitive touch firmly established itself as the standard, Neonode’s promise faded.
Still, Neonode managed to build an IP warchest, boasting over 200 patents related to multi-sensing user interfaces. The company shifted to a licensing-driven strategy, seeking to monetize its technology through IP agreements with other hardware and software vendors.
This new gameplan resulted in some modest licensing deals over the past decade, but no substantial breakthroughs. Neonode never gained meaningful traction in the auto market it targeted despite bullish prognostications. And consumer electronics OEMs mostly passed on incorporating Neonode’s technology.
Financials Reflect Long Decline
Neonode’s income statements reflect the company’s long stagnation and inability to capitalize on its promising technology. Revenue peaked at $8.5 million in 2018 and has trended down ever since, dropping to just $5.7 million in 2021.
The company has produced net losses every year for over a decade. Its net loss ballooned from $3.9 million in 2018 to over $25 million last year as operating and R&D costs overwhelmed declining revenue.
Neonode’s balance sheet has also eroded markedly. Its cash position sits under $15 million compared to over $20 million in 2018. While the company has avoided taking on debt, its cash burn rate continues to outpace revenue growth.
This bleak financial picture explains why Neonode’s stock has collapsed back to penny stock territory after briefly trading above $15 in 2021. The market has lost confidence in Neonode’s ability to monetize its technology or reach profitability after years of disappointment.
Recent Earnings Show Continued Struggles
Neonode’s Q3 2022 results released on November 8th offered little reason for optimism about a reversal of its fortunes.
The company generated just $1.2 million in total revenue for the quarter, down 5% year-over-year. Its net loss jumped to $2.7 million compared to $1.8 million in Q3 2021. Cash burn also accelerated to $600,000 for the quarter.
In the earnings release, Neonode CEO Urban Forssell admitted the results fell short of expectations. “Product sales revenues were low and clearly below targets and also below expectations I can admit. Overall, weaker customer demand but also in some cases, supply chain related.”
The report showed Neonode’s legacy hardware business continues to fade. However, its licensing revenue did show solid 15% year-over-year growth. This offers a slim bright spot.
Neonode maintains it is making progress on developing solutions for automotive OEMs and other target markets. But its languishing financial metrics reveal how much work it has left to commercialize its technology at scale.
Turnaround Still a Long Shot
While Neonode’s beaten-down stock may look tantalizingly cheap for bargain hunters, the company still faces a steep uphill climb. Its growth prospects in auto and electronics remain uncertain at best.
Neonode bulls can rightfully argue the company’s sensor technology retains disruptive potential in the emerging touchless computing era. Contactless interfaces are increasing in demand after the pandemic highlighted hygiene concerns around touchscreens.
Perhaps this secular shift can finally ignite meaningful adoption of Neonode’s solutions and enable the breakout that has eluded the company for over 20 years. But skepticism is understandable given the false dawns of the past.
Ultimately, Neonode looks best suited for speculative investors willing to bet on a turnaround. It could deliver manifold returns if management can execute an unlikely comeback. But fundamental analysis suggests risks still dramatically outweigh potential rewards here. Caution remains warranted until Neonode demonstrates real commercial progress.
The Path Forward
For Neonode to reclaim relevance and get its stock moving back in the right direction, the company must achieve the following milestones:
- Land a major auto partnership. Neonode has touted automotive as the key opportunity for years. Signing a deal with a global OEM would validate its technology and boost investor confidence.
- Show increasing licensing deal flow. Growing recurring licensing revenue provides needed stability amidst shifting product sales. New deals also prove the value of Neonode’s IP portfolio.
- Sharply reduce cash burn. Neonode must tighten budgets and align spending with revenue to preserve cash. The balance sheet gives it some runway but costs must be contained.
- Return to profitability. Ultimately, Neonode needs to show it can deliver consistent profits and self-fund R&D. The path there remains clouded but profit metrics would signal a real turnaround.
Bargain hunters may still see today’s all-time lows as a tempting entry point. But until Neonode demonstrates tangible progress on these fronts, its stock looks likely to stay mired in penny stock purgatory. The company has forfeited the benefit of the doubt after years of unfulfilled potential.
For now, expect the downward momentum to persist barring an unexpected positive catalyst. Neonode has given investors few reasons to believe a comeback is imminent. Its share price reflects the stark challenges facing this fallen tech star.
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