Mobileye (MBLY)

Autonomous driving technology company Mobileye (NASDAQ:MBLY) announced better-than-expected revenue in Q3 CY2025, with sales up 3.7% year on year to $504 million. The company’s full-year revenue guidance of $1.87 billion at the midpoint came in 0.6% above analysts’ estimates. Its non-GAAP profit of $0.09 per share was in line with analysts’ consensus estimates.

Company Overview

With its EyeQ chips installed in over 200 million vehicles worldwide, Mobileye (NASDAQ:MBLY) develops advanced driver assistance systems and autonomous driving technologies that help vehicles detect and respond to road conditions.

Much capital investment and technical know-how are needed to manufacture functional, safe, and aesthetically pleasing automobiles for the mass market. Barriers to entry are therefore high, and auto manufacturers with economies of scale can boast strong economic moats. However, this doesn’t insulate them from new entrants, as electric vehicles (EVs) have entered the market and are upending it. This has forced established manufacturers to not only contend with emerging EV-first competitors but also decide how much they want to invest in these disruptive technologies, which will likely cannibalize their legacy offerings.

Mobileye competes with numerous companies across the autonomous driving spectrum, including chip providers like Nvidia, Qualcomm, and NXP; software companies like StradVision and Wayve; and autonomous vehicle developers such as Waymo, Cruise, and Tesla.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Mobileye’s 18% annualized revenue growth over the last five years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Mobileye’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1.7% over the last two years.

This quarter, Mobileye reported modest year-on-year revenue growth of 3.7% but beat Wall Street’s estimates by 4.6%.

Looking ahead, sell-side analysts expect revenue to decline by 1.9% over the next 12 months, similar to its two-year rate. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.

Mobileye has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 49.3% gross margin over the last five years. Said differently, roughly $49.31 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Mobileye’s gross profit margin came in at 48.2% this quarter, in line with the same quarter last year. On a wider time horizon, Mobileye’s full-year margin has been trending up over the past 12 months, increasing by 1.8 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Mobileye’s high expenses have contributed to an average operating margin of negative 41.8% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Mobileye’s operating margin decreased by 18.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Mobileye’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

Mobileye’s operating margin was negative 21.6% this quarter.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Mobileye has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 23% over the last five years. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Mobileye’s margin expanded by 2.2 percentage points during that time. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

Mobileye’s free cash flow clocked in at $143 million in Q3, equivalent to a 28.4% margin. This result was good as its margin was 7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Mobileye is a well-capitalized company with $1.75 billion of cash and no debt. This position is 20.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Mobileye blew past analysts’ revenue expectations this quarter. We were also glad its adjusted operating income outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $10.42 immediately after reporting.

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Mobileye, you should also grasp the company’s longer-term business quality and valuation.

We see the value of companies helping their customers, but in the case of Mobileye, we’re out. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s admirable gross margins indicate the mission-critical nature of its offerings, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Mobileye’s P/E ratio based on the next 12 months is 31.2x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $18.93 on the company (compared to the current share price of $10.42).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.