Aurora Innovation Inc. (AUR)
Autonomous Trucking Company $AUR is Sitting in the Driver's (less) Seat.
When we last left off on Aurora Innovation Inc. AUR 0.00%↑ on December 20, 2023 (see the original post below), we had placed it in the "Prove It to Me" watchlist. Clint had alluded to a $4-$4.15 entry range, while Phil was concerned about the recent price movement in December. The plan for AUR was to watch it over the next couple of weeks and see if it could sustain the price trajectory and volume.
UPDATE: 01/05/24
The patience we advised paid off. Not only did AUR's stock price not hold the weight, but 2024 has not been kind to this company so far. Down -29.70% on the week, AUR is at $3.29 as of today's close. There haven't been any company news or issues that correspond with AUR's price drop. As the first week of trading in 2024 has been a takeback on the strong finish to 2023, we believe a larger market sentiment to be the cause. We are still very interested in AUR and will continue waiting and see if it should find its new floor soon. As of now it remains on the “Prove It to Me” watchlist.
On this Friday, there were signs of a turnaround as the intraday trading had AUR up +4.94%, possibly fueled by news of a finalized design of the Aurora Driver to be implemented in Continental trucks.
You can read that press release from Aurora here.
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ORIGINAL POST: 12/20/23
Aurora Innovation Inc (AUR) is a PRE-REVENUE / MID CAP company founded in 2017 and began public trading on the Nasdaq in November 2021. In their own words from Aurora’s Investor Relations page:
“Aurora (Nasdaq: AUR) is delivering the benefits of self-driving technology safely, quickly, and broadly to make transportation safer, increasingly accessible, and more reliable and efficient than ever before.” [https://ir.aurora.tech/]
Clint’s Take:
The profitability of autonomous vehicles will always be in commercial applications long before personal use. While Tesla (TSLA), General Motors (GM) Cruise, and Waymo, an independent subsidiary of Google parent company Alphabet (GOOGL), have all had their setbacks, AUR continues to strive forward. The irony, of course, is that CEO Chris Urmson had worked on Google's self-driving program. In fact, most of the current leadership team at AUR worked on what are now competitors' driverless programs. Yet, nearly seven years later, some of those former rivals are among their biggest strategic partners, like Uber (UBER), FedEx (FDX), and Toyota (TM).
For a clearer picture, let's look at AUR through its three main product models:
Aurora Horizon is the autonomous freight/fleet management that usually gets the most notice. In 2024, we can expect full routes to run from Dallas to Houston, as well as an expansion of their commercial terminals already built in Texas.
Aurora Connect is stealthily making moves in the robotaxi space with Pittsburgh, PA, as its testing ground. Further deployment of this driverless ride-hailing service is expected in 2024 as well.
The Aurora Driver is the hardware and software that makes Horizon and Connect work.
PURELY SPECULATION, but I think Aurora Driver is the "golden goose" over time. They are so ahead of the pack that licensing the tech to car manufacturers seems like a foregone conclusion. In 4 to 5 years, Aurora Driver could become to autonomous vehicles what Microsoft Windows is to PCs and laptops. But that's enough conjecture. Moving on.
First Quarter 2023 Net Income -190mm. Second Quarter -218mm. Third -190mm. Blah! Typically, the obvious concern for pre-revenue companies like AUR is how fast they can start closing the gap between their cash burn (spending money) and their revenue (making money). By definition, a company that is not making money is losing money just by keeping the lights on. Even with things opening up in 2024, it could take until 2025 to start breaking even. Now, high cash burn is not out of the ordinary for a heavy R&D company like AUR and equipped with 1.5B on hand (between cash and investments) and an average annual operating cost of 290mm getting through the next two years without pushing the limits of their debt threshold seems reasonable. While spending money without making money is not ideal, the alternative of borrowing money without making any is worse in the long run.
For tech companies like AUR, some larger government and cultural issues must be addressed in the AI and autonomous driving spaces. Standardization among the States on Transportation and Safety policies is one example. Another is that trucking unions have already expressed labor concerns in California and Minnesota. Ultimately, they will be resolved and should not pose any real headwinds to AUR's growth, but they are concerns I have.
That said, with streams of revenue on the horizon, coupled with AUR's ability to effectively "tread water," without borrowing heavily makes it an attractive stock to me. It is overpriced right now, but when it takes its next dip in the $4-$4.15 range, I'd be looking for an opportunity to buy.
Phil’s Take:
Clint, if you had sent me this a month ago, I would have been all in at $2.20. Now I have questions. I think the business model is solid, I think operating in Texas is about as friendly a regulatory environment as you can find. I think having actual trucks (with safety drivers) on the road driving routes is huge. My biggest questions are around the novel nature of the industry. Cutting edge technology offers a lot of investment upside but it also makes it difficult for me to figure out if their numbers make sense. I just wonder if the recent spike in price merits caution. It has jumped +84% since the start of December without any major news driving it. AUR spent the last week trading way over its usual volume (13.44mm daily average last week vs 6.14mm the previous week). If AUR can sustain a few weeks in the $4-$4.30 range, then I’ll feel more confident. I’m looking for a steady price and a return to normal volumes of trading.
Moving Forward: (This post’s Moving Forward has been updated above)
Since we don’t have a true consensus (but are really close) AUR will go in the “Prove It to Me” watchlist. Typically, that means the company needs to demonstrate something more before it would be a buy for us. In the case of AUR, Phil brings up a good point about the increased volume and price over the past few weeks. Some of that might have more to do with optimism in the Market rather than just the stock’s merit. While I disagree about the need for a $4-$4.30 target (if it stays course as is it will be higher than that, but the higher price should come with a little sense of security) I am all for exercising caution by waiting a bit (2-3 weeks) to see if this increased volume becomes the new average and this current price trajectory remains constant. If AUR holds true to its present form over that period, we will reassess.
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