Business Insider IPO recommendation article - don't buy at target price says equity research firm

[nc10]

BI just posted an article recommending against investing at the target price implying at $50-60 billion valuation. Its really light reading, like most BI articles, but most of the points make good sense.

Don't Buy Rivian Stock After Its IPO, a Report Says (businessinsider.com)


It hasn't proven it can handle manufacturing
Rivian achieved a big milestone in September when it started manufacturing its R1T pickup truck. But to justify a valuation near the range it's seeking, Rivian will have to ramp production much faster than Tesla did, New Constructs wrote. The research firm believes Rivian will have to produce 2 million vehicles per year by 2030, which is more than three times what Tesla made in 2020, to warrant a valuation of around $52 billion today.

I really expect most investors also want to see shipments to satisfied and happy retail customers to help justify the IPO price. Making accurate predictions would be a strong indicator also.

I think Rivian is targeting markets with unmet needs and satifaction gaps they can fill, should be profitable, the product looks really good, and they are targeting areas were they can offer proprietary advantages to justify good margins. Still a lot of promise, but to me the target pricing assumes almost instant success, which isn't what we're seeing

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[Aroohoo]

BI just posted an article recommending against investing at the target price implying at $50-60 billion valuation. Its really light reading, like most BI articles, but most of the points make good sense.

Don't Buy Rivian Stock After Its IPO, a Report Says (businessinsider.com)


It hasn't proven it can handle manufacturing
Rivian achieved a big milestone in September when it started manufacturing its R1T pickup truck. But to justify a valuation near the range it's seeking, Rivian will have to ramp production much faster than Tesla did, New Constructs wrote. The research firm believes Rivian will have to produce 2 million vehicles per year by 2030, which is more than three times what Tesla made in 2020, to warrant a valuation of around $52 billion today.

I really expect most investors also want to see shipments to satisfied and happy retail customers to help justify the IPO price. Making accurate predictions would be a strong indicator also.

I think Rivian is targeting markets that with unmet needs, should be profitable, the product looks really good, and they are targeting areas were they can offer proprietary advantages to justify good margins. Still a lot of promise, but to me the target pricing assumes almost instant success, which isn't what we're seeing

While I agree that the current and even near term fundamentals don't justify the 60B valuation, that is in line with what the market is valuing Lucid at. Now, does Lucid deserve to be valued at what it is? Based on fundamentals, no. There is also no way that Tesla is worth it's current valuation based on fundamentals alone.

These numbers are all based on assumed future growth and market share capture (and some irrational exuberance). Frankly, I have a hard time wrapping my head around these valuations even assuming significant growth and market share capture.

At the original 80B, I was a soft pass (picking up a few shares just for the sake of it). At a 60B valuation, I'm not sure how much I want to get in...the rational part of me says stay away. However given how the market is crazy at the moment, might be worth picking up 175 shares at IPO and be prepared to dollar cost average if/when the price drops.

 

[jjswan33]

BI just posted an article recommending against investing at the target price implying at $50-60 billion valuation. Its really light reading, like most BI articles, but most of the points make good sense.

Don't Buy Rivian Stock After Its IPO, a Report Says (businessinsider.com)


It hasn't proven it can handle manufacturing
Rivian achieved a big milestone in September when it started manufacturing its R1T pickup truck. But to justify a valuation near the range it's seeking, Rivian will have to ramp production much faster than Tesla did, New Constructs wrote. The research firm believes Rivian will have to produce 2 million vehicles per year by 2030, which is more than three times what Tesla made in 2020, to warrant a valuation of around $52 billion today.

I really expect most investors also want to see shipments to satisfied and happy retail customers to help justify the IPO price. Making accurate predictions would be a strong indicator also.

I think Rivian is targeting markets with unmet needs and satifaction gaps they can fill, should be profitable, the product looks really good, and they are targeting areas were they can offer proprietary advantages to justify good margins. Still a lot of promise, but to me the target pricing assumes almost instant success, which isn't what we're seeing

Thanks this article has a similar lean to the much longer article from Forbes:

https://www.forbes.com/sites/greats...luation-dont-buy-rivians-ipo/?sh=2b73895530d1

 

[André]

Totally agree with both articles. As much as I want a R1T… I can’t justify such an overvalued IPO pricing. doesn’t matter if they need to sell 1,1M cars or 2M in 2030 to justify the pricing, you have to discount the capex required to get to this production capacity and the resulting dilution/debts load. Unless they don’t want to take the risk that the capital markets crash within the next year, I can’t understand why they don’t wait few more quarters to show the market how they meet theirs targets before doing this IPO. I guess they expect to burn a lot more cash and Amazon will not fund all of it alone…

 

[Matt D.]

These articles seem to value Rivian as a manufacturer of vehicles only. There is no mention of any of the other revenue streams that Rivian has/will have. These articles seem superficial and lazy. I do agree that $52B seems a bit high but this is the world we are living in.

 

[jjswan33]

These articles seem to value Rivian as a manufacturer of vehicles only. There is no mention of any of the other revenue streams that Rivian has/will have.

Yeah that was my comment about the article. I think part of the problem is Rivian hasn’t proven they can capture that adjacent revenue. So the IPO valuation is based on:

- RJ as a visionary
- Really cool vehicles people will want to buy
- Large Amazon van order
- Inflated valuation of their peers already in the market

Don’t get me wrong not trying to be a contrarian and still think the R1T/R1S are the best (really only) BEVs in their respective classes. Also Rivian would be foolish to not try and capitalize on those to raise as much cash as they can.

 

[nc10]

Unless they don’t want to take the risk that the capital markets crash within the next year, I can’t understand why they don’t wait few more quarters to show the market how they meet theirs targets before doing this IPO. I guess they expect to burn a lot more cash and Amazon will not fund all of it alone…

That would be my preference also. But with apologies for stating the obvious, and as you seem to be saying, valuations in the EV, Li Battery and related companies are seriously high. I expect they feel like they have to strike while the iron is this hot. If I did my math right, its only ~ 15% of the company, so they can do more later?

 

[André]

Yeah that was my comment about the article. I think part of the problem is Rivian hasn’t proven they can capture that adjacent revenue. So the IPO valuation is based on:

- RJ as a visionary
- Really cool vehicles people will want to buy
- Large Amazon van order
- Inflated valuation of their peers already in the market

Don’t get me wrong not trying to be a contrarian and still think the R1T/R1S are the best (really only) BEVs in their respective classes. Also Rivian would be foolish to not try and capitalize on those to raise as much cash as they can.

I agree except that Tesla went thru difficult years and then demonstrated that they can execute on their growth path... before reaching this crazy valuation multiple

 

[jjswan33]

I agree except that Tesla went thru difficult years and then demonstrated that they can execute on their growth path...

So what do you disagree with? You believe Tesla has proved it's worth 1.2T dollars?

I certainly don't but there is definitely a lot of people that believe it is but I will admit I am not a Tesla/Musk fan.

 

[Hemlock]

I avoid investing in IPOs. Unless I, or my wife, is an insider where we can honestly evaluate a company's potential from the get-go. And figuring out an EV company's reasonable valuation in this market is ridiculous. Anyone around for the 90s remembers the flood of new, insanely overvalued internet companies that caught people's imaginations with their vision of the future and near limitless capacity for growth. It steadies our hands in times like these.

If you really like the company, its story and it's capacity for growth in the long term, then wait. Give it a quarter or two, or more, and see how it goes.

There WILL BE bad news. Manufacturing cars is tough. Quality issues, supply chain issues, customer service issues... it's not priced in for the IPO. Rivian executives and underwriters want you to put on the rose-coloured sunglasses.

Now, those executives are facing a wholly unexpected and very public issue that puts into question the work environment they have tried so hard to portray as warm, inclusive and fair.

This is just my opinion and I don't expect anyone to be particularly moved by it. My wife and I continue to hold our R1T reservation, for now, with a sharper eye on the company's progress. But, we have no intention of buying Rivian stock. Not yet.

 

[Bumble1978]

Bring on the publicity! ????

 

[LoneStar]

Frankly, participating now in Rivian's IPO, in this market EV frenzy with so much sidelined cash and artificial stimulation, putting about $10k into feels more like the roulette wheel in Vegas than Investing 101. Only right now the market's perception is like there's 90 Black spaces and 10 Reds on the wheel.

I do have an uneasy feeling about Rivian's legitimacy for a valuation akin to Honda Motors - clearly a very twisted viewpoint. However, right now, I think a maxed-out IPO bid on the table has a very good chance (9:1 ?) of going gang-busters out the gate. I am more inclined to take a 30%-50% return in say 60 days and flip the base investment into other stocks that are not as much a pipe dream. That's not saying Rivian won't be a great success. It is saying the market will reach a point where its valuation is more aligned with auto industry.

As for Tesla's valuation and stock behavior this past year.... no f'in clue why its blasted-off faster than a SpaceX Starship.

 

[TessP100D]

While I agree that the current and even near term fundamentals don't justify the 60B valuation, that is in line with what the market is valuing Lucid at. Now, does Lucid deserve to be valued at what it is? Based on fundamentals, no. There is also no way that Tesla is worth it's current valuation based on fundamentals alone.

These numbers are all based on assumed future growth and market share capture (and some irrational exuberance). Frankly, I have a hard time wrapping my head around these valuations even assuming significant growth and market share capture.

At the original 80B, I was a soft pass (picking up a few shares just for the sake of it). At a 60B valuation, I'm not sure how much I want to get in...the rational part of me says stay away. However given how the market is crazy at the moment, might be worth picking up 175 shares at IPO and be prepared to dollar cost average if/when the price drops.

Lucid could easily be bankrupt in a few years. No volume for those cars.

 

[TessP100D]

Yeah that was my comment about the article. I think part of the problem is Rivian hasn’t proven they can capture that adjacent revenue. So the IPO valuation is based on:

- RJ as a visionary
- Really cool vehicles people will want to buy
- Large Amazon van order
- Inflated valuation of their peers already in the market

Don’t get me wrong not trying to be a contrarian and still think the R1T/R1S are the best (really only) BEVs in their respective classes. Also Rivian would be foolish to not try and capitalize on those to raise as much cash as they can.

Maybe so, but let’s all remember, Rivian hasn’t proved anything at scale yet. It’s could all come crashing down on them too.

 

[Forager]

I’m leaning more and more toward forgoing any initial stock purchase. The Forbes article articulated very well what I’ve already known, and the only reason to invest would be FOMO. And I think the DSP is really geared toward helping create FOMO. Of all retail investors, early preorder holders are the most fervent supporters of the company. It makes sense that preorder holders would be the most likely to turn on their blinders at the boggling IPO price just to get their hands on something, finally. By selling initial shares to their base, they help insure a good opening day. Unfortunately, will that momentum be for naught?

Comparing Rivian’s market cap to other irrational market caps of EV makers is the basis of FOMO. We are all just too close to the action to see it.

In other news, there are going to be a lot of frustrated employees that were given Restricted Stock Units at the promise of an $80b valuation (3.5-4x last rounds in early 2021) that will be seeing a 25% reduction in their expected pay day. Keep in mind, a lot of employees in their CA offices need to sell substantial amounts of their stock every year to supplement their salary.

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