Ouster's Dismal 4Q, Outlook And Margin Compression From Velodyne Integration Leads To 40% Price Target Cut

Cantor Fitzgerald analyst Andres Sheppard maintains Ouster, Inc OUST with an Overweight, lowering the price target from $5 to $3.
On March 23, Ouster reported a fourth-quarter revenue decline of 8% year-on-year to $10.94 million, missing the consensus of $15.84 million. EPS loss of $(0.23) missed the consensus loss of $(0.18).
Sheppard believes that OUST benefits from a flexible product line, a multi-market business strategy, and a robust and diversified customer base.
The analyst expects Ouster's merger with Velodyne to improve the balance sheet over the long term and also to enable the combined company to continue to secure short- and long-term wins in its four target verticals.
The combined cash balance of ~$315 million and assuming an annual cash burn of ~$107 million for 2023E-25E imply that Ouster will not need to raise additional capital until 2H24E at the earliest. The cash position is an essential differentiator in the industry, as other companies in the LiDAR space will likely need to raise additional capital over the next 3-18 months, and Sheppard believes the current market conditions are not favorable to do so.
The price target change reflects 4Q revenues below Factset consensus, a lower gross margin than anticipated, and guided 1Q23 revenues below Sheppard's preliminary estimates.
The analyst also expects a slower-than-anticipated integration with Velodyne, which will likely compress gross margins in the short term.
However, OUST's robust and diversified customer base encouraged the analyst, given that the company reported ~90 new customers across its verticals in 4Q. Its total customer base now includes >850 customers in >50 countries.
Ouster announced in its 4Q call that the company has secured $70 million in binding contract orders that will recognize revenue over "multiple years."
Furthermore, it is essential to note that the bookings number for 2022 only included Ouster products (with the vast majority coming from REV6 sensors since REV7 sales began in 4Q with 29 customers taking the first shipments).
In the future, the company expects bookings to incorporate the Velodyne product lines.
Finally, the company announced that it intends to provide quarterly revenue guidance rather than annual guidance in the future.
Price Action: OUST shares traded lower by 12.7% at $0.79 on the last check Friday.

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