The Israeli company that plummeted 30% yesterday: The dream it is still trying to sell
Innoviz raised 30 million dollars at a deep discount, triggering a sharp stock decline and diluting existing shareholders. Since its 2021 SPAC merger, the company has lost about 95% of its value, and its pivot to the defense sector has yet to translate into significant revenue.
Shares of the Israeli lidar company Innoviz Technologies, traded on NASDAQ under the ticker INVZ, plummeted yesterday by about 30% in Wall Street trading after the company announced an additional capital raise. The problem for investors was not the raise itself, but how it was executed: primarily at a price significantly lower than the market value.
This is a direct registered offering of approximately 66.7 million shares, expected to bring about 30 million dollars in gross proceeds to the company's coffers. The price implied in the offering is about 0.45 dollars per share, significantly lower than the share price in the days preceding the announcement. Simply put, Innoviz sold a large package of shares to institutional investors at a deep discount, which is exactly what alarmed the market.
To understand the sharp reaction, it is worth pausing on the term "dilution." When a company issues new shares, the stake of every existing shareholder shrinks. When the offering is done at a discounted price, immediate downward pressure is created on the stock, and those who held it discover that their value has been eroded twice: both from the dilution and from the price drop.
Where will the money go? According to the company, for general corporate purposes, and primarily to support the commercialization of Perciz, the brand Innoviz launched for the defense, security, and infrastructure sectors. To calm fears of further dilution in the short term, all directors and senior officers committed not to sell shares for 45 days, and the company itself limited its ability to issue new shares during that period.
There was also a glimmer of positive news. Innoviz provided an initial and unaudited indication for second-quarter results, with expected revenues of 17.9 to 18.1 million dollars. This is a notable jump compared to a weak first quarter, in which it recorded revenues of only about 7.1 million dollars, a decrease of about 59% compared to last year.
But the broader picture is much less flattering. Since Innoviz merged with a SPAC company in 2021 at a valuation of about 1.4 billion dollars, the stock has lost about 95% of its value. Instead of consistent revenue growth, the company has been stuck in a familiar pattern: one-time and volatile revenues, continuous cash burn, two waves of layoffs, and a series of capital raises, each of which diluted those who remained a little more. Bottom line, the company largely lives from one raise to the next.
Above all, a tangible threat looms: the stock is trading below a dollar, and in March it received a warning from NASDAQ. It has an extension until September 21 to bring the price back above the threshold, otherwise it risks being delisted from trading.
Against this backdrop, Innoviz's pivot to the defense sector stands out. In recent weeks, the company announced collaborations for UAV detection, appointed Major General (res.) Yoav Har-Even, former CEO of Rafael, to the board of directors, and presented partnerships in the field of drone defense. The logic is clear: the defense market offers shorter sales cycles and higher prices than the autonomous vehicle market, which is suffering from a slowdown. However, for now, all of these have remained mostly in the realm of announcements.
So what does this mean for your pocket? Innoviz is an example of how dangerous it is to be tempted by a good "story" in speculative and cheap stocks. The enthusiasm for the Israeli defense angle is understandable, but as long as revenues do not catch up with the announcements, it is a high-risk bet. Anyone considering entering should remember that even this time, those who actually pay the price are the existing shareholders.
