Aurora Innovation Stock: Buyout Hope Isn’t Ideal (NASDAQ:AUR) | Seeking Alpha

At one point, Aurora Innovation (NASDAQ:AUR) was one of the most promising companies in the autonomous driving technology sector. Now, the stock was trading below $2 and the CEO is promoting a buyout from a tech giant. My investment thesis remains Bearish on the stock due to extreme high costs levels while a buyout isn’t a great investment thesis.

Buyout Hype

Per Bloomberg, a company memo from CEO Chris Urmson laid out potential scenarios for Aurora Innovation of possible buyouts by Apple (AAPL) and Microsoft (MSFT). While Apple is focused on developing EVs with self-driving technology, the company may or may not be interested in buying Aurora for a premium valuation.

Apple has a net cash balance of $60 billion and generates a ton of free cash flow annually, so the company could easily afford a cash payout to buy Aurora. The stock has market cap of only $3 billion and a 30% premium would only require one of the tech giants to pay ~$4 billion for the firm.

Apple has made several deals in this range such as buying Beats for $3 billion in order to enter the headphone and audio software market and paying $1 billion to buy the modem technology unit from Intel (INTC). Ultimately, the tech giant is still trying to build 5G modems to replace Qualcomm (QCOM) chips several years later, but Apple parlayed the headphone technology into a successful business with AirPods.

The problem with Aurora Innovation is that the company is focused on autonomous highway travel with trucks, not exactly the AVs where Apple is focused with an Apple Car. Baidu (BIDU) has already launched robotaxis in China and Tesla (TSLA) is promoting launching self-driving technology by the end of the year.

Aurora Innovation was once promoted as having the technology to compete with Waymo (GOOG, GOOGL) and Tesla in the sector. Now, the CEO appears to sound desperate looking for a way to cash out in a tough market.

As part of the memo, the CEO outlined tons of options to finance the business including a reduction in force or a merger with another AV business. Neither option seems appealing.

The Aurora Driver technology built by the company is more focused on commercial trucking operations. The company has an AV test with FedEx (FDX), amongst others, on multiple routes in Texas with a safety driver.

Source: Aurora Innovation Q2’22 presentation

Again, this isn’t an area where Apple would necessarily have an interest in the business. The tech giant is much more focused on consumer applications and the speculation of an Apple Car development is on either the software side for the infotainment system or an actual EV with AV technology.

Microsoft is more focused on enterprise customers, so possibly AV technology focused on corporate trucking customers would intrigue this tech giant.

Wild Cash Burn

For Q2’22, Aurora reported $171 million in cash operating expenses while obtaining about $21 million in collaboration revenue from Toyota (TM). Total expenses were $217 million due to an additional $46 million in stock-based compensation expenses.

The company has an annualized spending rate of close to $900 million. Aurora burned $225 million in cash from operations in the 1H of the year and another $9 million from property and equipment while originally forecasting a cumulative cash burn of $3.7 billion through 2027 where the company forecast turning profitable.

One really has to question if Apple, or even Microsoft, wants to acquire a business burning that much cash. The company suggests commercial applications won’t start until 2024 with the launch of the Aurora Driver truck platform. Aurora hadn’t forecast much in the ways of revenues until a few years after launch.

Cleary, the internal memo is trying to address the main question of how Aurora gets to 2027 with a cash balance of $1.4 billion. What appeared like a strong balance sheet, quickly gets depleted in the next couple of years before the platform even launches.

The stock ended up 15% on Friday following the memo leak, but Aurora only trades at $2.43 now. The company is in a weaker position after this memo leak questions the viability of the firm.

The key investor takeaway is that the internal memo from CEO Chris Urmson has to really question the business prospects of Aurora Innovation. The AV technology company valued at $11 billion with the SPAC deal and rumored at higher values in the private markets now appears a shell of its former self with an odd claim that a tech giant might buy the company when the stock valuation is trading at a fraction of the previous amount.

Investors should continue to avoid this stock, especially on any buyout hope.