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Neonode Inc

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Neonode Q3 preview: Checking off assumptions - numbers of less importance

Neonode will report earnings on November 9 next week. From our point of view, the third quarter is not the turning point for the Neonode share as we do not assume levels around break-even before Q4'16. We expect most of the share appreciation to take place following reports of increased profitability in 2017. We estimate sales in Q3 of USD 3.3 million and a 30 percent lower EBIT loss of USD -0.9 million (compared to the H1'16 levels) due to higher sales and lower use of consultants. We also see a risk for the report coming in below our estimates depending on how much and how fast Neonode has decided to invest in marketing etcetera regarding the AirBar.

Q3'16 will therefore be more of a check off considering our fundamental assumptions, especially regarding automotive. We await further comments regarding the USD 11 million automotive deal of October 14 that we previously have written about. It will e.g. be interesting if Neonode mentions what kind of application it will provide, the number of car models in the deal and whether this is a new or existing customer. We also look forward to an update of the AirBar progress but would like to point out that in our valuation of Neonode, with our base case of USD 3.7 per share, AirBar is actually not (yet) a key factor. The AirBar could perhaps be seen as a warrant that could be worth a lot if it flies and vice versa. We believe it is still too early and too hard to tell where AirBar is heading but we are optimistic regarding the progress so far. 

Neonode's share is trading around our bear case levels of USD 1.2 per share with approximately 200 percent upside to our base case. The share is up 9 percent during the last month, likely affected by short coverage as the short positions in total has decreased by just under 3 percent since we published our initial Neonode research report, summarizing the total short interest at 10.3 percent of the equity float. Although the share liquidity is up considerably during the last month the volatility is still quite major as the share during the last weeks has traded below USD 1 and closed as high as USD 1.34.

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