US Drone Cybersecurity Shift Will Support Long Term Upside Potential

Catalysts

About Mobilicom

Mobilicom provides communications, control and cybersecurity solutions for small drones, robots and autonomous platforms, primarily for defense customers.

What are the underlying business or industry changes driving this perspective?

• The U.S. Department of War is shifting from one-time cybersecurity testing to always-on protection for every defense system, including small drones and robots. Mobilicom already has its OS3 and Secured Autonomy products in place, which can support future software licensing revenue and high gross margins near 90%.
• Government plans to ramp small drone deployments to very large unit volumes, together with Tier 1 customers moving from design to production ramp up, create a potential volume effect on Mobilicom hardware shipments. This can support higher revenue while leveraging the company’s existing low operating burn rate of about US$300,000 per month.
• New U.S. cybersecurity rules with a September 2027 compliance target put time pressure on defense OEMs to adopt ready solutions. Mobilicom’s position as a current sole player for small drone and robotic cybersecurity can support both pricing power and software revenue that may lift net margins.
• Partnerships with NVIDIA-based autonomy computer vendors such as Aitech and ARK, plus plans to add more partners using NVIDIA and Qualcomm platforms, can widen Mobilicom’s reach into Tier 1 programs and support recurring software and hardware sales that feed into earnings over time.
• A cash balance of roughly US$18 million, no debt and an order backlog of about US$900,000 give Mobilicom room to fund inventory build and quicker delivery times of 2 to 4 weeks. This can help the company win share as drone and robotics demand scales and support revenue growth without a matching rise in operating expenses.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Mobilicom's revenue will grow by 108.6% annually over the next 3 years.
• Analysts are not forecasting that Mobilicom will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Mobilicom's profit margin will increase from -227.3% to the average AU Communications industry of 8.3% in 3 years.
• If Mobilicom's profit margin were to converge on the industry average, you could expect earnings to reach $2.1 million (and earnings per share of $0.28) by about February 2029, up from $-6.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 56.9x on those 2029 earnings, up from -9.9x today. This future PE is greater than the current PE for the AU Communications industry at 42.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.09%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long term growth in small drone and robotics demand that management references is heavily tied to U.S. Department of Defense and other government budgets, so any delay, reduction or policy shift around the plan to deploy up to 1 million small drones in 2026 and hundreds of thousands per year after that could leave Mobilicom with lower hardware orders than anticipated, which would pressure revenue.
• Management repeatedly positions Mobilicom as a sole player in small drone cybersecurity and targets 60% to 70% market share with multiple NVIDIA and Qualcomm based partners. However, if large Tier 1 defense OEMs or rival cybersecurity vendors commit resources to build competing solutions, Mobilicom’s share of future programs of record could be smaller than hoped, which would limit both software licensing revenue and potential improvement in net margins.
• The company’s current model depends on a small number of Tier 1 customers and a single large U.S. Tier 1 partner that recently moved from roughly $200,000 purchase orders to about $1.6 million. As a result, any setback in those programs, failure to win programs of record or change in supplier selection by those OEMs could reduce order volumes and slow progress toward the US$12 million annual revenue level that management associates with cash flow positive operations.
• Management plans to support future growth with production to stock and significantly faster delivery times of 2 to 4 weeks compared with some competitors at 17 weeks. If expected orders do not materialise or are delayed after inventory is built, the company could tie up its nearly US$18 million cash position in stock, which would weaken flexibility and could pressure earnings through potential write downs or discounting.
• Although Mobilicom currently has no debt and a low reported burn rate of about US$300,000 per month, the company has put ATM and other funding facilities in place and openly links future capital raises to large M&A or program of record wins. If the road to a US$3 million quarterly revenue run rate is slower than management’s expectations, shareholders could face dilution from equity issuance while earnings remain under pressure.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $12.0 for Mobilicom based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $25.7 million, earnings will come to $2.1 million, and it would be trading on a PE ratio of 56.9x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of $5.31, the analyst price target of $12.0 is 55.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.