D-Wave Quantum has a huge upside, says Roth Capital

Quantum computing company D-Wave Quantum (D-Wave Quantum Stock Quote, Charts, News, Analysts, Financials NYSE:QBTS) just reported its first quarterly earnings as a public, with Roth Capital Partners analyst Suji Desilva keeping a “Buy” rating on the stock in a Thursday update to clients.

Burnaby, BC-based D-Wave, the world’s first commercial supplier of quantum computers with applications crossing a range of industries from cybersecurity and fault detection to logistics and AI, announced on Thursday its third quarter 2022 financials, the company’s first since going public in August. 

D-Wave Q3 revenue was $1.7 million, up 30 per cent year-over-year, and an adjusted EBITDA loss of $12.4 million compared to a loss of $9.2 million a year earlier. Management posted its outlook for the Q4 and full 2022 year, calling for revenue between $7.0 and $9.0 million and adjusted EBITDA to be “less than” negative $49 million. 

The company said it signed a number of new and expanded customer engagements over the quarter including with ArcelorMittal, BASF and Deloitte. D-Wave said it counted 63 commercial customers over the first nine months of 2022, representing a 34 per cent year-over-year increase.

“The era of commercialized quantum computing is here and that is evident in the momentum we’re seeing in terms of our expanded customer footprint, accelerated application development and revenue growth,” said Alan Baratz, CEO, in a press release.

Looking at the Q3 results, Desilva said the company’s EPS at negative $0.11 per share was in-line with expectations. The analyst said the company’s gross margin at 64.1 per cent represented a 680 bps increase sequentially and it reflected a “competitive differentiation for QBTS’ quantum application.

“We are encouraged that QBTS continues to grow revenue-generating customer for quantum computing services ahead of competitors. QBTS reported an aggregate YTD23 revenue generating customer count of 105 versus 97 revenue-generating customers in all of CY22,” Desilva wrote. 

“Management indicated that large Global 2000 enterprise customer represented approximately one-third of this base and there is no macro-based slowdown of interest as of this time. We believe the very strong margin performance indicated the highly differentiated nature of QBTS’ quantum annealing services for enterprise mission-critical optimization applications. We believe QBTS’ backlog is building to provide visibility into further revenue growth and that adjusted EBITDA guidance of less than $50 million in CY22 marks a manageable spending level given the company’s funding position and available facilities,” he said.

With his “Buy” rating, Desilva lowered his target from $20 to $10, which at press time represented a projected one-year return of 295 per cent.