D-Wave Quantum has target chopped by Roth Capital

Roth Capital Partners analyst Suji Desilva has taken a hatchet to his target on quantum computing name D-Wave Quantum (D-Wave Quantum Stock Quote, Charts, News, Analysts, Financials NYSE:QBTS), but Desilva still sees value in owning the stock. In a Friday review of D-Wave’s latest quarterly results, Desilva maintained a “Buy” rating while lowering his target from $10.00 to $2.00, which at the time of publication represented a projected one-year return of 208 per cent.

Shares of D-Wave plunged on Friday after it released its fourth quarter 2022 financials. The Burnaby, BC-based company, a commercial supplier of quantum computers, posted Q4 revenue of $2.4 million, which was flat compared to a year prior. Adjusted EBITDA was a loss of $14.5 million compared to a loss of $9.3 million a year earlier.

The company said it recently signed up new customers including ArcelorMittal, BASF, Unisys, Mastercard and Deloitte and that its commercial customer base grew by 18 per cent in 2022 to 67 revenue-generating commercial customers.

“Our revenue metrics reflect increasing quantum adoption, which accelerated growth of our business and drove a 41 per cent increase in Q3 to Q4 sequential revenue growth,” said Dr. Alan Baratz, CEO of D-Wave, in a press release.

D-Wave announced in the same press release that it has entered into a $50 million four-year term loan with majority shareholder Public Sector Pension Investment Board.

Desilva said the Q4 results showed continued revenue growth from D-Wave’s Quantum Computing as a Service platform as well as increasing professional services development of customer quantum-advantaged applications. The company’s Q4 EPS of negative $0.10 per share was in-line with estimates, according to Desilva.

The analyst said he’s encouraged by D-Wave’s expansion of its customer base, along with revenue growth and backlog, where QBTS’ revenue bookings grew 78 per cent in 2020 and management has guided for 2023 revenue of $12-$13 million. 

“We believe QBTS’ backlog is building and that combined backlog and contract renewals support 45+ per cent of this forward guidance,” Desilva wrote. “QBTS’ adjusted EBITDA guidance of less than $62 million in CY23 marks a manageable spending level given the company’s funding position and available facilities, in our view.”

“We lower our price target from $10 to $2 and maintain our Buy rating. The lower PT reflects a more modest revenue trajectory versus prior guidance coupled with the overall market impact on new issuer valuations, which nonetheless leaves significant upside opportunity from current levels,” he said.