Adjusting Estimates and Price Target to Reflect Preliminary Q4 '23 Results and Reverse Split

In conjunction with an amended S-1 filing yesterday, Peraso (PRSO) disclosed preliminary Q4 ‘23 revenue below our estimates and consensus. Specifically, total revenue is expected to range from $1.6-$1.9 million, including $1.5 million in product sales and $0.1-$0.4 million in royalty and other revenue. Prior to revisions, we were projecting Q4 revenue of $3.2 million, in line with consensus. The shortfall relative to our model was principally due to lower than anticipated sales of mmWave products. Memory IC sales were slightly below our estimate, but more importantly, Peraso has received approximately $14.0 million in end-of-life (EOL) purchase orders with the potential for more. Recall that management had previously indicated that memory IC EOL purchase orders could amount to $15.0-$20.0 million when all is said and done. Cash at year-end totaled $1.6 million, representing an increase of $0.9 million from the prior quarter and comparing favorably with our expectation for a modest sequential decline.

We lowered our revenue estimates for Q4 ’23 and beyond but left our other modeling assumptions largely unchanged. For FY ’24, our revenue projection falls from $24.0 million to $19.0 million as we have opted to take a more conservative approach in modeling memory IC sales, which we now assume will come in closer to the $10.3 million remaining to be shipped against existing purchase orders than the $15.0 million modeled previously. Should additional purchase orders come through in the near-term, we would expect to see upside to our estimates. Our FY ’25 revenue forecast also declines from $18.5 million to $16.0 million as we moderate our assumptions for a ramp in mmWave product sales. Coinciding with our top line adjustments, our adjusted EBITDA estimates decline from $1.6 million and $(3.8) million to $(1.4) million and $(4.6) million in FY ’24 and FY ’25, respectively. We also note that the historical and projected outstanding share counts in our model have been adjusted to reflect Peraso’s 1-for-40 reverse split, which enabled the company to regain compliance with Nasdaq’s minimum bid price requirement last week.

Given our reduced estimates and the persistent overhang on shares from Peraso’s ability to continue as a going concern, we are lowering our price target to $12.00 based on a FY ’23 EV/Sales multiple of 1x. We note that our revised price target assumes that Peraso will raise at least $4.0 million through the issuance of approximately 848 thousand shares as contemplated in the amended S-1 filing. Our prior split-adjusted price target of $40.00 was based on an EV/Sales multiple of 2x. In our view, Peraso’s proven mmWave technology and early market traction support a significantly higher stock price, which we believe can be realized once the company completes its equity raise and puts itself on firmer financial footing.

Our report with model and disclosures is available here.

Disclosure(s):

K. Liu & Company LLC (“the firm”) receives or intends to seek compensation from the companies covered in its research reports. The firm has received compensation from Peraso Inc. (PRSO) in the past 12 months for “Sponsored Research.”

Sponsored Research produced by the firm is paid for by the subject company in the form of an initial retainer and a recurring monthly fee. The analysis and recommendations in our Sponsored Research reports are derived from the same process and methodologies utilized in all of our research reports whether sponsored or not. The subject company does not review any aspect of our Sponsored Research reports prior to publication.