Raspberry Pi (RPI.L) trades on the London Stock Exchange and went public last year. They are a maker of microcomputers and microcontrollers. Originally the company served the hobbyist and educator community with their low cost computers. Recently the company gets a bigger share of it’s revenue from industrials which makes up 72% of revenue. In their latest earnings report, they also have a recurring software model now with an AI kit for their boards. Another interesting win for the company is the Heathrow Airport where they are working with NEC to build out the monitors in the terminals both for flights and for baggage.
The Rapsberry Pi5 is their latest model and costs about $130, depending what accessories are purchased. The company is already GAAP profitable on 72M quarterly run-rate. Market cap, measured in pounds is 1.34B and the company has a net cash position of 34M. Sales are nicely diversified globally with 38% of revenue in Europe, 29% North America, and 26% in Asia. The company now has 115 employees meaning revenue per employee is high, and the company noted no engineer has left since the IPO, all shareholders.
There are a lot of familiar hardware names involved in the creation of the boards. The main part is sourced from Broadcom, memory is likely coming from Samsung, and the company collaborates with ARM. Manufacturing is done in the UK. Surprisingly, the company has very little competition as the company mentioned they expected more competitors since they launched in 2012, but that has not materialized as the company says “we would struggle to point to a direct competitor”.
Here is how the board and some of the accessories typically look from a specific manufacturer,
Just a heads up that the company also trades on the US OTC markets under the symbol RPBPF, but the bid/ask spread is wide and there would still be a commission. Routing the order to London through my broker gets the much narrower bid/ask on the London exchange, but incurs a 0.75% fee. Considering this fee is applied on both buying and sell, there’s basically a 1.5% charge to invest. For that reason I am not planning to trade in or out until another report.
Another caveat is the company reports in halves, so H1 and H2 as the London exchange requires reporting halves rather than quarters.
The company’s H1 2024 report had a lot of impressive developments since the IPO,
- Revenue of 144M, +61% yoy
- dominant business is now selling to industrial and embedded customers
- launched first party AI product, first cloud software product
- better than expected gross profit per board, $8.30 vs $7.70 year ago
- gross profit 34.2M, +47% yoy
- adjusted EBITDA 20.9M, +55% yoy
- unit sales of boards, +31% yoy
- average selling price of board increased 28%
- accessories “really sold well in the half”
- costs grew by 34% which is less than gross profit, company pointed out profits would be more if not for IPO and hiring
- adjusted operating profit +44% yoy
- 2024 was a year of new product launches, 1) AI kit 2) Raspberry Pi Connect 3) Raspberry Pi Pico 2
- AI product launched in June, “seen very, very robust demand”
- direct to OEM channel model provides improved unit economics
- partnership with Sharp/NEC for Heathrow airport
- continue working on selling in verticals and geographies which are underserved
Some other notes from the H1 2024 presentation and call,
- very first public report
- original market in 2012 was educators and enthusiasts
- almost all R&D done in Cambridge and partners with Sony in South Wales
- 60M units since launched, 90%+ sold outside the UK
- Raspberry Pi Foundation got 185M out of the IPO, very long runway for them (used to have a non profit component, they evangelize the tech)
- completed ramp of second generation microcontroller platform RP2350
- Pi5 product is most popular among enthusiast customers
- reach customers through network of about 100 resellers around the world
- sold 3.66M units in the quarter
- costs mathematically didn’t increase at the same pace as that profit
- gross margin of 24% (expected to go up after getting through the first batch of Pi5 which had higher production costs)
- two core channels: direct channel and resellers
- gross profit is the main metric the company tracks
- Pi5 attracted new group of accessory purchases such as power supplies, cases, and cooling add ons
- spent 10M on R&D in the half, right on track as guided for 20M
- have some excess inventory currently, “industrial sector has been some overstock” (yellow flag for me here on inventories)
- strategically buying memory at best prices, DDR4
- buying some inventory logic chips from Broadcom
- CapEx around 11M in the half
- Pi5 has significantly improved manufacturing process, insights being applied to optimizing Pi4 as well, delivering manufacturing cost improvements
- 50% lower early failure rate on the Pi5 model
- AI kit is a partnership with Hailo, dialed up the production rate for the product as seeing strong demand
- Raspberry Pi Connect, allows secure remote access for the boards in the field
- Connect runs in the cloud and is in public beta, 50,000 users since soft launch in May, over 100 expressions of interest in upgrading from free tier to enterprise tier when available
- Raspberry Pi Pico 2, second generation micro-controller, improved interfacing and security features
- Heathrow is flagship design win, opportunity to go and sell at other airports in UK and overseas
- employee count +21% yoy, over half of employees are engineers
- outstanding internship program now, used to hire mostly mid/senior engineers
- Richard Boult CFO, been at the company 5 years (Eben Upton is founder and also author of two technical books on Raspberry Pi)
- some proceeds from IPO going to improve supply chain position
- normally target 20-30% of unit sales through licensees, this half was 35% due to over-performance of Farnell, licensing designs
- Pi5 has 3x the performance of Pi4
- AI kit is mass market product
- a lot easier to engage with companies now at senior level now that the company is public
- added resellers in France over the last six months, large industrial reseller in Poland
- expect to see higher unit volumes in the 2nd half, driven by a number of product launches
- “we try to build platforms”, no competing platforms
- AI camera demoed at traded shows
- increasingly industrial and embedded adoption as bringing a transformative price performance point to the platform
Seems like there is a lot to be excited about with the prospects for this company, and I am interested to get the board’s feedback. The stock price has had a good run-up from late November to now, almost doubling. However, the narrative is strong and the valuation does not seem too out of line. The opportunity here looks big enough to me, even with paying commissions to start a position.