Vuzix (NASDAQ:VUZI) and the Massive AR Market

Filed under Development by Adam Torkildson on July 26, 2017 at 7:35 PM

The virtual reality/augmented reality market is enjoying explosive demand. Here’s an especially appealing play on the trend.

We’ve all been regaled with depictions of augmented reality (AR) in science fiction movies, television shows and pulp fiction. Perhaps the most famous example is the holodeck in Star Trek. But increasingly, art is having trouble keeping up with life, as real-world applications of AR outstrip our wildest fantasies.

AR isn’t the virtual reality you see from gamers or escapist entertainment enthusiasts; AR applications are profoundly useful in medicine, manufacturing, drug research, aerospace, architecture, engineering, telecommunications — almost every major industry is experiencing revolutionary changes because of AR. That spells enormous opportunities for investors who act now, before the industry’s “mainstreaming” inhibits the potential for investment profits.

An enticing play right now is Vuzix (NASDAQ: VUZI), a company whose mid-cap status puts it in the sweet spot for growth. With a market cap of $135.6 million, Vuzix is a U.S.-based pioneer in the development of AR for business and enterprise purposes. The company is large enough to withstand the inevitable volatility of the high-tech sector, but small enough to provide gains that leapfrog past the overvalued Silicon Valley blue chips.

Vuzix’s M100 Smart Glasses are an Android-based wearable computer with several pre-installed apps, enhanced with an onboard processor, recording features and wireless connectivity. The M100 is designed for a wide variety of business-related functions. The company also makes an upgraded and enhanced version called the M300.

Several companies are now fiercely competing in the AR hardware and software arenas, including Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Facebook (NASDAQ: FB) and Sony (NYSE: SNE). Several smaller players are sprouting up like mushrooms in the rain, but many are Johnny-come-latelies that are destined to crash and burn. Vuzix is an entrenched player with strong revenue and profits, as well as a rock-solid balance sheet. Those inherent strengths set it apart from the small fry that nip at its heels.

Vuzix recently signed a deal to build customized smart glasses for Toshiba Client Solutions, a wholly owned subsidiary of Japan-based electronics firm Toshiba (OTC: TOSBF).

Vuzix’s M300 smart glasses are now certified to ship into the lucrative markets of Europe, the U.S., Canada, Australia, India and New Zealand. The M300 delivers a hands-free digital world to improve workflows for industrial, medical, retail and other applications.

The estimated growth of the AR industry is breathtaking. Goldman Sachs (NYSE: GS), an investment bank not given to hyperbole, projects that annual revenue of the global AR market could exceed $50 billion by 2025.

Vuzix is one of the hottest AR-for-enterprise companies you can find. This company has actually existed for nearly two decades. Until 2012, most of its activities were for military contractors, but it sold off that division to focus on commercial applications for its AR products.

The M100 was the company’s first breakthrough, an augmented reality headset that has become popular among airline pilots. And now the company is beginning to ship its next model, the M300, to its “VIP” customers and partners for early application and testing.

VMware (NYSE: VMW), a major player in cloud and business mobility infrastructure, incorporates the M300’s “smart glasses” management features to its AirWatch platform. This capability allows corporate users to synchronize their Vuzix smart glasses with enterprise networks for greater productivity.

Setting the Table for Growth

On May 10, in a first-quarter 2017 earnings conference call with analysts, Vuzix CEO Paul Travers said:

“2017 is off to a tremendous start in Vuzix as evidenced by our first $1 million plus revenue quarters since we sold our defense division in 2012. Our brand and positioning as a leading supplier of smart glasses and enterprise continues to gain steam to our direct customers and to other leading enterprise players as evidenced by Vuzix’s strategic agreement with leading PC electronics firm Toshiba.”

Vuzix’s revenue for the first quarter of 2017 was $1.21 million, for a whopping increase of 233% compared to $0.36 million in the same quarter a year ago. The revenue increase represented the company’s highest quarterly revenue in its last five years.

However, the company’s ramped-up research and development costs, as well as greater investments in marketing, weighed on the bottom line. The net loss for the quarter came in at $4.18 million or 23 cents per share, compared to a net loss of $3.78 million or 26 cents for the same year-ago period.

As Travers explained, With over $10.4 million in cash and equivalents as of March 2017, the strong interest in our smart glasses and their growing adoption puts the company on a path towards significant growth in 2017.”

Vuzix appears to be on the path of earnings growth. The analyst consensus is that Vuzix’s year-over-year earnings growth will reach 25% in the current quarter, 37.5% in the next quarter, 31.7% in the current year, and 29.8% next year.

Vuzix shares now trade at about $6; the average analyst one-year price target is $10.50, for a gain of 75%. That’s real profit potential for AR investors

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