Vuzix - What happened? Know the risks

I first offered up my opinion on Vuzix on Saturday September 3rd, when the PPS had closed at $8.81 the day before.  I had opened a position on the short side on September 1st just after the opening bell a little north of $9, a position which still remains open.  I revisited Vuzix again on Oct. 10th by which time the PPS had fallen to $8.  In the first post I made note of all the bullish promotion, and in the second I focused in more on the history of dilution.

Now it is November and the PPS has fallen all the way under $6, closing at $5.85 on Friday November 4th 2016.  So why am I writing about Vuzix again?  Is it to pat myself on the back?  Yeah okay, there is an element of that certainly. I'm human and as prone to the sin of pride as anyone. But I also know that success can be fleeting in the markets, VUZI could rally next week and the pumpers will jump all over this pathetic little blog.  And if it makes it all the way back to $9 or even $8....have at her, fill your boots.  

I do in fact expect there to be a rally here and there obviously.  Rarely do stocks go up or down in a straight line.  VUZI didn't go from about $4.50 in May to almost $10 in September of this year without pauses and pullbacks, and it didn't fall from those lofty heights to under $6 without the occasional move upward.

This post is going to be about the risks associated with taking out a long position in VUZI.  There's lots of chatter about this company being an industry leader, either now or in the future, but I put that down to either wishful thinking or brainless pumping.

The single biggest risk in my view is Competition.  This is a very crowded space and Vuzix is a guppy swimming with whales. Other entities competing include electronic giants like: Samsung, Sony, LG, Toshiba, as well as other players like Google, FaceBook and Microsoft.  

When it comes to brand recognition alone most people will recognize all those names.  Vuzix on the other hand?  I bet most people (discounting current and past shareholders) have never heard the name once.  Vuzix is going up against major players with established supply and distribution channels, no need to hit the road with a U-Haul to visit trade shows for the big boys.

And with the way the AR and VR space is integrating with other devices like computers, smartphones and gaming systems, its not hard to see Vuzix operating at a severe handicap, perhaps so severe that its insurmountable.

And then of course there's financing.  There's an old saying, ''build a better mousetrap and the world will beat a path to your door''.  That's certainly true in this space as evidenced by the amount of money raised by a start up called Magic Leap.  Maybe you've seen this eye popping video that company put out:

Magic Leap has reportedly raised $1.4 billion in venture capital from such players as Google, JP Morgan, Alibaba and others.  Here's a Forbes article on the company:

http://www.forbes.com/sites/davidewalt/2016/11/02/inside-magic-leap-the-secretive-4-5-billion-startup-changing-computing-forever/#6c6ff42ee83f

In fairness Vuzix was profiled its own video back in 2014.  Here it is:

I don't know about anyone else, but the whale jumping out of the gym floor, that has ''WoW'' factor written all over it.  The Vuzix bit about the stadium lights going down and a technician using the glasses for GPS and technical assistance, meh.  Like there wouldn't be a maintenance guy at the stadium who could take him there and a cell phone conversation wouldn't be enough to fix the problem if the tech didn't know what to do.

I know Vuzix bulls like to make a big deal about the $25 million Intel invested almost two years ago in exchange for shares.  But $25 million for a company with around $40 Billion on its balance sheet, its almost like me buying a homeless person a cup of coffee.  Besides Vuzix is an Intel customer, and given the way Vuzix burns through capital it was probably a wise investment, companies with $0 money have a hard time paying their bills after all.  

In short (no pun intended, well....maybe a little) I see Vuzix as being just way too small to compete in this space.  The company has a long history of attracting investor attention via promotion and bullish sounding press, but ultimately it has always failed to deliver where it really counts, on the bottom line.  Artificial and Virtual reality products like glasses, this will be a huge market in my opinion, but Vuzix will be a footnote I believe, like Tandy and Commodore 64 in the home computing space.