I have been writing about Vuzix since last September when it was brought to my attention by a wave of social media hype. My first post was on Sept 3rd 2016 when the PPS was trading in the $9 area. In that entry I explained the reasons why I decided to open a position on the short side. Here's the link to that entry:
Vuzix - Time machine back to the tech bubble? Why I'm playing the short side
I offered up the view that I do believe that the AR/VR space will be viable. In point of fact I expect Augmented/Virtual reality to be huge in the coming decade, both in the consumer and commercial/industrial markets. However I'll be very surprised if Vuzix is anything more than a bit player, that's if they're even still around in another 10 years.
Why did I have, (and continue to have) that opinion?
There's a lot of reasons, but primarily its because of something really simple, bottom line performance. Virtual reality is all well and good, but when it comes to business reality its basic economics that matters in my world. And that means a business needs to bring in more revenue than it is spending. Its a pretty common sense concept.
Of course September of 2016 was a long time ago. I was told repeatedly on social media sites like Stock Twits that "next year" was going to be huge. Well, 2017 is almost over and the results have hardly been inspiring, quite the opposite. In the quarterly 10Q filing for the 3 months ending June 30th 2017 the company reported loss attributable to common stockholders of just under $4.5 million. You can verify the numbers here:
Of course that was over 4 months ago. More current results will be out shortly for the quarter ended September 30th 2017 and we'll see if there's been any improvement. Realistically I think its prudent to expect more of the same.
In the lead up to the release of 3rd quarter results there has been a flurry of bullish sounding news however. Its because of this positive sounding news that I'm expecting more bad results in fact. I see it as being market sleight of hand, like a magician who uses misdirection to get his audience to avert their attention while he plants a playing card so as to fool watchers into thinking it moved by magic.
If the bottom line results continue to show the company losing millions of dollars, with the need for more dilution to fund operations, then it makes a lot of sense.
Start up companies and other businesses in the public sphere with shares available to individual investors, those shares represent capital. And ultimately its investor sentiment that rules the day.
As I noted back over 12 months ago, in the days of the Tech Bubble there were countless companies losing millions of dollars every month that still had market capitalizations of $100 million and more. Why? Because investors were willing to ignore bottom line results, instead dreaming of boundless riches at some time in the future. Rainbows and unicorns in other words.
So what's the news been of late? On Tuesday November 7th the company put out news touting that it now has over 100 patents and patents pending:
Patents are wonderful. But do they actually contribute any revenue to the company? In our fast moving technological world I have to wonder about how long technological patents will have any value at all. With people replacing items like smartphones practically every year or two I don't believe intellectual property in the technology field is as valuable as it once was. The patents on rotary phone technology were probably worth a lot of money at one point, today I'm guessing they'd be worthless.
The news of Wednesday November 8th was about M300 programs topping 350:
Its full of things that sound good, but its long on hyperbole and short on specifics. Here's some of the text, I will bold sections and comment.
- "...along with the many pilots that have already moved to volume production, the company has more than 350 M300 pilots across a broad customer base that includes numerous large global companies. In addition to multi-site customer footprint expansions, Vuzix continues to see more complex and different use cases for the M300 that are now being successfully migrated beyond pilot programs in industries like pharma, logistics, field inspection and others. The Vuzix M300 has an extensive distribution channel and is currently being shipped into 45 countries across the globe with plans underway to expand distribution to a further 55 countries worldwide".
Okay..this all sounds wonderful. Doesn't it. Volume production, numerous large global companies, expansions, extensive distribution. But how much money is it bringing in and is that cash flow sufficient to sustain operations? Or is the company going to continue to bleed red ink? Are the units being shipped around the world costing the company money or earning profits?
The PR ends with rosy predictions about Vuzix being a big player in 2018 foretasted adoption of hundreds of thousands of smart glasses. Will that prediction come true and if it does how big a slice will Vuzix get? Once again, its "next year". Back in November of 2017 the company was putting out news about volume shipments as well:
https://ir.vuzix.com/press-releases/detail/1521/vuzix-next-generation-m300-smart-glasses-nears-final
Add in the fact that Apple is reported to be entering AR market, well....I think the writing is on the wall. The window for competitors to establish a viable footprint is closing fast in my opinion. You can read Apple's news here:
I fully expect the VUZI pumpers, shills and touts to tell me I'm out to lunch, they've been doing that since last September. But while pumpers will lie, the chart doesn't.
For those who use technicals I think the chart can prove instructive. While the overall macro trend of the past year is unquestionably down, there have been significant spikes upwards and the current move up may not be over.
Starting in July the 50DMA (blue line) has been acting as a resistance point, so perhaps VUZI can get back to that level again for those who are looking to get off the VUZI train. But I know selling isn't easy, fear of missing out on something big is real, and besides...those who do sell, they need others to be bullish and buying.
I currently have no position in VUZI either long or short, so I don't have any skin in the game. These are my genuine opinions, I have been following VUZI for more than a year now and I want to see how things ultimately play out, and I have to acknowledge (as I always do) that my opinions could be wrong. So far my track record is pretty bang on, we'll see if that continues.
Peace.
As you predicted, VUZI just announced earnings (loss) of ($0.28/sh) or $0.12 cents below the median estimate ($0.16/sh). The red ink continues to flow. Very disappointing to say the least.
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