On Wednesday January 24th 2018 Vuzix announced a share offering that raised $30 million for the company after the market had closed. If you missed it here is a link to the news:
Buyers had pushed shares of VUZI markedly higher before the news came out, paying as much as $11.40 per before the PPS settled at $10.80 at the closing bell on Wednesday. One day later the PPS traded as low as $9.45 before recovering a bit to close at $9.75 for a one day drop of almost 10%.
The perplexing question is obvious....Why? Why did the stock sell off causing the drop? I can only assume that a significant number of shareholders were unhappy with the dilution.
That suggests to me that a lot of investors failed to do adequate research before buying their shares. In my opinion those who've done their research and due diligence before investing in Vuzix were not surprised by the dilution. In fact they should have expected it.
Obviously researching a potential long term investment involves a lot more than simply reading over recent press releases. Due Diligence isn't just scanning a company profile put out by some IR outfit that's being paid to promote a company.
A bullish sounding PR may bring a company to an investor's attention. A sharp looking video presentation might spur some interest. Experienced investors know that PRs often talk up the potential for the future, but forward looking statements are not material representations of fact and cannot be relied upon. Companies hired to attract investors will punctuate the positives, while either glossing over or completely ignoring any of the negatives.
Real research for me involves looking at a company's SEC filings, perhaps even researching the business background of key executives like the CEO. Knowledge of the industry or space is obviously helpful. If a brewing company is planning a big expansion into some place like Saudi Arabia, it might help to know that the Saudi kingdom has a ban on alcohol.
One quick note before I continue.
I am writing this blog posting from the perspective of an investor who is looking for long term success in a company. I'm not approaching this from the point of view of traders simply looking to scalp shares at a profit. For those who play momentum, or who like to swing back and forth between long and short positions....you should probably stop reading right now.
Frankly in depth research is likely a waste of time for those simply looking to buy the dips and sell the rips.
Those looking at Vuzix as a buy and hold long term investment should already be aware of the fundamental realities. The last 10Q came out November 9th just passed and reported the results of the 3rd quarter up to September 30th 2017. Here's the link:
Simple factual data from that filing is there for anyone who takes the time to look.
- Shares totalled 22,203,911 as of Sept 30/17 up from the 20,674,742 issued as of June 30/17
- Up to Sept 30/17 the accumulated deficit was $90,592,988
- Loss attributable to common stockholders came in at ($5,937,563) for the quarter
- Cash and cash equivalents totalled $8,677,341 as of Sept 30/17
Basically this paints a pretty clear picture for me. Vuzix is a cash poor company with insufficient revenues to cover operating expenses. This isn't a Google or Apple with billions of dollars on the balance sheet to spend on product development.
Those who've done their homework on Vuzix already know that as of May 15th 2013, in the first 10Q after a 1:75 share consolidation, the company reported only 3,536,586 shares outstanding. So its clear how the company funds operations, by share offerings.
From Sept 30th 2017 to present I haven't seen any news about actual sales. Yes there's been lots of reports about hopes of building relationships and about deals that "may" happen. But anything that "may" happen...its reasonable to think they also "may not".
Given that the company burned through almost $6 million in the three months leading up to Sept 30th, I think its reasonable to assume they've burned through at least that much in the 3+ months since Sept 30th, and probably more. That would have meant that without further dilution the cash available would have been getting very low.
Now they've raised $30 million with this most recent offering, on top of the $12.5 million they just raised in December 2017. I don't have a PHD in advanced mathematics, but I make that to be a total of $42.5 million raised in a little over 1 month.
That is pretty impressive in my books. Even if they start losing $10 million every 3 months going forward they now have enough money raised to last another 12 months. Shareholders with a long term view who are willing to take on the obvious risks should not have been surprised.
Disclosure
I own put contracts, which is a way of playing the short side. Obviously that means my overall opinion is bearish. With that being said with all the money they've been able to raise Vuzix is going to be around for a while yet, and if they actually do start realizing signficant sales they could even become profitable.
If they don't? Eventually I expect the pool of investors willing to risk money on forward looking promise to shrink.
If they don't? Eventually I expect the pool of investors willing to risk money on forward looking promise to shrink.
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