Here’s how the latest teaser pitch whets our appetite… it’s in an ad for Christian DeHaemer’s Bull and Bust Report over at Angel Publishing…
“… this is NOT some tiny technology tweak or clever little gadget…
“This is the kind of tech revolution that will change every aspect of our world from retail to health care to manufacturing and beyond.
“It will be the hot technology everyone is talking about in 2021.
“And the best part is you do NOT have to understand all the intricacies of how this tech works to get filthy rich from it.”
Get to stay dumb and still get rich? That’s speaking my language… so what is it that he’s actually talking about? More from the ad…
“This technology allows doctors to practice complex surgeries before they ever pick up a knife. And once they DO begin to cut, this technology guides surgeons like a sophisticated missile guidance system… so you never have to worry about potentially deadly medical errors.
“Oil and gas companies are using this technology to plan and build giant offshore oil rigs. This technology can predict and prevent dangerous mechanical failures before they happen. It’s already saving millions of dollars and countless lives around the world.
“Car manufacturers are using this technology to speed up design times, boost performance, and test-drive cars before they are built.
“This technology is also already guiding drivers in real time and warning them of potentially deadly hazards, potentially savings millions of lives and a fortune in insurance premiums….
“It’s called ‘spatial computing.’
“And it’s going to change how you interact with EVERYTHING in the world around you.”
He also gives the example of being able to put a virtual beetle on his desk just by searching for it on Google, so what we’re talking about here is just “augmented reality” — the ability to use your camera and 3D sensors to have data from the internet interact with the visual world.
The most popular iteration of this has been Pokemon Go, where you can visualize a Pokemon critter overlaid on the camera image on your phone as a part of the “real” world, but it’s been around as a novelty and an occasionally hyped “this is going to change the world… eventually” … idea for a good 5-10 years. Here’s what I wrote a little less than two years ago as a passing aside in a Friday File, which I remember mostly because I got to put a picture of a different “bug” on my desk here at Gumshoe HQ:
June 7, 2019: We’re actually seeing a little progress in augmented reality again, though the big guys are being a lot more quiet about it these days, and the hype cycle hasn’t really restarted just yet. Google Glass 2.0 is finally being released, and technically it’s pretty similar but this time it’s a much more specifically enterprise-focused productivity tool, not the super-creepy geek chic specs that we saw trotted out a couple years ago. They look like safety glasses, and they have a job to do — you won’t see them out on the town, they’ll be used by workers to more productively call up hands free access to instructions, directions, checklists, and the other stuff that makes worker bees more productive and effective.
I also was reminded of a great turn of phrase from Gartner when describing adoption of new technologies, specifically Augmented Reality — this is a quote from Investors Business Daily last week:
Augmented Reality In ‘Trough Of Disillusionment’
Late last year, market research firm Gartner said augmented reality technology was nearing the bottom of the “trough of disillusionment” stage of the hype cycle for emerging technologies. It had fallen from the “peak of inflated expectations.” Gartner said AR still has five to 10 years before it reaches the “plateau of productivity” stage.
I wonder if the hypester newsletter dudes will be hitting us with a “trough of disillusionment” ad sometime soon… they sure did talk up virtual reality a lot back when it was in the “peak of inflated expectations.”
That cycle is why the big guys are so often the only really successful companies in new technologies — because their massive cash flow and huge R&D budgets make it easy for Microsoft, Google, Apple and Facebook to pour a few billion dollars into developing something that’s ten years from the “plateau of productivity”… little guys don’t usually have that luxury (though Magic Leap has certainly gotten a buttload of funding over the years for their “very cool but not sure where it’s going” augmented reality technology), and usually the volume on these products is so small that even the teaser pitches about suppliers seem a little silly — particularly for products like these where most of the components are not really “special” and have been largely commoditized by much-larger-volume products. “Getting your chip into Google Glass” is not going to make or break any supplier, even a smaller one… though that doesn’t mean we won’t see overhyped teasers to that effect make the rounds again.
The first real applications for consumers are going to be in handsets, building on the sort of thing that Pokémon Go did in adding fictional characters to real spaces (the new Spider-Man movie is being marketed with an app that puts Spidey wherever you want him, too… here he is standing on my chair at Gumshoe HQ), so, hurray, we’ll all be spending more time walking around and watching an “augmented” version of the real world on our tiny screens. Technology is cool, progress has brought some amazing things to our lives, but there are plenty of things I miss about the 1980s — and “people who watch where they’re going on the sidewalk” is one of them.
So are we coming out of that “trough of disillusionment” now? Google has quietly exploded the number of “virtual critters” that you can place in your world in augmented reality like DeHaemer did, adding lots of new ones in the year or so since they first introduced the trick, and they do look a little better and work a little better than Spider Man did two years ago or Pokemon Go did at first release five years ago, so I guess the technology of cameras and sensors and augmented reality processing continues to evolve.
And, of course, stuff like “Spider Man on my chair” and Google’s virtual critters are really just toys and gimmicks, ways to call attention to the fact that these technologies exist and, perhaps, inspire folks to use these technologies in new ways and think about the possibilities. There are real world applications, too, like using Wayfair’s version of this technology to picture that new couch in your old living room, or to show you what different fashions or makeup might look like on your body, or even the use of “Face ID” to log into your iPhone… so these gimmicks are making some inroads into the real world, something that has no doubt been accelerated by the “stay at home” pandemic.
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More from the ad:
“The biggest tech giants in the world want you to get comfortable in this new spatial playground.
“Because very soon, we’re all going to make the leap from tiny glowing screens into “space.”
“No, not outer space! I’m talking about the space right in front of you.
“What’s coming next will blow your mind. It’s all the tech geeks can talk about right now.
“And it’s happening faster than you think.
“That’s because Apple is all-in on spatial. The brand-new iPhone 12 is actually just a cleverly disguised pocket-sized spatial computer.”
And, of course, the tease is that there are some special secret ways to get rich from this…
“Chris has uncovered a way to make a potential 9,910% total gains from the next generation of mobile spatial computers.”
These are smaller companies, apparently, they’re not pitching Apple and Google here…
“… the life-changing gains ahead won’t come from the world’s biggest tech companies…
“They’ll come from tiny companies that are enabling these tech giants to make the leap to spatial.”
The first company they drop some hints about is a provider of those “radar” sensors (not radar, but using that word makes it easier for us old fogeys to visualize it)…
“All of these spatial apps have one thing in common.
“They all rely on your mobile phone being able to map the physical world around you….
“One company has invented a unique ‘radar’ sensor that allows your phone to map the world around you.
“Now your phone likely already has the first generation of this technology… Otherwise, these spatial apps wouldn’t work.
“But new phones like the iPhone 12 are expanding this mapping function to include BOTH the space in front of you… and the space behind you.
“That means double the radar sensors. And that means this company’s sales could potentially double overnight.
“Today the company is valued at less than $6 billion, but it could easily hit $60 billion as mobile spatial computing takes off…”
More hints dropped on this one…
“It scans the physical world around you and maps it… so your virtual sofa ends up on the floor in your living room and not suspended from the ceiling!
“Key tech players like Apple rely on this company’s sensors. As 5G takes off and iPhones add more radar sensors… this company could deliver 10X gains in short order.”
That could be either of Apple’s “LiDAR” providers who supply the VCSEL components that make 3D sensing work for the iPhone, and both of them roughly match the limited clues given — they’ve both been below a $6 billion valuation recently (both are above that now), but we’ll give the edge to Lumentum (LITE) here over II-VI (IIVI) as a likely match for this pitch. Lumentum has been much more tied to the iPhone and dependent on that volume of component sales in the past, since the introduction of their tech in the iPhone X a few years ago, though it’s also true that II-VI’s acquisition of Finisar was partly intended to get them in the door at Apple, and all the reporting I see is that Apple is trying to use multiple suppliers for these products (as would make sense if you’re Apple, you don’t want a single-source component supplier who can dictate pricing, you want competition).
And the story is in rapid flux with both of these companies at this point, since they’re also both major laser/fiber optic equipment suppliers in general and have ridden the ups and downs of demand in that market… and, more importantly, because the two are in a bidding war at this point to acquire Coherent (COHR) at a stiff premium price. As of today, IIVI has the leading bid, but the back-and-forth has been going for a while now and LITE can try to take the lead before Monday.
I don’t know how the battle for Coherent will shape up, but my general impression over the past year is that IIVI has more appealing growth potential than LITE given their suite of businesses… but that LITE has the better balance sheet and less risk. If the Coherent acquisition goes through to one of these suitors, whoever wins will pretty much double in size… and immediately make their balance sheet and their financials look worse on a per-share basis, given the high price they’re trying to pay for Coherent’s business. I’ve owned IIVI in the past, and agree that the VCSEL business is attractive and that we’re also likely to see a long upgrade cycle for data centers and telecom networks that should provide a nice tailwind for all of the fiber-optic equipment companies, but I will personally probably sit this one out for a while — both stocks got to crazy valuations earlier this year, and both are reacting pretty violently to swings in the COHR acquisition story, so we might see a better buying opportunity a little ways down the line. If you’ve got to pick, at this point it looks like Lumentum is by far the cheaper play… but is also growing more slowly.
And we get some more stocks teased as well…
“In this report, Chris also tells you about a second play….
“Chris has pinpointed one tiny software company that designs spatial shopping apps for the world’s largest retailers.
“As more and more retailers ‘go spatial,’ this tiny tech company is set to explode.
“Just consider The Trade Desk, another advertising tech company. Its platform is used by advertising agencies all over the world.
“The stock went public in 2016 at around $27 per share and trades for nearly $600 today.”
OK, so if DeHaemer is saying TTD is “nearly $600” that gives us some indication of when this copy was written… TTD hasn’t been below $600 since November (at which point, coincidentally enough, both Lumentum and II-VI had almost identical $6 billion market caps — which further reinforces that either of those would match that first clue).
And that’s not a lot of clues, frankly, and there are a lot of AR software platforms and app-building hopefuls out there, many of them private, as well as active development projects and existing apps provided by giants like Amazon and Shopify, or fully implemented already by leading e-commerce retailers like Wayfair and Ikea. But in the absence of any specific clues, we’ll throw out a guess — this could be little Nextech AR (NTAR in Canada on the CSX or NEO exchanges, NEXCF OTC in the US),
Nextech is growing at a blistering pace, but they are super tiny — they haven’t reported their fourth quarter yet, but as of the third quarter their trailing twelve month revenue was up to $9 million, growth of about 300% over the prior year, and their expenses grew even a little faster than that so they’re still losing money and haven’t proven up the scalability of the business just yet. I don’t know much else about them, but they do have an investor presentation up on their site from last month if you’d like to get the overview from the company. It looks like they’re probably on pace for another substantial growth year, since they’ve guided for at least $50 million in bookings and it would be big growth if only half of that flowed through to 2021 revenues, which means that if the numbers I’m looking at are accurate, with a market cap of about $250 million, it’s pretty cheap given the expected revenue growth. Beyond that, well, I’d be delighted to hear what you think — this one’s new to me, it’s tiny, it’s not making money… and it’s trading at probably about 10-15X 2021 revenues.
But wait, there’s more! Here’s the next bit of clues…
“Chris has identified one company that has invented a brand-new spatial computer — specifically for first responders.
“This spatial computer is lightweight, making it perfect for carrying on scene. Plus, it’s Wi-Fi-enabled so it can easily connect to a 5G hub or hotspot on an ambulance or fire truck.
“This company has successfully created spatial computers for the defense industry as well as factories and other big manufacturers.
“And now it’s partnered with one of the world’s largest telecom companies to bring this spatial computer to market.
“The stock trades for less than $5 today, but you need to move fast.
“Because once its new remote spatial computer hits the market… I predict this stock is going to skyrocket over 2,000%.”
That’s almost certainly Vuzix (VUZI), which has been a very long-term disappointment until the past few months, as it was repeatedly over-promoted as a big winner thanks to their lineup of augmented reality glasses and goggles — kind of the “real world” application of the failed Google Glasses, designed often for industrial or other specific uses, like glasses that can provide something that’s effectively like a a heads-up display of an instruction manual while you’re working on a machine.
That story changed in a hurry not too long after the November date when most of this ad seems to have been written, however, and VUZI has now soared about 400% in the past three or four months. And the stock has bounced around wildly this year, largely on headline news items like integration with Microsoft Teams or, on the flip side, worry about competition when Apple was rumored to be ready to release its own augmented reality glasses… and there have been lots of stories put out about different factories or healthcare settings trying their products.
This is an area where I sometimes get tripped up by a bit of what would usually be called ‘anchoring bias’, I see ideas like this pitched so long before they’re ready for prime time, with absurd promises, that sometimes I remain too skeptical years later, when there might actually be technologies and products that are worthy of our hard-earned investment dollars. Will that be the case this time, or is this just another not-ready-for-prime-time hype cycle? It’s hard to say, but I do still have a hard time fighting through my skepticism when it comes to Vuzix — they were a pioneer, but it’s really hard for me to see them emerging as a leader if augmented reality glasses really turn out to be a meaningful market, it feels to me as though we’re really caught up in a speculative fervor on this one.
We can skip over my skepticism, though, and look at the numbers to get a little context — VUZI now has a market cap of about $1.4 billion (when I first looked at them seven or eight years ago it was more like $40 million, and they had just gotten a $25 million investment from Intel that was the big endorsement for their potential future).
Here’s what they said in their year-end press release earlier this week:
“‘2020 was a transformational year for both Vuzix and the AR smart glasses industry as the COVID-19 pandemic has challenged and changed the way companies, organizations and institutions conduct their operations,’ said Paul Travers, President and CEO of Vuzix. ‘We experienced further growth in new customer acquisition around the world as more enterprise customers turned to our smart glasses for remote support, among other things, and the healthcare industry began using our smart glasses to perform and broadcast surgeries, provide virtual training, and help care for patients in the ICU, operating room and during virtual patient rounds. Customer orders and reorders were up across the board, led by demand for our M400 Smart Glasses, which paved the way for record Smart Glasses sales for Vuzix both in our fourth quarter and for the full year.
‘2020 was also a productive year for our OEM business group as we entered into several new engineering projects, one with a U.S. medical partner and two with new major defense customers. In addition, we strengthened our IP position as a preeminent supplier of next generation microLED-based display engines and waveguide-based products through our joint development and manufacturing agreement with Jade Bird Display and expansion of our patents and patents pending from 150 to 184 during the year,’ concluded Mr. Travers.”
And it was certainly their best year, revenue-wise, in a long time — getting them back to the kind of revenue they had back in 2010 and 2011, before they sold their military-focused Tactical Display Group in 2012. They had $11.5 million in revenue in 2020, and while that wasn’t quite enough to get them over the hump to profitability, it did start inching them closer — their cost base of R&D, marketing and overhead stayed at about $18-20 million despite their revenues almost doubling, so if they can keep that up they might stop chewing through cash pretty soon. They did note that they expect to have significant revenue growth this year, and they’re also expecting to release the next generation of their smart glasses at some point this year… and thanks to warrant exercises at the end of last year, they should have about $50 million to fund their growth ambitions this year.
After a number of flat years in a row, 2020 was certainly a breakthrough for them and they’re also pushing much more aggressively into healthcare than had been the case a few years ago (including, as teased, that partnership with Verizon to develop products aimed at first responders).
And there are now a couple analysts following the company as well, so we can see that they expect roughly 100% growth this year and next year, which would take us from about $11 million in revenue last year to about $40 million in 2022. That’s great growth, to be sure, and it’s really a lot of guesswork at this stage, for a company this tiny, so it could easily be dramatically better or worse than those estimates, but you have to start somewhere. At that valuation, we’d currently be paying about 40X 2022 estimated sales for this smart glasses company.
So no, I still don’t get it — I’m still a skeptic at that valuation, I think that really assumes not just that smart glasses will be a much larger market in a few years, but also that Vuzix will hold its initial leadership position in the future. Both are possible, but they also looked possible a decade ago, in the initial flush of Google Glass enthusiasm, and I’m probably a little too stuck on that decade of overpromising to get excited about this particular story today. If your opinion differs, of course, that’s OK — it’s your money, and I’d be delighted to hear your thoughts.
But we’re not done yet!
Chris also uncovered a second medical play…
“This virtually unknown company invented a new spatial computer to aid in spinal surgery. It gives surgeons ‘X-ray vision’ of the patient’s spine.
“Right now, nearly a third of all spinal patients end up with screws in the wrong place!
“But in early testing, surgeons using this new spatial computer were nearly 100% accurate at placing screws.
“The company has already received FDA approval for its surgical spatial application. Soon hospitals all across the world will be implementing it.
“When that happens, the stock is going to take off like a bat out of hell. So don’t wait! Get in now.”
There are several augmented reality systems for spinal surgery, though it looks like the use of goggles is not as established as some other screen-based or projection systems, all of which are designed to help make sure that the placement of the many, many screws required in some spinal surgeries is as precise as possible. From what I can tell in looking quickly through some published summaries of papers, it sounds like most of those augmented reality systems are an improvement over traditional methods… at least for younger or less experienced doctors (as with things like the da Vinci surgical robot, it’s often true that robotic assistance or other technological assistance with surgery helps… but it’s more likely to be a leveler, making the inexperienced surgeon have results that are similar to an experienced surgeon, often a new technology doesn’t help those who are already expert or experienced to get much b