Is Vuzix Well Positioned In A Rapidly Growing Industry?

A good company in a bad business usually ends up being a bad investment. A mediocre company in a great business can often turn out to be reasonably good investment. A good company in a great business is the key to finding much better investment returns.

Over the next two decades I'm pretty sure that augmented reality is going to be a good, if not a great business, to be in.  The tricky part is finding a good company through which to get exposure.

I’ve been reading about augmented reality for a while, and I believe there is potential for abnormally high rates of growth for companies involved in it. As of today this industry is in its infancy.  Many of the reports that I read suggests that the industry is about to hit a significant sustained growth phase.

Research firm Digi-Capital believes that globally the augmented reality smart glasses market is going to reach $90 billion by 2020.  Half of that is going to relate to the hardware that you actually wear. Why are companies expected to embrace smart glasses in such a major way? The benefit of augmented reality, or smart glasses, is that it gets information to employees in a manner that allows them to do their jobs in a more efficient manner.

The investment that companies make in these smart glasses will be quickly recovered from improved efficiency. Augmented reality offers advantages to field service repairmen, maintenance, marketers, customer support, medical support and who knows what else.

The bottom line is that it allows people to work with their hands while feeding information to their brains.

The main players in the smart glass world are Microsoft Corporation MSFT ODG Inc, Atheer, Recon, Sony Corp SNE, Seiko and Vuzix.  Alphabet Inc GOOG GOOGL closed down its smart glasses production, but has invested $543 million in Magic Leap. 

I believe that Vuzix Corporation VUZI in particular is worthy of a closer look due to its recently released new smart glasses product—the M300. 

Vuzix Corporation (VUZI) – Some Background Information

In 1997 Vuzix was founded when it purchased the assets of Forte Technologies.  The initial focus of Vuzix was the United States military, but in 2007 Vuzix exited the defense business and sold its related assts.

Since then the company has been exclusively focused on designing, making, marketing and selling wearable display devices, and released its first augmented reality glasses in 2010. 

Cash for all of this work has come through $21 million of equity issuances, a $25 million investment in preferred shares from Intel Corporation INTC and the $11 million the company received from selling its defense business.

Vuzix’s main smart glasses product has been the M100, an Android-based computer that have an onboard processor, recording ability, wireless connectivity and a display. They sell for $1,000, and can take pictures, record and playback video, track timed events, link to the users phone, and they come with a GPS that can be controlled by voice or hand gestures. 

From what I can tell, the M300 is a significant upgrade not just to the M100 but to external competition as well. The M300 won Compass Intelligence’s Enterprise Wearable Device of the year award for 2016. The upgrades from the M100 include a speed that is improved fourfold, a similar fourfold increase in image resolution plus a longer battery life.

Vuzix Corporation (VUZI) – Is This The Good Company In The Great Industry?

I opened this article noting that I'm looking for a good company in a great industry.  I'm pretty sure smart glasses are going to be a great place to invest, but as to whether Vuzix is the good company I'm looking for I think it is too early to say.

I know a couple of things about Vuzix that I do like. One is that the M300 does seem to be at the top of the smart glasses market in terms of quality. The second is that the timing of the release is very opportunistic. Having a leading product in a rapidly growing market can’t be too bad of a thing.

There are very few augmented reality businesses that aren’t part of a much larger company like Microsoft or Sony. That makes Vuzix a rare pure play on this opportunity.

Interestingly, private company Magic Leap, which is also pretty close to a pure play on augmented reality, just raised $794 million of cash for an implied valuation of $4.5 billion. So there is big money interested in this industry.

What I don't like about Vuzix is that this is a small company with a limited balance sheet competing against some much bigger players.  If smart glasses is the big opportunity that I think it is, that competition for Vuzix is going to be attacking the opportunity in a major way.