Virtual/augmented reality (VR/AR) is a booming technology subsector, but the financial press coverage tends to focus on the well-known Silicon Valley titans.
But after the market closed on Wednesday, a small-cap player that specializes in AR released operating results that show it’s poised for future market-beating gains of the magnitude that often elude the mega-caps.
Vuzix (VUZI, Financial) released first-quarter fiscal 2017 operating results Wednesday (for the period ending March 31).
Revenue in the first quarter reached $1.21 million for a whopping year-over-year increase of 233%. The figure represents the company's highest quarterly revenue in its last five years.
The net loss for the quarter was $4.18 million or 23 cents per share, an improvement over the net loss of $3.78 million or 26 cents for the year-ago period.
As for the loss, some context is called for. This company is aggressively setting the table for explosive growth in future quarters as reflected by its huge revenue jump in the first quarter. Keep in mind that in the first quarter the company’s research and development (R&D) expense was $1.67 million compared to $1.27 million in the same year-ago quarter.
The increase in R&D largely resulted from a larger staff as well as a ramp-up in smart glass production. The company also boasts strong financial wherewithal with more than $10.4 million in cash and equivalents on the books.
With a market cap of $117.7 million, Vuzix originally focused on defense work, but in 2012 it sold off that division to emphasize commercial applications for its AR technology.
The company’s products are worn like goggles that allow the user to view video and digital content, such as movies, computer data, the internet or video games, through various mobile devices and gaming systems.
The technology sector as a whole enjoys strong growth opportunities in 2017 and beyond as economic recovery continues and corporations dig into their huge cash hoards to make long-deferred IT investments. VR/AR is one of the hottest tech trends you can find.
VR/AR is poised to transform the world just as radically as the smartphone, the personal computer and the search engine. The potential profits are enormous. According to the latest data from industry consulting firm Digi-Capital, annual revenue from VR/AR is on track to reach $108 billion by 2021, up from only $3.9 billion in 2016.
Vuzix’s technology boasts many potential commercial applications in manufacturing, medicine, aerospace, engineering, architecture, communications. The list goes on.
Notably, Vuzix recently developed a “connected” glasses tool for technicians to use on the final assembly line for the Airbus (EADSY, Financial) A330 passenger aircraft. The glasses allow the precise positioning of components for cabin installation. Technology consultant Accenture (ACN, Financial) assisted in the Airbus connected-glasses initiative.
Vuzix recently inked a deal with cloud and business mobility infrastructure giant VMware (VMW, Financial) to incorporate its “smart glasses” into VMware’s productivity software. Vuzix also recently signed a $1.1 million development deal with Toshiba (TOSBF, Financial) to create a line of customized smart glasses for the Japanese company's Toshiba Client Solutions segment.
On Feb. 13, Vuzix announced that its M300 virtual reality smart glasses are now certified to ship into Europe, the U.S., Canada, Australia, India and New Zealand.
Vuzix has the virtue of being a small-cap stock in a year when the “small fry” is expected to outperform. The company is small enough to generate outsized potential for capital appreciation but large enough to withstand the inevitable shakeout that will occur among the tiny startups in the exploding VR/AR sector.
Vuzix announced on May 8 that it named seasoned veteran Paul Boris the company’s chief operating officer. Boris previously worked for General Electric (GE, Financial) as the company’s vice president of manufacturing industries of GE Digital. Boris also worked for SAP (SAP, Financial) for more than eight years with roles such as global vice president of enterprise operations management.
The average analyst expectation is that Vuzix’s year-over-year earnings growth will reach 29.3% this year and 33.3% next year, superb numbers considering the mediocre earnings growth during those time frames that’s expected from S&P 500 companies.
Disclosure: At the time of publication, the author owned stock in General Electric.
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