SoundView
Technology Group Issues NXT-ID (NXTD) Update; Major Progress Now On Sale
BOSTON - August 11, 2015 (Investorideas.com Newswire)
SoundView Technology Group (http://soundview.co) releases the following market and company update for
NXT-ID, Inc. (NASDAQ: NXTD).
Market & Company Update
Summary
This season is famously bad in
terms of liquidity in the stock market and especially for smaller, already
thinly-traded issues. Since successfully launching their secure digital Wocket
and raising capital to fund marketing and production expansion for the upcoming
holiday season shares of NXTD have been cut in half since our last published
update in June.
Part of the reason for the recent
decline appears to be a direct result of a "sell" rating put on the
shares by Zacks. It's important to realize that the Zacks system is driven by a
set of quantitative and backward-looking metrics. Their ratings are not based
on what we would call traditional research into what future business trends
will be. Methods like the one Zacks uses can be useful for well established
companies like GE or Oracle but are worse than useless for emerging growth
companies.
The situation is especially
compelling given that NXT-ID remains precisely on the plan we dialed into to
our estimates this year and next which feed directly into our Intrinsic
Valuation (IV) value of $7.47/share. There are certainly some potential
near-term events like distribution partnerships that we have not factored into
our numbers as of yet.
What follows is a more detailed
account of company progress in Q2, the plans and outlook for Q3 and Q4, the
terms of the capital raise and adjustments to our IV model based on them.
Recent Results
The most significant
accomplishment in Q2 was shipping the first batch of pre-orders. The company
will recognize some revenue ($110K) for the quarter with the rest falling into
Q3 due to the 2 week return period. Production level Wockets are in the field
and being used. Initial indications are for an 80% success rate which is very
good given the incredible diversity of POS devices and terminals. The company
expects to get this up closer to 90% with some tweaks and software updates.
The second major hurdle cleared
recently was obtaining the financing needed to fund the marketing and increased
production required to be ready for the upcoming holiday shopping season.
NXT-ID completed a $3 million equity capital raise that provides sufficient
funding to ramp up production and marketing of the Wocket. The capital raise
included 1,72 million shares of common stock at $1.75 per share as well a
private placement of 860,716 warrants to purchase shares of common stock at an
exercise price of $2.35 per share. If exercised NXT-ID would receive another
$2M in funding,
Although nothing has been
announced the management team has been working through a number of potential
distribution arrangements and becoming operationally ready to be able to run at
a 10,000 unit per month delivery rate.
One stealthy but potentially
important note on recent results was the filing for a patent covering
"Crypto-Currency Management" which isn't a near-term driver but as
the momentum behind blockchain-based technology keeps expanding the ability to
address non-traditional digital currency will be important. (see further
blockchain-related comments in the market section below.)
Market Update
The digital payments space has
remained a hotbed of activity with PayPal now a separate public company
(NASDAQ: PYPL) and Visa (NYSE: V) teaming up and funding Stripe. The proliferation
of devices that can tie into future payment systems (like the Apple Watch and
Moto 360) helps justify infrastructure updates that will make payments easier
across a broad array of types – from cards to Wockets to phones to watches.
EMV has been in the news and
NXT-ID has been planning for it for a long time. In order to fully support EMV
the Wocket will be upgraded to include EMV and NFC technologies. It will take
EMV quite some to roll out to the masses of terminals out there so an upgraded
Wocket later this year will enable consumers to use these terminals when they
begin to encounter them.
We've seen an explosion of
activity around generalizing the blockchain technology underlying Bitcoin for
all sorts of transactional applications. It may help legitimize usage. Although
the Wocket isn't about Bitcoin per se it's in a good position to help consumers
who want to use Bitcoin or other digital currencies.
Anecdotally we noted more
"Bitcoin accepted here" signs on Cape Cod this summer. We made some inquiries
and although usage is not commonplace in general more travelers are using
Bitcoin as a kind of standard currency when they can. Rather than convert Euros
to dollars they have brought Bitcoin. Maybe this is just due to the recent
weakness in the Euro, or maybe it's a trend. In any case this is the first time
we've come into contact with Bitcoin run-of-the-mill consumer locations like
restaurants, amusement parks and gift shops.
The events and players are
distinct but in general the market is "more of the same" which is a
concerted movement toward more digital, more secure and more mobile payments
which is exactly where the Wocket fits. It remains to be seen how consumers
sift through the myriad offerings and settle into what works for them. As we've
stated before the Wocket is unique as an actual wallet replacement rather than
something that is an extension of your smartphone.
Stock Conclusion
In the few years we've been
working with and following NXT-ID the current moment offers the best
risk/reward we've seen so far. The company has come a very long way since their
IPO at $1 and seen share prices as high as $5.60 with a substantial period
trading between $4-5/share.
There are a few reasons we can
point to in the short term – limited liquidity, a spurious and backward-looking
downgrade from Zacks in the headlines and general "risk off"
mentality as the world grapples with slowing growth and rising (at least in the
US) interest rates.
We remain comfortable with our
40,000 unit assumption for 2015 based on the planned marketing campaign in Q3,
a monthly production goal of 10,000 units and the upcoming holiday buying
season. Market data suggests there is already demand for 100,000 to 200,000
units if it can be reached and serviced so at this point demand isn't a
limiting factor. Looking further out into 2016 our 120,000 unit number isn't
aggressive either.
We're tweaking our model to
account for some more shares outstanding and also took the opportunity to add
expenses for SG&A to support increased marketing and operational readiness.
It has had only a minor impact on the IV estimate – taking it from $8.28 to
$7.47.
As we mentioned at the start of
the note the risk/return from the current stock level is very attractive.
Longer-term investors will also note that our the IV for 2016 doubles so if
NXT-ID exits 2015 with good momentum there is quite a bit of additional upside
The NXT research update (PDF) is
also published and available here:
Past reports and related research
can be found on our website at
Editor's Note:
This article covers one or more stocks trading at less than $1 per share and/or
with less than a $100 million market cap. Please be aware of the risks
associated with these stocks.
Glossary of Terms
IV or Intrinsic Value is our
method of evaluating growth stocks. Over the last twenty years we've found that
most traditional measures like P/E, PEG, and even DCF models are not effective
at arriving at a single price point that represents the true value of the
future prospects of a company. It has some things in common with a DCF approach
but deviates by focusing instead on long-term market value since it's more akin
to what a growth stock delivers than stable cash flows.
POS is an abbreviation for
"Point of Sale" systems which include terminals which handle your
credit cards to back office computers that interface with the large payment
processors and gateways.
Disclosures
SoundView serves as a strategic
advisor to NXT-ID and provides this research note for informational purposes
only. SoundView does not have "ratings" and is not an investment
bank, broker/dealer or registered investment advisor. We've undertaken to
research all facts presented here but can make no promises that they are
correct or that our reasoning and supporting intrinsic valuation model is an
accurate depiction of the future. SoundView employees may have positions in
stocks they work on however at the time of this writing we are not aware of any
outstanding positions in the shares of NXT-ID.
Read this
release in full at http://www.investorideas.com/CO/NXT/news/2015/08111.asp
About NXT- ID Inc. - Mobile Security for a Mobile
World: (NXTD)
NXT-ID, Inc.'s innovative
MobileBio® solution mitigates consumer risks associated with mobile computing,
m-commerce and smart OS-enabled devices. The company is focused on the growing
m-commerce market, launching its innovative MobileBio® suite of biometric
solutions that secure consumers' mobile platforms led by Wocket® ; a next
generation smart wallet designed to replace all the cards in your wallet, no
smart phone required. Wocket was recognized as one of the top technology
products at CES 2015 by multiple media outlets including Wired.com. The Wocket
works most anywhere credit cards are accepted and only works with your
biometric stamp of approval or passcode. http://www.wocketwallet.com/
NXT-ID's wholly owned subsidiary,
3D-ID LLC, is engaged in biometric identification and has 22 licensed patents
in the field of 3D facial recognition http://www.nxt-id.com/, http://3d-id.net/
Contact:
SOURCE SoundView Technology Group
Published at Investorideas.com
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Disclosure: As of January 1, 2015 NXT-Id renewed for five thousand per month
and long 144 shares for news publication and marketing of Wocket smart wallet.
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