Nxt-ID (NASDAQ: NXTD) Slow Progress but Promising Signs; Free Licensing
Optionality; Speculative Buy Says Benchmark
Nxt-ID, Inc. (NXTD; $1.01)
Rating: Speculative Buy
Price Target: $6.00
Price Target: $6.00
Slow Progress but Promising Signs; Free Licensing Optionality
September 22, 2015 –Benchmark (http://www.benchmarkcompany.com/) ; Shares of Nxt-ID (NXTD) -- Spec Buy, PT $6)
remain under pressure by sellers from the most recent round of funding despite
initial signs of traction. While progress towards achieving scale has been
slower than anticipated, order volume continues to improve sequentially, with a
significant uptick expected in 4Q15, and manufacturing issues are becoming more
infrequent. Technical reviews remain positive, with competitor offerings
stalled or facing either developmental or implementation headwinds. We
acknowledge that Nxt-ID still remains in the show-me stage, but think there is
a significant disconnect between the current share price and the potential
opportunity, with free optionality on technology licensing deals or a potential
takeout.
Although Nxt-ID is pacing behind our original
expectations in terms of product rollout, we still expect the company will sell
~30,000 units by year-end, with upside depending on any third-party (3P)
distribution deals. Unit sales could improve from 900 to 2,500 from 2Q to 3Q,
and ramp significantly into the holiday period, with our forecast calling for
25,000 units sold in 4Q15, resulting in $4.5 million in revenue. We believe 3P
distribution has been somewhat deemphasized given the early lack of scale, but
expect management is still looking to partner with QVC/HSN or Sam’s Club ahead
of the holiday season if possible, depending on the terms. We have not included
any 3P sales in our holiday forecast. We note, however, that NxtID has been successfully
selling online through Touch of Modern with a reasonable conversion rate
(estimated 3-5%), albeit on a small scale, which has also further enhanced
Wocket’s organic search ranking.
Nxt-ID is developing enhancements and additional
offerings for its product portfolio. We believe Nxt-ID will possess the first
smart card to feature a fully functional EMV solution, expected by year-end,
which could further differentiate the product and enhance its relevance, with
the EMV implementation deadline set for October 1 (although we anticipate fewer
than half the POS terminals will be EMV-compliant by the end of the year). In
addition to an EMV solution, we expect a digital, phone-based app could tap
into the more traditional mobile payment market, with a launch date anticipated
in 2H16. Furthermore, given the prevalence of large players entering or
attempting to enter the payments space, we think a licensing deal could be
possible, especially if Nxt-ID establishes proof of concept this holiday
period. We have not incorporated any benefit from the potential app rollout or
licensing deals in our forecast, which calls for standalone Wocket sales of
150,000 units. We note that Nxt-ID would need to sell roughly 180,000 units to
operate at breakeven, which could be achieved next year.
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