The Coolest Augmented Reality Tech at CES 2017...

Superinvestor Bulletin  |

Leonard Low via Wikimedia Commons

From January 5th to January 8th this year, the Las Vegas Convention Center played host to an early adopter paradise known as “CES 2017”.

One product that made a splash with both Wired and Barron's are augmented/virtual reality glasses from Vuzix (NASDAQ:VUZI). Both respected magazines came away from the technology show touting Vuzix’s Blade 3000 Smart Sunglasses product as the class of its field.

The appeal of the Vuzix product according to Wired and Barron’s is its combination of functionality and style. The Blade 3000 runs Android with integrated video and AR overlays, which allows for users to have cloud-connected information and entertainment everywhere.

While the Blade 3000 Smart Sunglasses are going to appeal to the retail early adopter, it is the Vuzix M3000 Smart Glasses for commercial use that are what will appeal to the investor. There is little doubt that commercial smart glasses are about to become big business.

Research firm Digi-Capital has estimated that globally, the augmented reality smart glasses market is going to reach $90 billion by 2020. This is a case of going zero to sixty in about three seconds, because the market for smart glasses was very small this year.

The growth is going to be driven from businesses that have ordered 400,000 pairs of smart glasses in 2016, a number that will soar to 6.6 million by 2020.

We are at a key inflection point, much like we once were with smart phones.

The benefit of augmented reality or smart glasses is that they get information to employees in a manner that allows them to do their jobs in a more efficient manner.

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 users of this technology are desk-less workers who need access to schematics, videos, flow-charts, pictures, instructions, lists and so on.

An expert sitting in an office can instruct someone on-site in the field a continent away by being fed the video from the glasses that the field worker is wearing. Think of the cost savings that could create. A company could have one expert sitting in the office instructing eight different employees how to do something at eight different locations.

Without the smart glasses providing a real time view to the expert in the office, the company would need to have someone at that expert level at each physical location.

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The main competitors in the smart glass world are Microsoft (MSFT), ODG Inc, Atheer, Recon, Sony, Seiko and Vuzix. Google (GOOG) closed down its smart glasses production but has invested $543 million in Magic Leap which is also in the business.

The industry as a whole is exciting. Vuzix specifically, while certainly in its early days is as well.

At this point, Vuzix has leading-edge products along with a very motivated leadership group. The CEO and CFO of Vuzix are very aligned with shareholders as they own a combined 22% of the outstanding shares.

Vuzix is also a rare “pure-play” on augmented reality. Most augmented reality business are part of a much bigger commercial operation like Sony or Microsoft. Even if the augmented reality business of Sony were to increase tenfold over the next five years it isn’t going to make much of a difference to Sony’s share price.

That has its drawbacks of course, because it means that Vuzix is competing with some very deep-pocketed competitors. The benefit is that Vuzix has full exposure to the very steep growth curve that augmented reality is about to go on.

What tends to happen in these instances where a smaller company has a leading edge product in a high-growth business is that one of the bigger players acquires them.

That could very well be the end result for Vuzix. What could make that interesting is the fact that the CEO and CFO alone control 22% of the shares of Vuzix. So without them on board, it will be difficult to get a deal done.

As far as how a person should go about valuing such a business, the best bet would be an equity raise recently completed by private company Magic Leap, which is pretty close to a pure play on augmented reality. Magic Leap recently raised $794 million of cash at an implied valuation of $4.5 billion. You can see why Vuzix with its $125 million market cap might want to plug away on its own for a while.

Please keep in mind that while there is obviously a great opportunity in front of Vuzix that you should take the risks very seriously. Those would include the fast changing nature of the technology business and the strength of competition. When looking at small companies with high-growth potential the risk you take on is usually elevated and this is no exception.


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