GlassesOff is an intriguing concept, but expectations are currently too high.
With revenue of only $29k against a $70 million market cap, GlassesOff is an attractive short.
GlassesOff will have trouble growing revenue, since its product is going up in price and there are cheaper options.
GlassesOff, Inc (OTCQB:GLSO) is a developmental-stage company that seeks to improve your eyesight through use of its iPhone app. The stock has been hyped by several overly aggressive analyst reports, and I believe that investors will ultimately be disappointed by the results of an investment in GlassesOff.
GlassesOff is the result of a reverse merger with Autovative Products, Inc. Originally named Ucansi, it changed its name to GlassesOff after the reverse merger, and began trading on the OTC Market.
GlassesOff would like to have you think that it has an app that improves eyesight, and so effectively that people will pay a substantial premium for it. The reality is much fuzzier, and bulls should be asking themselves some questions.
(Source: Company website)
As you can see, GlassesOff suggests that with the help of its app, you will improve your vision and no longer need to use glasses. From the 10-K, GlassesOff claims:
Our proprietary technology enables us to develop software product solutions that enhance the image processing abilities of the brain and therefore improve a person's near vision sharpness and reading capabilities. Our unique software approach provides an alternative to existing solutions, which generally rely on magnifying devices, typically reading glasses. The Company's technology platform is based on advanced scientific research of image processing functionality, and our solution utilizes the remarkable ability of the brain's plasticity (the brain's ability to change), which constitutes the neuronal basis for "perceptual learning", that is, repeated practice on a demanding visual task. Our founder's academic research into the area of image processing functions during the last 20 years has yielded a breakthrough in perceptual learning methodologies, which enhance visual skills by improving image processing speed and efficiency in the visual cortex of the brain without altering optical functions. The use of perceptual learning methodologies improves both the processing speed and the sensitivity through repetitive exercise of the brain's image processing function, resulting in improved near vision sharpness and improved reading capabilities.
So GlassesOff claims to have an app that improves the image processing abilities of the brains, and therefore (this part is important) it actually improves your near-vision sharpness and ability to read. The academic paper that GlassesOff cites in several press releases and on its website makes a somewhat different claim. This academic paper suggests that in fact, perceptual learning can help improve vision in people with presbyopia.
Our results, consistent with previous studies, show that perceptual learning can improve visual acuity and contrast sensitivity in persons with presbyopia, and in some cases, result in performance levels similar to the young control group. Moreover, here we show that training also improves suprathreshold contrast discrimination and reading speed for small letters. Our study is the first to show conclusively that these improvements are not due to improved optical performance of the eye (accommodation, pupil size or depth of focus).
More importantly, however, it also was the first study to conclusively prove that the improvements are not actually due to your eyes being any better. If you take those tests long enough, your eyes will likely train themselves to see what you need to pass the test, but your vision in real life will likely not have improved at all. A well-respected ophthalmologist agrees with my assessment, as Michelle Rhee expressed similar concerns in quotes in an article on cbsnews.com. She said:
"Human vision quality is determined by the physical eye and the way the brain reads the information that the eye captures. To think that we can reverse presbyopia or reverse having to wear glasses for myopia and any of those different prescriptions solely on neuroplasticity is just not accurate."
Where Is The App?
When you go to GlassesOff.com, there is a button on the top of the website which should take you to the app on the app store. I was curious to see what the app looked like and what the reviews were like, unfortunately, I was able to see neither. When I clicked on the app store link, this came up.
(Source: Apple App Store)
If you can't see that, it says that the app is not currently available on the app store. The same thing happens when you search for the app on the iPhone App Store. It would appear that the company is having trouble with keeping the app on the app store. I contacted the company with my concerns, and they responded very quickly, saying that the app was still available but that it was just not showing up in the Apple App store at the moment. This is relatively unfortunate timing, as it was reported that GlassesOff was in the middle of a marketing campaign to increase awareness for the app. This doesn't appear to be the first time that GlassesOff has had issues keeping the app on the app store; in January, a comment was written on an article here on Seeking Alpha about GLSO. This comment suggests that it was not on the app store in January.
(Source: Comment on Seeking Alpha)
I spoke again to someone at GlassesOff, and they said that the problem was due to them changing developers, and that the problem would be resolved shortly. They offered kindly to give me access to the app, which I declined, as I have near-perfect vision and the quality of the app is not material to my opinion on the stock. As of July 2nd, the app is back on the app store, available for download. Given that this is the second time that GlassesOff has had issues keeping the app on the app store, it is something that one should keep an eye on.
Bulls Misunderstand The Stock
A quick glance through Seeking Alpha shows that there are many bulls on the stock.
(Source: Articles on Seeking Alpha)
I believe that bulls fundamentally misunderstand the situation. They suggest that GlassesOff will be able to capture a significant part of the eyeglass market. Zacks analyst Jason Napodano writes,
As shown in Table 2, our revenue base case assumes peak market capture of 3.0% (1.26 million) of these potential customers in the fourth year of sales, and mean revenue of $120 per customer ($60 for the basic improvement program and 7.5 months of follow-on care at $8 per month). After accounting for a 30% distributor fee and small annual price increases, this corresponds to $97million in 2016 net sales.
I believe that this is an extremely high penetration rate to assume, given some statistics. First of all, the app is extremely expensive. At $60 for the initial download, that will be a steep asking price for someone used to downloading free or $.99 apps. Bulls will suggest that it is cheap compared to LASIC, but LASIC is a medical procedure which has been tested by the FDA and is performed by doctors. Asking people to pay $60 for an app, no matter how good it is, is like asking people at the Dollar Store to pay $60 for an item. Even if it is worth $60, that item will not sell well. Studies have suggested that 3% of users make up for 20% of all app spending. Likely much of that is spent on games and by younger people. How many people over the age of 40 are willing to spend $60 on an app? I think the answer will disappoint bulls.
This app is competing with cheap reading glasses that cost between $1-$10 at places like CVS and Family Dollar. While the app might actually help improve vision, it will never get any reach if the cost remains that high.
Consider this, GlassesOff only did $28k in revenues in the first quarter, even though the app was used by over 50,000 people, according to Mr. Napodano.
The company had set a goal of 10,000 registered users; this number was selected because it would represent a significant number of users to get feedback from, but would most likely not overload the servers and interfere with the customer experience. Based on larger-than-expected media coverage, the company far surpassed the 10,000 registered-user mark, and in fact, ended up with approximately 67,000 total registered users.
Given that he is essentially the only analyst covering the stock, he is largely driving the expectations of investors. In his most recent article, he suggested that the app had done exceptionally well for a "soft launch." But this was no soft launch. Just look at these press releases:
(Source: Company website)
Regardless of whether it intended it to be or not, having your app at the top of its category does not make it a soft launch. Despite only charging $9.99 for the app, it generated $28k in revenue. So at a much lower price point of $9.99, there was only about a 5.7% penetration rate. How low would that rate fall if the app was 6x more expensive, which it will be? Additionally, that group of people was already presented with the app, it is only natural that a percentage of them will purchase the upgrade, since they are already familiar with it. How many will seek something like that out on the app store and download it when there are cheaper options available?
While the app might work, it's a prohibitive cost compared to other apps. For example, there is an app called ULTIMEYES on the app store, which claims to do similar things as GlassesOff, but only costs $6. A market cap of $71 million and revenues of $21k in the last quarter, when they were giving their product away at much lower prices, does not give me confidence in this name. I think it is an attractive short if you can get the borrow, as expectations are simply too high at the moment. I do not believe that GlassesOff is ready for prime time, and I think that bulls should open their eyes.
Disclosure: The author is short GLSO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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.