SoundView Technology Group

Long/short equity, research analyst, tech, internet
SoundView Technology Group
Long/short equity, research analyst, tech, internet
Contributor since: 2006
Company: SoundView Technology Group
Also put up some information here on SA that we published at the start of the year that might be helpful:
Solid analysis here. I'm sure that many, including the management team at NXT-ID would agree with you that they invested heavily in bringing a consumer product to market and learned a ton about what works and what doesn't work. That's a major driver behind their deal with WorldVentures and what should unfold as an indirect strategy using partners to go after markets.
I think the technology discussion is a bit unfair. True they may be behind Apple but their products are much more advanced when compared to the other "smart wallet" players. It *is* harder to get this right than anyone expected going in. But the flip side to that is that overcoming these obstacles and continuing to build more advanced technology creates more of an advantage over other players (or would-be players) in this market.
I also believe NXT-ID would be in agreement with you about your point regarding their strategy to create the best wallet for specific groups of individuals. That is what they are doing now and more will come on that.
More generally I'd say almost all the new devices in the consumer space have been what I'd call at 1.0 - my Moto360 doesn't last long enough on a charge to be useful, fitbits are working for some but not all, Apple watch is good but not insanely great, my new Babolat POP (for tennis) is interesting but lacks accuracy and real-time feedback, GoPro cameras are cool but cost hundreds of dollars and their software and media plan failed to create an "iPod effect" for their hardware.
What NXT-ID does have is a family of strong technologies and some key proprietary elements they have worked out in response to the challenges experienced with the first generations of Wocket. Their new strategy is more capital efficient and plays to their strengths. Their execution will be key of course but they are on a better path and feel a sense of urgency to deliver.
Wanted to acknowledge your work here. We have done well with this position since your article came out. Thanks for putting it together and sharing it here.
2015 was a long year for NXT-ID. Getting a 1.0 product to market effectively was a big accomplishment. There were plenty of reasons for the stock to suffer including - the Wocket didn't work with as many POS locations as it needed to (although it was better than many), the company raised more money, industry turmoil due to EMV confusion and mobile payments and the fact that they didn't make our 2015 unit estimates.
Having said that they learned a lot last year and their success with the 1.0 product attracted the attention of new partners who can help them take the Wocket to the next level. It is a bit of a high risk/high reward situation indeed.
Things seem to be going better for this company. We have a small position but it still feels like a bit of a science project. Going after new "carbon capture" opportunities feels like it may be more of a distraction. Maybe better to ramp the existing core business to prove that it can scale up. Certainly one to watch.
Easing of restrictions seems like a good sign. I think online education is far from dead. In fact with robots coming people will need to find new skills.
As for competition they lost me at "injection" (!)
Seriously I do think that so far the market has been made up of mostly people who were already concerned enough to do something about appearance. There is a much bigger opportunity if they can convince "normal" people to come in and try the treatment.
Company has terrible IR policy as well so that's a handicap for them.
Big insider buy a few weeks ago. Interesting.
I've been short this one on and off. Your article reminds me to short it again even though it has dipped. Looking at your tables makes me think Pier1 is probably a good short too even though the stock has come down quite a bit.
Seems like Wayfair is more like an "online catalog" business rather than a real e-commerce player like Amazon. Furthermore their catalog hasn't seen a major upgrade in a while and Amazon has eclipsed them in terms of selection.
Since the company isn't profitable it's hard to say what the "multiple" should be. Although in doing an IV the value comes out to $25-29. That's based on continued successful execution over the next few years.
Interesting contribution to the Wayfair debate. I understand the "value" of having this positive carry in the model however I think suppliers will prefer to do business with Amazon since they get their money faster.
Seems like Amazon has caught up and passed Wayfair on selection. I just searched for bedroom vanities and Amazon had 345 to Wayfair's 146. Which leaves me with no reason to do business with them versus Amazon.
You can see some other things we've written where we note that their customer experience model is broken due to their IT systems and "drop ship" model.
I have a short position in W but like the Put strategy depending on the premiums involved.
Bedroom Vanity - 146 on Wayfair (good!) but 345 on Amazon (better!)
I enjoyed the article and think it's a great approach to look at the situation from both sides. The Citron report is over the top as usual but I did some my own digging on Wayfair and was not impressed. Despite their "350 engineers" their software is riddled with bugs and customer support and satisfaction is a problem. They also don't necessarily control it since the drop shipping model puts fulfillment in the hands of distributors and perhaps worst of all - contract delivery folks.
I even spent time talking to captive and contract delivery truck drivers and there was no disagreement that the only way to ensure reliable quality delivery was either with your own captive service or the usual suspects (UPS, FedEx) but the latter don't do so well with furniture and heavy items in terms of cost.
Finally I'm concerned that the "target model" is questionable. IMO they can get to profitability but probably closer to 4-5% rather than 8-10%. Still not a bad business but based on all of that the shares are way overvalued.
I have a small short position but really as a hedge. I'll keep an eye on it. Reminds me a little of ChannelAdvisor (ECOM) before it broke down. (Now ECOM may be getting it together after a minor pivot to focus on larger accounts.)
Thanks for publishing your article!
So... analysts are bullish on Wayfair... and?
I understand the logic but management was greedy back in August, for that they pay back some cherished trust and credibility.
It's not the "miss" that most bothers me but rather the commentary on the call about not really knowing what future growth looks like and not having a plan. It's been some time since the pre-announcement so this call was an opportunity for management to stand tall in adversity. Felt more like a slump... ;-)
It's possibly a bargain but it appears that part of the business is shrinking faster than expected and management has had to back off from their medium term growth guidance.
The real issue is management doesn't really have a firm grasp of near and medium-term business trends. In August they were crowing about their momentum and enticing analysts to pound the table. But the truth is they couldn't see very far past the most recently reported quarter. So it's a real concern.
Their products fit well with the theme of increasing productivity and retaining customers.
Very good article. Agree with the potential here. Do you know who is on the short list in terms of competition?
I don't think there is any date yet and certainly no "record date." My impression was that the timing was described as "early 2016." I also think the lockup on RACE is only 90 days but I'm not sure who that would apply to.
No reason for the quarter not to be good. You never know though... The stock has run up into it but since the recent decline from $8 it's "safer" to some extent going into earnings. As always I'd stress that small companies and stocks like this are best thought about over the long term.
Agree it's a takeover target and the price, even allowing for a nice premium is not high. However why isn't it happening? When I listen to AMBA management they don't impress me. So I wonder if we are missing something and maybe their ability to innovate and stay ahead of the curve isn't that strong. Or IP protection isn't as good as it should be? I'm not that close to this one anymore and have no dog in the hunt at this point. Interesting situation though...
Ugh, management seems to be whistling past the graveyard...
I thought these guys were more of a email directory company which provides security in a different way. Didn't ever seem them as a MDM play. Been a while though, maybe they are grasping at ways to grow and expand their market. I don't think they have executed well in the past so without major management changes it's hard to see them winning against companies like ProofPoint.
Put up a decent quarter in a tough market. Tried to lift but this one may just take a few quarters to find it's way back to $1.
Good article. I think there is much more to the APIC story than just mobile but agree that's a big driver. Valuation should probably be higher as well. Company is new so has to educate the market more about their value add. They are doing it!
I thought that the smartwatch would obviate the need for a FitBit but after trying one for fitness I don't think that's true. I'd point to lousy software and limited battery life as major issues.
Much has been said of the corporate wellness angle which I agree with. However it'll probably take the form of a special device. Firms are not likely to give everyone an Apple Watch but a FitBit is a different story.
This quarter is an easier compare. Might help.
Good article. In the final analysis it's hard to say that the board move is part of a process to get the company sold. But it's pretty clear that if RDCM gets some traction with their software an acquisition by one of the larger players is a high probability event. Since they are profitable your worst case might be dead money and if they can get some traction it'll drive the stock.
Classic "we need a research call on the rate hike" junk that is pumped out because the don't have any actual fundamental value to add at the moment.
In some ways the debate over whether they are #1 or #3 in a search result misses the point. Even if they are #1 everywhere if they don't make much margin on those sales and the customers don't come back then the engine of wealth creation never gets started. There probably is a business and a model that would work for Wayfair but I don't think their current one is going to work out too well.
This is starting to feel like a "battlefield" stock even if the shorts insist there is no real bull story. I was surprised that the shares have held up so far. Recently it could be short covering but the market capitalization is still up around $3B.
I think W is doing a better job with the GUI for home furnishings (similar to what ZU did for clothing) but it doesn't seem like enough of a real foundation to build a company on.
Lastly I'd add that buying furniture online is a little dicey. I've tried it a few times and while it has worked out most of the time there were at least two heavily damaged items, one went back and the other I am using in a garage so it doesn't matter. Still it makes me hesitate to order these types of items online since shipping damage is likely and a major hassle if it happens and you have to do a return.