Recently, Seeking Alpha editors reached out to ask us to write another article on Digimarc (NASDAQ:DMRC) due to a high level of interest amongst their readers and a lack of anyone else writing on the name (perhaps unbeknownst to them, that's the case not only on SA, but also on Wall Street, despite the existence of sellside analysts who "cover" this stock). And indeed, looking at the very recent increase in page views of the three previous articles we have written on the company, it does seem interest in DMRC has again picked-up. So here we go…
Since more than doubling in price on the back of the announcement of their deal with Walmart (WMT) (see Digimarc: Post The Transformative Deal With Walmart, Digimarc Is Now A Rare One Question Stock for our analysis of that deal and what we believe it means for DMRC's future outlook), DMRC stock has given back the vast majority of those gains and is currently only 15% above where it closed the day before this game changing release.
Add in the fact the company raised $20 million by selling shares via an ATM offering at an average price of $60.61 (which it has subsequently paused, more on this below), the enterprise value has increased only single digits since the announcement of the WMT deal. The obvious (and important) question to ask is "Why? Since the announcement of this transformative deal, have there been any negative developments of which investors should be aware?"
And the answer to that is a simple "No."
The move lower started with two sell-side analysts downgrading the stock on the same day, both of which were valuation calls amid concerns the stock had moved "too far, too fast." The downdraft continued in the absence of any quick additional deals following the one with WMT as some investors began to question if the WMT signing was indeed the tipping point we were all waiting for. While we are surprised at the existence, let alone the magnitude, of the decline (we were in fact laying out our argument about why even at $60+ the stock was still a steal), we aren't surprised by the reasons. As we wrote at the time:
Now to be clear, this won't all hit overnight (but I would imagine it will begin to snowball faster than people expect once it gets going). And I fully expect some percentage of the bear camp, instead of calling it quits, to morph from "this is never going to happen" to "this stock is priced to perfection." (As a side note, if you've never been long a consensus valuation short, it's wonderful. When those betting 180 degrees against you agree with your fundamental thesis but just believe the stock is too expensive, well, that stock rarely goes down for long).
This retracement has given investors what we believe to be a fantastic opportunity to revisit DMRC stock not only just marginally higher than it was before the WMT announcement, but more importantly 1) at a price that isn't baking in much, if anything, for the entire Barcode opportunity (see An Alternative (And Tangible) Way To Value Digimarc for our views on what the legacy businesses of Digimarc are worth and So What Should Digimarc's Barcode Stub Be Worth Today? for a few thoughts on how one could go about pricing in the barcode opportunity on top of these legacy businesses) and 2) ahead of a handful of future catalysts we believe are on the short term horizon.
Add in the fact the company was able to raise the above mentioned $20 million (thus strengthening the balance sheet), coupled with the fact the company then subsequently stopped raising money via the ATM due to its belief that either via future contracts and/or the successful conclusion of the company's previously stated objective to secure one or more strategic investments from IT giants it no longer needed this vehicle (see the below quote), we currently see a company with a stronger balance sheet, a publicly displayed view that the stock is too cheap to be selling at prices well north of where it is today, and these handful of catalysts we believe are coming in the near future. These upcoming catalysts will be the subject of this article.
But before we get to these, we want to include the quote from the DMRC CEO on the last earnings call about stopping their ATM offering. It actually is a great introduction to the rest of this article, as you will see references in this quote to both the existence and the timing of a couple of the catalysts outlined below:
Okay, those were a lot of questions. I'll try to keep my answer manageable. So, we're -- we don't have any plans to resume the ATM at this time. And it's a combination of circumstances. The share price, the extraordinary success we have during Q2, the balance sheet condition, the spend rate that we're operating under, and the program to engage strategic investors. Plus, these new initiatives, market initiatives where we're going to see how it works here, we're taking the position that show us the money.
And, again, this is all, if you like a natural development in the evolution of the execution of strategy, because this is a platform that we're providing. And so, as we become more obviously the platform supplier and we engage more companies and investing their capital to build them the platform, we will gain a lot more financial leverage. And so, it's a little hard to characterize it just yet.
But as I said, I think we're getting to a point where we may be able to model some things better before year-end. And we hope to find more business with existing customers as well, and that of course is dependent on how well we execute on the business we have, which we're very focused on doing.
So, with all of that context, continuing the ATM just because we have authorization didn't seem appropriate, we thought we would just pause for a while here and carry on with all of these other opportunities to find capital from income sources and investment sources.
Holy Grail 1.0 (HG1.0) concluded in May, and Holy Grail 2.0 (HG2.0) is under way. For those unfamiliar with these consortiums, more can be found here and here. For our initial view of how big the opportunity could be for DMRC from this application of their technology, more can be found here.
Where we were wrong in our previous analysis was that we thought the conclusion of HG1.0 was going to include an explicit endorsement of digital watermarking as the path forward. It didn't. The final report was simply an executive summary of the two different technologies the group tested, with no official recommendation or endorsement given. This was widely viewed as a disappointment (and was also referenced in both of the above-mentioned valuation downgrades, which tellingly came the day after the release of this executive summary).
However, it seems a lot of investors are not yet aware of the fact that digital watermarking was indeed "chosen" as the winner (despite that decision not be stated in the executive summary), and that HG2.0 is pursuing only digital watermarks going forward, something that perhaps might have been apparent to anyone reading the above article or the many others like it, but wasn't stated plainly in black and white. This lack of crystal clear clarity forced many to reconsider giving any value from the recycling opportunity to DMRC's stock.
While there have been various hints about what exactly HG2.0 is (P&G Corporate Blog, Holy Grail 2.0 Open House Invite and Gian De Belder on Twitter), since Wall Street seems to have moved on from trying to value this opportunity, no one is paying attention. Not only do most market participants seem unaware of all that has progressed since HG1.0 ended and HG2.0 began, they don't even seem to be expecting any sort of "big reveal" at all.
Therefore just the existence of this reveal, let alone the contents of what will be in it, should be a strong catalyst for the stock as once again, investors will be forced to try to discount the value of this massive opportunity, but this time, with much more information than they had before.
We believe the odds are very good we will get what we (and perhaps only a handful of others) are looking for in just a couple of weeks at an industry event known as the K-Show. For sure, there is going to be plenty of activity around HG2.0, including 1) a permanent display of this project at the VDMA pavilion, 2) PG discussing HG2.0 on October 17th at their K-Show packaging day, and 3) Tomra (TOM.NO), Suez (SEV.FP) and Proctor and Gamble (PG) presenting HG2.0 at a panel discussion on October 21st. And then of course, 4) the Open House event listed above.
With all that activity, we would assume the K-show would be the ideal opportunity to talk more publicly about HG2.0 and the key aspects of this consortium as a means to not only formally launch the project, but also to continue the recruitment of more and more participants. And whether that's done via a formal press release or just comes out in articles written about the show, the details of HG2.0, when known by investors, should matter to DMRC stock.
First, we believe the list of participants is significantly larger than the 29 companies that were part of HG1.0, with a marked increase in important CPGs and retailers. We are hoping the current list of participants will be made public with the statement that this group will only grow from here. We believe the leadership of HG2.0 will be broader than just PG, likely with some trade group participation and/or some other public/private type structure which will give the consortium greater gravitas. Hopefully the final details of this leadership group will be shared.
We are hoping the pricing model of exactly how this will be licensed out will be officially announced. While our thoughts about the pricing model for recycling have progressed since the above listed blog piece, we still don't have any real clarity and so are curious to see this ourselves. Importantly, however this ends up being metered out, the TAM is as big as we initially thought (>$1 billion a year of recurring, 100% margin license revenue just from European plastics alone), as the DMRC CEO recently confirmed on their Q2 earnings call.
Keep in mind there are 700-800 million GTINs (unique product identifiers applied to a SKU) in current use around the world today. As the below quote allows those paying attention to pencil out, for every 1% of this global total that represents SKUs in the union of 1) sold in Europe and 2) use plastic packaging, the annual (100% margin) revenue to DMRC would be around $1 Billion. And the only real question in our mind is how many percentage points of the global SKU total are represented by this union, not if this number is above or below 1%.
Okay, fair enough. And then just as a follow-up in the same vein, I understand there are many, many different ways to meter out access to your platform, as far as the recycling app is concerned, but on the Q1 call, you said that there was no reason to think that the per SKU cost would be less than $125 does that still hold true at this point?
Yes, it's a straw man. Again, we're open for business and depending on what kind of -- I call it governance structure. I hope you understand where I'm getting out recycling needs global standards. And it's populated by very large companies. And I don't think we want to do it as a hobby. And so, we're trying to talk various very large companies, and trade associations and government agencies into finding some collaborative structure where we can license our platform and then be a service provider. I think that's the ideal model.
But, if they want to give us enough money to grow a big headcount associated with serving the application market, fine. I mean, it's okay. It's just not our preferred approach. So, in that case, then we would enjoy profitable participation very early. And could develop a very large income stream without making a large investment.
So that's the preferred approach at this point in time. Whether that's metered out at $125 or $150 a SKU or so much per tonne or a license based on the scale of business or recyclable material. There's a whole bunch of other models that could be applied. But I think as a means of estimating addressable market, that's fair. And that's what I intended to say previously and still believe to be true.
But most importantly, we are hopeful the group's timeframe for actually beginning commercialization of this application is shared. From what we have heard from industry contacts, HG2.0 believes only another 6-12 months of fine-tuning is necessary before this is all ready to go and DMRC is able to start signing license deals for the recycling application. While we are uncertain as to if or how this would be communicated, it is interesting to note that HG1.0 was given, at birth, a three-year lifespan; upon announcement of HG1.0, PG said the project would terminate in May 2019.
If HG2.0 were to have a planned termination date of sometime next year, that would be a powerful trigger for the market to begin to price some of the recycling opportunity into DMRC stock, as recycling revenues could start hitting DMRC bookings next year and grow to be significant in 2021.
And this time frame for the commencement of recycling revenue will (we believe) surprise most investors. In fact, one of the analysts that downgraded the stock in May (and has subsequently dropped coverage) wrote that since HG1.0 took 3 years, he'd assume HG2.0 would be at least that long. While we're not sure why he would think that to be an obvious conclusion, happily, he is wrong.
One last point on HG2.0 which could act as a second catalyst for the stock. DMRC's CEO has repeatedly said he would like to receive funding in order to re-direct the necessary internal resources to help the HG2.0 group with whatever tweaking is required to get the application to market. While it is unclear whether DMRC will be successful in getting any funding, or whether the announcement of that funding would accompany the official unveiling of HG2.0/when the market would learn about such funding, this too would act as a very strong catalyst coming out of the recycling application.
We do believe this is a serious quest by the members of HG for a whole host of self-enlightened reasons. We also believe the EU is serious about tackling the plastic waste issue and would be eager to legislate any industry-led effort to solve this issue. (As a recent example of how serious the EU is about reducing plastic waste, this single-use plastics law went from proposal to law in one year, passed by a vote of 560-35 (with 28 abstentions), will go into force across the EU in 2 years, and is going to have a MASSIVE impact on a lot of people. How many 1000s of people and $100s of millions of euros of machines/factories/investments are going to be impacted now that in the EU, you will no longer be allowed to manufacture plastic utensils, cotton swabs, plates, etc. If the EU has the stomach to pass this law, which must have had multiple groups lobbying against its passage, in such an overwhelming display of unity and force, what are the odds they don't legislate something that not only has the support of industry, but is being led by the biggest players in industry, and thus should have almost nobody arguing the other side)?
So if the consortium is indeed willing to pay DMRC for their help in speeding this process up, the signal sent about not only the consortium's intent but also their urgency should help investors decide to finally start pricing this opportunity into DMRC stock.
Now clearly, ANY meaningful bookings would be cheered by DMRC investors at this point in the platform's adoption, regardless of where it is from, and would therefore lead to some sort of stock appreciation. However, the fact this one would be, in essence, a good faith down payment on this massive, industry-pulled TAM should increase the magnitude of the resultant cheer.
In sum, Wall Street seems to have forgotten about the recycling opportunity for the company. For certain, they aren't pricing anything into DMRC stock for this application. And there are no expectations for how or when that might change.
However, the reality is we might be two to three weeks away from any or all of the following happening: A reveal of how big the membership list of HG2.0 has grown to be and what new retailers and CPGs have signed on, a new leadership group in place that lends the consortium greater gravitas, more clarity on how this will be priced allowing investors to determine the TAM with real confidence, clarity on when DMRC will begin unlocking that TAM, as well as a significant payment from the group that should help investors better understand both the industry's sincerity and impatience to get this going.
While we continue to believe the WMT contract announcement was a significant game changing catalyst, we have heard some investors still want to be able to touch and feel the adoption before getting excited. In addition, since there has been no public news on progress since the contract's signing, some investors are (with what we believe to be a remarkable amount of short-sightedness) wondering if WMT is indeed still fully committed.
We would assume there are corollaries to the above with industry participants as well. We would assume there are some in the industry who want to see how exactly WMT plans to roll this technology out before pursuing their own license from DMRC, too. In addition, there are probably some who don't fully grasp exactly how excited WMT is and what benefits they expect to unlock, and will be quite surprised by (and envious of) the details.
Since no one but WMT itself knows exactly how and when this will happen, we are left with reading tea leaves, but there are a couple that lead us to believe the time frame is soon.
And on this, I'm specifically referring to the rollout of thermal application into WMT's stores. But before we get to that, two updates on the packaging application.
First, WMT sent out a letter in July informing their private label suppliers they are commencing the watermarking of their packages and will be meeting with these suppliers soon to tell them more. While this shouldn't be surprising since they are indeed paying DMRC for this application, from what we have heard from a couple of the suppliers, the meetings are not only far along, but more importantly, WMT is giving these suppliers a litany of reasons for why they are adopting this technology.
Since the suppliers of these private label products are, for the most part, the big global CPGs, it seems the intent in educating them is less about getting them on board for watermarking WMT's private label packages (WMT makes the decision on those, they don't need to explain to the suppliers why they are doing it in order to get this accomplished) and more about acting as a broader education about why the CPGs should be adopting digital watermarks for their own branded products. One supplier went a step further, saying it seemed to them, based on both the content and the delivery of WMT's message, that this education was potentially more a signal that, at some point soon, if they haven't decided to start watermarking their own products, WMT might make the decision for them.
Secondly, we have started to find a handful of products on WMT (and other retailers') shelves that aren't private label WMT products, but core products of the big brands themselves. So far, we have found products from Pepsico (PEP), PG and Kimberly-Clark (KMB). Obviously, license agreements between big CPGs and DMRC, covering the 10s and 100s of thousands of SKUs in these CPGs' portfolios, would themselves be meaningful catalysts. Having WMT as an ally in spreading the word is a big help in getting to that eventuality.
OK, on to thermal. Again, to be clear, we have zero idea when WMT will begin rolling out DMRC enabled thermal labels. But we can take a relatively well-reasoned guess, and that is "soon."
First, WMT's fiscal year ends in January. They signed this contract in May after allocating for it in the current year's fiscal budget. If the original plan wasn't to begin the rollout this year, we would imagine they would have just waited until the upcoming fiscal year to add DMRC to their annual budget.
Of course, project timelines can slip, and so this tea leaf alone doesn't mean that much today. However, a few other things provide support to the idea this timeline is still on track.
First, the contract was for both private label packaging and thermal. We know (because there are 1000s of WMT private label suppliers) they are already aggressively moving forward on packaging. It makes sense the second leg of this contract, thermal, should be starting, too, despite our inability to channel check this application.
Second, on September 4th, a WMT executive presented at the Barclays 2019 Global Consumer Staples Conference. A transcript of that presentation can be found here. During this presentation, the WMT exec talked about a new WMT initiative called Produce 2.0, which WMT planned to speak further about with all their store managers at the upcoming Store Manager Holiday Planning meeting (which took place Sept 22-24).
While this WMT exec didn't talk too much about the details of Produce 2.0 at the Barclays conference, he did mention Produce 2.0 will impact both the fresh sections as well as the front of store and will be noticeable to their shoppers. He talks later in the script about the importance of using technology to free up workers to do other tasks. These data points are all consistent with one benefit of DMRC's thermal label application, and that is being able to apply automated dynamic pricing to mark down soon-to-be-expired fresh items instead of relying on the time-consuming practice of employees manually finding and then marking down these items by hand.
Now to be clear, we don't believe Produce 2.0 is only about DMRC thermal labels, we think there are many parts to this initiative. But we do believe DMRC thermal labels are a part of it. This would potentially explain both why we haven't seen this rolled out yet (it is logical to assume WMT would want to wait for the broader overhaul of Produce 2.0 to introduce DMRC thermal labels if it is indeed a part of this initiative) and also argues these upgraded printer labels should be appearing in WMT stores soon (the meeting is an annual event where Walmart HQ gives all 4500 store managers their playbook for the Holiday shopping season, meaning we should be seeing the impact of Produce 2.0 in stores soon, ahead of the Holiday Season).
Moreover, if there were ever a time to roll this out, ahead of the Holiday shopping season is it. Thanksgiving has to be the single biggest "fresh" shopping holiday of them all, and the one with the biggest need for markdowns after (we can't imagine there's much demand for full priced turkeys, yams and stuffing the week after Thanksgiving).
In addition, freeing up employees from having to mark down fresh food during the Holiday shopping period in order to re-purpose these associate hours to other parts of the store would be a great way for WMT to improve store ops during this important (and busy) shopping season.
Finally, the Holiday season is the most lucrative time for mass merchandisers like WMT to convince grocery shoppers to come their stores to do their grocery shopping because once the customer is there to buy bread, he or she might also do some of their Holiday gift shopping, and pitching consumers on some of the benefits DMRC thermal labels allow (lower prices and guaranteed freshness chief among them) would be a great draw.
Importantly, we would assume WMT will be vocal about this change. And not just for the above-mentioned reason of driving shoppers into their stores during the Holiday shopping season. But for two other reasons.
The first is, for dynamic pricing to achieve its full potential, shoppers have to be aware of its existence. Hence, some level of broad consumer education will be required.
And secondly, WMT just recently joined a group of 10 retailers (including 5 of the top 10 in the world) called 10x20x30. You can read about it here and here. Notice how Walmart (as well as, in a potential bit of foreshadowing, Kroger (KR) and Ahold Delhaize (AD.NA) talk about reducing food waste in their stores.
Now recall this announcement from earlier this year Digimarc, Walmart Collaborate To Automate Fresh Product Markdowns. One of the benefits WMT sees from the DMRC thermal label application is a reduction of food waste. We would assume, with their recent co-founding of the 10x20x30 group and their on-going practice of trying to be a better corporate citizen, WMT is going to want to highlight any and all progress they are making on that front.
The fact this application reduces food waste while also lowering prices seems like something they'd want to talk about often and at volume. (Don't worry WMT holders, there is a financial benefit to WMT, too. With dynamic pricing, they will be able to sell food they have previously thrown out. This fact might not make it into WMT's Press Releases, but it should make it into WMT's Earnings Releases.)
And this mass communication, if it were indeed to occur, should 1) remind investors DMRC has an ongoing deal with the world's largest retailer from which this retailer sees real value and 2) should also remind WMT's competitors about all the "good" WMT sees from adopting DMRC thermal labels and should increase their interest in following suit. Especially amongst the other 10x20x30 participants, who are some of the largest retailers in the world.
DMRC's CEO has recently mentioned (on the Q2 earnings call and at two recent investor conferences) that there are a couple of other applications of the platform, servicing customers outside of CPG and Retailers, that he hopes to be able to unveil soon. Further, it sounds like these applications were brought to the company by the initial customers, after which DMRC did some quick tech work and then was able to quickly turn around and sign contracts with these initial adopters.
Unlike the first two catalysts we wrote about above, these potential catalysts are hiding in plain sight. While the company has mentioned them a few times, it seems most investors are laser focused on when they will sign their next CPG or retailer customer. And while we get that focus, that doesn't mean customers outside these verticals don't matter.
In fact, one could argue currently they might matter more. Assuming these are interesting applications of the platform that could have additional customers outside the first couple they have signed, the unveiling of these could be a great development for a few reasons.
First, it is the first "proof" this tech really might be the barcode of everything, and we can all start to let our imaginations run wild about how many other 100s of use cases there are outside of the enormous TAMs we all know about today. DMRC stock price should begin to price in these future embedded call options that are available today for free in DMRC's shares.
Secondly, these are applications thought up and sought after by the customers themselves, requiring zero selling and very little R&D work to commercialize. And they progressed quickly from initial contact to initial contract. This is the endgame the company has always verbalized they would like to reach and validates this can indeed be a very high margin R&D company with no meaningful S,G&A expenses, benefitting from rapidly developing applications.
Third, since it sounds like these applications were pulled instead of pushed, they might very well be so compelling that adoption of these applications could very quickly progress beyond the first few once these applications are known to others in these industries.
And importantly, the TAMs for these don't have to be massive to have a real impact on DMRC's financials.
A fellow investor likens these applications to adding a few screen passes to DMRC's playbook which seems to most of us today to just be pages and pages of Hail Marys. Yes, packaging and thermal and recycling are each exciting billion dollar TAMs, and they are progressing, but if in the meantime the company were to reach break even sooner by having a couple or three $50 million TAMs that could reach 20% penetration quickly, well, that works for us.
So for all the above reasons, we think any future (and hopefully soon) unveiling of these other applications, along with further details on their TAMs, the initial customers, and the reasons these customers sought out DMRC's platform, could be meaningful catalysts that are hiding in somewhat plain sight and allow the company to rack up big yardage while waiting for the Hail Mary receivers to get down field.
At the very least, and with the risk of driving this analogy into the ground (unnecessary roughness?), the existence of these screen passes requires the defense (which in this case is the rather large 23 days of short interest in this stock) to have to cover additional members of the DMRC offense they weren't even aware were on the field.
As mentioned at the beginning of this article, while some stock market participants are vocally taking the view that "nothing has happened since the company signed WMT," recent articles in trade magazines argue the opposite, that activity is actually pretty high (and potentially even accelerating).
I'm going to include below just a handful of recent articles we have found or been sent that include ecosystem partners talking about Digimarc's platform. All but one of them (the VDC survey) are just from this past week alone. We decided to include the VDC survey as 1) it is still pretty recent and 2) also further validates our observation that things are progressing despite some investors' concern the ship has stalled. And to be clear, this is just a subset of total mentions we saw last week, comprised of articles we either sent to someone or were sent to us. There were others in addition to the below, but they aren't easily retrievable via our Outlook search function.
Viral adoption of any platform is preceded by buzz, and for anyone concerned DMRC is the only person out there talking about the merits of their platform, they shouldn't be. There is activity and marketing by the ecosystem, which has the benefit of acting as a salesforce multiplier for the platform, it's just not obvious to those not in the industry and/or attending industry trade shows and reading industry publications.
And qualitatively, this "buzz" has increased recently. While by no means a guarantee we are on the cusp of mass adoption, it is a prerequisite for that to occur. Sticking with the above football analogy, scoring touchdowns isn't just a function of the playbook, but also the scouts and the player development personnel and the whole coaching staff doing their jobs, too.
And while any single one of these mentions aren't themselves game-changing, at some point the accumulation of these data points should be enough, at various random intervals, to help individual stock market participants who are both 1) questioning whether this will ever be adopted and 2) worrying about the "fact" that nothing is moving forward to get some level of comfort with these concerns.
Or said another way, not hearing anybody else but DMRC talking about their technology would be (and should be) a major concern. On the other hand, hearing everyone in the supply chain pitching the technology would be (and should be) enough to get investors convinced this is all going to happen (at which point the only analysis left to be done would be around the application of the correct discount to future cash flows).
Somewhere in between, at various levels depending on the individual investor's risk tolerance and level of primary due diligence, this level of comfort will be reached, and if this velocity of tiny pebbles continues or accelerates, it should act as a "cumulative catalyst" on a market participant by market participant basis.
1) Digimarc will be highlighted at a special event at a large upcoming sweets and snacks tradeshow: ProSweets Cologne 2020: Packing for sweets and snacks
2) A plastics manufacturer, who was not in HG1.0, is investing in digital watermarks to promote recycling: Can There Be Harmony Between Plastics and Sustainability? Greiner Says Yes.
3) A food production line automation company has deployed DMRC labels into its offering: Beck Automation and partners aim to redefine the possible
4) A pre-press and packaging company just recently opened an innovation lab to highlight, among a handful of other things, DMRC technology to its current and potential customers: N.E.X.T.
5) A supplier of print plates believes DMRC tech was one of the most exciting things shown at a recent trade show and also highlights DMRC technology is a big topic of conversation amongst their customers and others in their industry: Asahi is delivering a sustainable message with its water-washable plates with a clean print
6) DFTA, the German Flexo trade group (Flexo being the most common form of printing for packaging) has hosted two seminars on DMRC so far this year and, due to demand, just announced it is hosting another four before year end. In marketing one of the earlier seminars, this industry trade group said Digimarc Barcodes are the hottest topic in the German flexo market today: Digimarc Barcode im Verpackungsdruck - Praxis und Workshop für Anwender
7) While unlike the six previous mentions this one is not an ecosystem mention directly, it does fit into the criterion of "within the last week" and supports the idea that "buzz" has increased: DMRC/PG Case Study
8) This leading Point of Sale research group recently polled a large group of retailers and found 28% of the retailers the spoke with are "extremely familiar" with Digimarc, meaning they are testing, as opposed to simply "aware." Important to note, if the polled group were 100% mass merchandisers and grocery stores (DMRC's core focus today), that's still pretty good. As it was instead a sampling of all types of retailers, and thus includes retailers not currently in DMRC's targeted group, this 28% is number is phenomenal: VDC Retailer Survey Results
For a handful of transitory reasons, DMRC stock has come back down almost to the levels at which it traded before Wall Street knew the company had signed the world's largest retailer to be its first big whale, meaning that for a couple of days in the last month or so, investors have been able to buy DMRC lower than they were able to after initially hearing the news of the WMT signing (as the day after the WMT announcement, the intraday low in the stock was $39).
And despite this retracement, there are a handful of likely near-term catalysts that could cause the stock to re-rate meaningfully higher:
1) HG2.0 giving investors real, and completely unexpected, details on the progress they have made and the relatively short amount of time left until commercialization begins, allowing the market to again begin to ascribe some value to DMRC stock for this massive industry-pulled TAM.
2) DMRC getting paid today, via a significant contract to help HG2.0 with their last few tweaks, that not only signifies the industry's intent and impatience to get going, but makes the short wait for the much larger revenue stream that much more palatable .
3) WMT publicly highlighting the value they see from their adoption of DMRC technology, serving as a reminder to Wall Street as well as other retailers about the benefits of adoption.
4) The unveiling of new applications on DMRC's platform, with initial customers already on board, and all of the tangible and intangible benefits these unveilings would highlight.
5) Continued, and perhaps accelerating, industry buzz that not only kills the concern that "nothing has happened since the WMT deal," but also should increase the pace, and investors' comfort with the pace, of broad adoption.
Now we do want to be very clear on this, we don't KNOW the when on any of these catalysts. But beyond knowing they are all indeed coming, importantly, we also have reason to believe they are all near.
To wit, we know HG2.0 is growing in terms of the number and importance of the members of the consortium. We know they plan to move quickly to commercialize this application and they believe it will take no more than 6-12 months to be ready to start commercialization. We know the leadership group will be broader and carry more gravitas. And we know the TAM is massive, there is no competing technology for this solution, and both the industry and the legislators are serious about solving this issue. But we don't know when we will get more details. We just believe the K-show is a logical time given all the activities planned at the show involving HG2.0. And as there is no expectation of any reveal at all, both the existence, let alone the details, of this reveal would be powerful.
We don't know when WMT will roll out thermal or if thermal is part of Produce 2.0, but logic tells us that all makes sense. And we don't know if WMT will be vocal about the roll-out, something which would act as a reminder to both Wall Street and the rest of the grocery retailers about the benefits of this application, but we can see obvious reasons why they would/should and feel safe in concluding they most likely will be.
We don't know much of anything about these new applications except what the company has said recently about the fact they are 1) unexpected and 2) in areas outside of what investors seem to think the platform is limited to. But we think what they represent, both tangibly as well as intangibly, is pretty powerful.
And we can't really prove that accelerating buzz in the industry a) portends we are close to broad adoption or b) will be enough to give any single investor comfort things are accelerating versus standing still, but if not now, at some point, both should be true.
That all being said, we do think all the above qualify as potential, near-term, significant catalysts for the stock. A stock that has retraced almost all its gains since announcing what we believe investors will look back on someday as the tipping point of mass adoption, and thus, with the benefit of hindsight, will be viewed as the most important contract DMRC ever signed.
One last point. There are a bunch of other potential catalysts that could very well drive the stock higher outside of the ones listed above. Outside of potential unknown unknowns (i.e. catalysts not widely expected or listed above), the list of most likely candidates includes 1) signing new customers, 2) success in finding strategic investor(s), and 3) additional applications being adopted by existing customers, especially important ones, showing they are growing their involvement with Digimarc.
And any of these catalysts could (and at some point will) happen at any point, without any warning. And without a doubt, they will have outsized impacts on the stock.
But at least the first two of those catalysts are already being debated by investors as they consider whether to buy, hold, short or cover DMRC's stock (the last potential catalyst, follow on business from existing customers, is probably less front of mind, which might thus amplify the impact on the stock of any news on this front). And the truth is, there's no logic or tea-leaf-reading based way to get an edge on those.
Which is why we think there is value in the five we wrote more about in this article. Because while everyone is waiting for those three and potentially feels comfortable waiting for them before feeling the need to have to act, well, as John Lennon sang, "Life is what happens to you when you're busy making other plans."
This article was written by
Disclosure: I am/we are long DMRC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.