WiMi Hologram Cloud Underperforms Despite Growth Story

Summary

• WiMi Hologram Cloud went public in April 2020, raising $26.1 million in gross proceeds from a U.S. IPO.
• The firm provides an augmented reality optimized platform for AR/Metaverse providers in China.
• WIMI has grown quickly in 1H 2021 but the stock continues to languish; my outlook is Neutral given regulatory uncertainties.
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A Quick Take On WiMi Hologram Cloud

WiMi Hologram Cloud (NASDAQ:WIMI) went public in April 2020, raising $26.1 million in gross proceeds from the sale of 4.75 million American Depositary Shares in an IPO.

The firm has developed a holographic augmented reality platform for solution providers in China.

WIMI has produced strong growth and is positioned in a growing industry of 'metaverse' offerings, but faces Chinese regulatory uncertainties.

My outlook for the stock is Neutral for the short-term.

Company

Beijing, China-based WiMi Hologram was founded in 2015 to develop AR-based holographic advertising services and entertainment products.

Management is headed by CEO and Director Fanhua Meng, who has been with the firm since its inception and was previously General Manager at Beijing Tonglian Tiandi Technology.

WiMi has developed an online holographic AR advertising solution that embeds holographic AR ads into movies and shows by analyzing the underlying video footage at a pixel level to identify ad spaces that can be augmented by 3D objects.

The technology accepts signals through application programming interfaces [APIs] integrated with the company's systems, consisting of the buyer's target audience, budgets as well as the 3D models to be embedded in the videos.

According to a MarketWatch publication, WIMI is 'the leading AI holographic vision company in China' that has developed 'the third-generation 6D light field holographic technology product' with a simulation degree of over 98% that 'takes the users' breath away in astonishment.'

Additionally, management claims that the company's algorithm is superior as "most peer companies may identify and capture 40 to 50 blocks of image data within a specific space unit, [while] the number of data blocks [WIMI] can collect reaches 500 to 550," or about 80% faster than the industry average, 'according to Frost & Sullivan.'

The company's holographic services and products consist of mobile app payment middleware software, a game distribution platform and holographic mixed reality [MR] software.

WiMi acquires customers primarily through its sales and marketing team, which is tasked with making direct office visits, attending conferences and industry exhibitions, as well as word-of-mouth referrals.

According to a 2019 market research report by the International Data Corporation, the China Virtual Reality [VR] and AR market is projected to reach $6.53 billion in 2019 and $65.2 billion in 2023, growing at a CAGR of 84.6% between 2018 and 2023 as compared to CAGR of 78.3% for the global market during the same period.

The training, retail showcasing and industrial maintenance segments hold the largest three spots in terms of commercial applications of VR and AR while VR games, AR games and VR videos take up the top three spots in terms of consumer spending, which is projected to account for $9.59 billion by 2023.

WiMi's Recent Performance

Topline revenue by quarter has grown markedly year over year in Q2 2021:

Gross profit by quarter has risen sharply:

Operating income by quarter swung back into positive territory in the first half of 2021:

Earnings per share (Diluted) have also turned positive in 1H 2021:

(Source data for above charts)

In the past 12 months, WIMI's stock price has dropped 43.86 percent vs. the U.S. S&P 500 index' rise of 22.77 percent, as the chart below indicates:

(Source)

Below is a table of relevant capitalization and valuation figures for the company:

Measure	Amount
Market Capitalization	$350,990,000
Enterprise Value	$309,030,000
Price / Sales	1.67
Enterprise Value / Sales	1.80
Enterprise Value / EBITDA	-2.51
Revenue Growth Rate [TTM]	235.23%
Earnings Per Share	-$0.33

Click to enlarge

(Source)

Commentary On WIMI

In its last earnings announcement, covering the first half of 2021's results, management highlighted its previous investment in developing 'smart chips' to optimize performance for its offerings.

For 1H 2021, CEO Shi touted that over 53% of its revenue came from its semiconductor business as a result of that smart chip investment strategy.

Additionally, the firm grew its customer base from 175 to 298, a 70% increase.

As to its financial results, operating revenue increased by more than 200% versus 1H in 2020 and gross profit grew by nearly 190%.

However, the company has prioritized its R&D investment program, which increased in the first half of 2021 by approximately 464% year-over-year.

Regarding valuation, it is difficult to determine a comparable valuation due to the company's niche positioning in a nascent market.

The primary risk to the company's stock price outlook is continued negative perceptions of Chinese companies that operate in the technology space due to Chinese government moves to limit their exposure to U.S. markets.

High profile delistings of major Chinese technology companies serve to weigh negatively on the stocks of much smaller firms.

If it weren't for the regulatory risks, my estimated is that WIMI would be a better performer, especially since Facebook (now Meta) rebranded and increased its focus on metaverse services.

Given that cloudy picture, despite WIMI's growth trajectory and turn to slight profit, my outlook on the stock is NEUTRAL.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

This report is intended for educational purposes only and is not financial, legal or investment advice. The information referenced or contained herein may change, be in error, become outdated and irrelevant, or removed at any time without notice. You should perform your own research for your particular financial situation before making any decisions. Post-IPO investing carries significant volatility and risk of loss.

Comments

[Ted Stamas]

Thanks for the update. I am long $WMI for 16 months. When I was up 70%, thought I had a tiger by the tail. Now I am underwater considerably. Will continue to hold. The company has good relationship with Toyota, China Mobile and is expanding into the United States. The valuation makes it compelling along with a large total addressable market. That said, I agree with the author that it’s stuck in neutral until the saber rattling between the US and China subsides.

[HCDIP Go]

SPAC VENA is buying WIMI division for $400 million valuation, more than WIMI

[CokeKid]

Hi @HCDIP Go spac vena buying a division of WIMI or the company? What would happen to the stock then?

[HCDIP Go]

@CokeKid good question.

VENA (dig up VENA. it is at Seeking Alpha) (VIYI, WIMI's semiconductor chip business) is at $10. so let's give it a 50% discount. that would be $200M (distributed to WIMI). WIMI market cap is about $300M. it has about $70M cash.

basically, you get WIMI's other part for free.

There are a lot of optionalities of WIMI. metaverse, Lidar, etc.

[CokeKid]

@HCDIP Go thanks for sharing