The following is an excerpt to the report. The full update is available for download here: http://s3.amazonaws.com/Published_Research/NXT-ID_NXTD_SV_NOTE_MAY_2015_PUB.pdf
Back in March we published an NXT-ID update note on the first "early access" Wockets shipping which allowed the company to gather feedback from field use. I had good success with my own Wocket even though it was a pre-release version which had a handmade prototype card that was too thick for some types of usage.
Sixty days later, NXT-ID is preparing to fulfill their existing pre-orders this month which will put several hundred units into the market. The plan for June is to ship a few thousand units to customers who have requested invitations to order a unit. By July, the company should reach their baseline production capability of 10,000 units/month, which will coincide with initiatives in marketing and sales as well as some new distribution partners who will help with market penetration and fulfillment.
What follows are some new usage notes for the commercial version and a restatement of our assumptions behind our model that supports an NXTD intrinsic value of $8/share for 2015 and path to $17 in 2016.
Using the New Wocket
I took my updated Wocket out for a spin and noticed a few additional features. First of all, the card is production quality and has my name on it. It's thin enough to put into any device from swipe to dip to full insertion, so I can use it in any scenario. There's also a subtle backlight, so it's easier to use in the dark which comes up in cabs and romantic restaurants.
There is one new minor feature that turned out to be a major benefit for me – the "note" option. I believe that this is a giant differentiator between the Wocket and "smart card" solutions like Coin. The Wocket has a place that effectively eliminates all those little slips of paper you often put in your wallet – like the access code for a gate you sometimes go through, the number for AAA and your membership number, your passport number, etc. These all fit into a class of information that is short, alphanumeric and seldom used. Yes, you can have all of this on your phone, but that's not the best place for it in terms of security or ease of access.
The day to day use of the card works just fine in all types of scenarios – we used both Visa and American Express credit cards, and a debit card too. Again, we found the awareness level of the technology in general "that's one of those cards you can store all your cards on." Where discussion ensued, the top issue was security. When I described the encryption, lack of network access, PIN and biometric identification, every person responded favorably across a broad demographic range. Anecdotally I'd say the older a person was, the more concerned they seemed to be with security and the more thrilled to feel that they could make their cards more secure with this kind of approach.
Not every reader works with the Wocket, so one does need to keep a single card along with your ID or license in the extra pocket. For example, my tennis club in NY is a small one with a reader literally taped to the counter and it wouldn't swipe the Wocket card even with several attempts. Our sample size isn't big enough to make specific predictions, but for us we had about a 9 out of 10 success rate. Not 100%, but for me good enough. It's worth noting that the design of the Wocket doesn't prevent it from eventually reaching the goal of 100% acceptance but it's not there yet.
NXTD investors have had to endure fairly high volatility as the shares surged on news of initial shipments and sagged as the company went into "heads down mode" to iron out the last bits for commercial production and get manufacturing scaled up to begin to deliver pre-orders.
In our March note, we pointed out the two remaining major risks as the production ramp and consumer reaction/adoption. Now that we have a production unit in our hands and pre-orders are to be filled this month, the production ramp risk is fading away and the focus will now shift to consumer adoption.
Fortunately, NXTD is not alone in their enthusiasm for the Wocket. Ever since CES in January, there has been strong and steady interest from a range of distribution partners. We expect the ramp in marketing in the July timeframe will coincide with one or more of the smaller partners helping the Wocket to reach more consumers.
We remain comfortable with our 40,000 unit assumption for 2015, which we will revise if the company succeeds in reaching close to 10,000 units in July or August. Aggregating a number of market data points, there is initial demand from early adopters for something like 100,000 to 200,000 units right now, and this number will increase as more people see, feel and use the technology.
Despite a few delays, the company performance is consistent with our existing IV model shown below and we are not making any changes to it yet. Our current IV estimate remains $8 for this year and would step up sharply to $17 in 2016 with continued success.
We do plan to break down our volume and revenue estimates into quarterly periods so we can compute annual trajectory more accurately. Based on current plans, NXT-ID should be able to produce close to 30,000 units in Q3 and even more in Q4. Obviously, if the demand is adequate, they would greatly exceed our current 40,000 unit target for the year.
Our full update is available for download here: http://s3.amazonaws.com/Published_Research/NXT-ID_NXTD_SV_NOTE_MAY_2015_PUB.pdf
About NXT- ID Inc. - Mobile Security for a Mobile World: (NXTD) NXT-ID, Inc.'s innovative MobileBio® solution mitigates consumer risks associated with mobile computing, m-commerce and smart OS-enabled devices. The company is focused on the growing m-commerce market, launching its innovative MobileBio® suite of biometric solutions that secure consumers' mobile platforms led by Wocket®; a next generation smart wallet designed to replace all the cards in your wallet, no smart phone required. Wocket was recognized as one of the top technology products at CES 2015 by multiple media outlets including Wired.com. The Wocket works anywhere credit cards are accepted and only works with your biometric stamp of approval. http://www.wocketwallet.com/
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