BOSTON, October 2, 2017 /PRNewswire/ --
SoundView Technology Group (http://soundview.co) releases the
following company update for NXT-ID, Inc. (NASDAQ: NXTD).
Report:
The era of the plastic credit card is ending. It started with
the shift to "chip cards" and digital payments with smartphones.
The growth from here will be in non-card form factors
- think watches, rings, bracelets, and fobs for starters. In
hindsight, this looks "obvious" but at the beginning many were
obsessed with the credit card format. It's even more odd if you
consider that payment options like EZ Pass for tools have been in
widespread use for over a decade.
The implications for NXT-ID are clear - Fit Pay can become a
layer of infrastructure to any connected device to enable payments
(and other interactions.) Fit Pay has announced partnerships with
several companies - most notably (so far) is Garmin which
has introduced "Garmin
Pay[TM]" into their
active-lifestyle-oriented smart watch line with the new vivoactive
3. It's expected the capability will be added to more Garmin
devices as they refresh their whole product family.
One key aspect of the
FitPay[TM] platform is that device
manufacturers can easily integrate the technology into their own
solutions. For example, new device startups like Tokenize and Bee
have sprung up and used Fit Pay to give their innovative personal
devices secure authentication and payment methods without having to
try and build them from scratch. Tokenize (http://www.tokenize.com)
has come up with a ring that is designed to give you not just
payments but also access control for doors, the ability to start
your car, and access to all your passwords without having to type
anything. Bee is an Indigogo campaign now[1] but their
key fob is a good example of a small, simple device that doesn't
require charging. What I like about the Bee concept is that
when I take the dog out for a walk in the morning I can get a
coffee without having to bring my phone or wallet. My keys are
always in my pocket.
But it's the "ugly parts" of FitPay that make it so valuable for
their customers. By ugly parts we mean back end integration with
payment networks and major banks. In June
2017 Fit Pay was approved as a Visa Token Service
Provider[2]. This is a big deal. There are only six of
these worldwide as of today and most of those are outside the US.
Visa lists plenty of other solution providers but most of them are
only doing point-of-sale (mPOS) systems. The full list is here:
https://visaready.visa.com/partner/solutions. Visa has embraced IoT
payments and sees it as the key to future growth.
Fit Pay announced a collaboration with Bank of America
for BofA customers to use their credit and debit cards with IoT
devices using the FitPay platform. Fit Pay also offers a prepaid
Mastercard option for customers that want to load a Fit Pay enabled
device with digital cash. Additional banking partners will be
announced over the course of the next few months. Because of these
back-end capabilities new device makers can leverage
easy-to-integrate FitPay technology to provide all banking and
payment services.
Other companies that have executed a strategy like this include
Twilio which famously attracted capital from Fred Wilson at Union Square a one-line business
description. In 2008 when the CEO of Twilio, Jeff Lawson, called on Fred he sat down and
said, "we have taken the entire messy and complex world of
telephony and reduced it to five API calls." Fred didn't believe it
until a quick demo proved that it worked. Today Twilio is still
doing that and expanding into more challenging areas like video.
The current market value of TWLO is $2.5B.
Fit Pay has an attractive business model. Deals, especially
larger ones, can be tailored to the customer but generally involve
1) an integration fee to add the device to platform, 2) a
per-device fee and 3) a monthly fee for ongoing platform updates.
Not every deal will have all three components but in aggregate
that's how the business will be built. Per-device fees will
typically be small component of the manufacturer's overall device
cost (think 1% or less of MSRP) and often won't require activation.
Numbers will be small initially but grow over time with more
customers, additional products within each customer and units
shipped.
For example, Garmin has 24 smart wrist devices. Today only one
has Garmin Pay. Garmin won't add it
to every model but it fits well with the models costing a few
hundred dollars, which is about half of the lineup. By the end of
2018 there could be a dozen different models with Garmin Pay. If you visit a Best Buy you'll see
that many brands have entered this space and the expensive models
will need the capabilities that Fit Pay enables. If the Garmin
device works well it will lead to more customers in this segment.
The Garmin vivoactive 3 with Garmin
Pay is in Best Buy stores but not on display everywhere.
We're still waiting for the Slate model before we buy one for
testing.
Fit Pay is tapping into a large market opportunity. Wearable and
pocketable devices for authentication, control and payments will be
in the hundreds of millions of units over the next few years.
Ultimately in the billions as we have seen with smartphones. They
aren't all going to be running Nxt-ID technology but they are
certainly gaining market share right now.
LogicMark On Plan
It's not the most explosive business of the bunch but the trends
driving the LogicMark business are firmly in place and generating
consistent profitable growth. Their no-monthly-fee personal
emergency response (PERS) systems continue to gain market share in
existing channels and the company is adding more retail outlets to
the mix.
There are trials going on in different retail stores. There are
also changes in display, packaging and pricing which should
continue to improve volumes. The trials and Logicmark's established
sales channels create future opportunities for growth as the
company and NXT-ID develop the next generation of products to serve
to the market.
LogicMark was acquired in mid-2016 and has provided a
profitable, consistently growing revenue stream for Nxt-ID which
has helped to improve the balance sheet and put the company on a
solid financial footing to support and grow all three
businesses.
WorldVentures Proving Out the Beta
Nxt-ID delivered tens of thousands of units to WorldVentures in
Q1 and Q2. These early flye cards are being put in the hands
of early users for continued testing and feedback. The major launch
date of the production flye card has yet to be determined so
for a quarter or two we don't expect much WV revenue to flow
to Nxt-ID as the existing inventory is worked through.
As an opportunity for 2018 and beyond the flye card is
substantial but it has taken longer than expected. It's worth
noting that all the other smart cards touted with slick videos
years ago have all fizzled. The flye card is unique and is
still expected to launch with significant volumes expected as
WorldVentures members could absorb 500,000 to 1M units per year.
Our forward estimates only capture 1/3 of this potential volume.
Once we can observe the production flye card in action and
get more guidance from WorldVentures on their plans we can revise
those estimates.
Model Updates & Conclusion
We've made substantial revisions to the model. For the rest of
2017 we reduced our expectations for WorldVentures, increased those
for LogicMark and added some Fit Pay revenue in Q4. The net impact
on our estimates for FY2017 is $200K.
We are still expecting revenues of $27M. Nxt-ID will be profitable at the operating
level for the full year but we could see a small operating loss in
Q3 and then a return to profitability in Q4.
In the longer-term we have increased our estimates for Fit Pay
due to their recent execution and reduced our estimates for
WorldVentures. Part of the WV reduction is the delay in launch and
partly because we are lowering our unit revenue assumptions by 25%.
As we noted earlier our long-term WV estimates are pegged at about
1/3 of the opportunity.
LogicMark numbers were tweaked slightly higher based on
expectations for Q3 and Q4. We also lowered our PE assumption from
20x to 17.5x but will revisit this after WV goes into
production.
With all the changes in our model suggests an intrinsic value of
$14/share.
As an exercise, we also did a model that shows no business from
WorldVentures, keeping everything else the same except for multiple
which would be closer to 25x. That still generates an intrinsic
value of $13/share.
Even if we are "half right" the current share price of
$2.20 offers a multiple of
appreciation for patient investors and an attractive risk/reward
ratio.
Full report and charts :
http://s3.amazonaws.com/Published_Research/NXT-ID_NXTD_SV_Note_OCT_2017.pdf
Additional Disclosures
SoundView serves as a strategic advisor to Nxt-ID and provides
advisory and other services to the company including strategy
advice, company positioning, investor communication methods and
ongoing technology and market research. SoundView employees do not
have positions or other vested interest in Nxt-ID stock at the time
this report was published. (see back page for more general
disclosures).
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1.
https://www.indiegogo.com/projects/bee-biometric-payment-key-fob#/
2.
http://www.fit-pay.com/nxt-id-subsidiary-fit-pay-approved-as-a-visa-token-service-provider/
ABOUT SOUNDVIEW RESEARCH
SoundView conducts independent research - mostly on emerging
technologies. We like thematic-driven companies where technology is
involved and use analysis to identify the most promising investment
opportunities.
Our business model is combination of subscription fees along
with some direct investments and advisory fees. We measure our
success by the quality of our analysis, accuracy of the conclusions
and the size and influence of our audience. We apply our own proven
approach to valuation that we call intrinsic value (IV) for
informing investment decisions and optimizing portfolio
management.
Contact:
Kris Tuttle
SoundView Technology Group
kris@soundview.co
617-828-6462
SOURCE SoundView Technology Group