HoloLens2 And MicroVision

What’s this worth? The news, the company, the stock. Microsoft announced the HoloLens2 yesterday. The MicroVision investment community began popping corks. The stock, MVIS, moved up; but not by as much as many expected. I am a bit disappointed, not surprised, and have seen such things happen before. Guessing which way a stock will go based on news about the company should be methodical and logical, but humans are involved so go back and emphasize the word ‘guessing’.

Congratulations to Microsoft. HoloLens2 looks like a logical evolution in the market of augmented reality (or mixed reality, or muddled reality, or yet another new set of headwear in the world of trying to make good and useful wearable computers.) To those not familiar with the concept, HoloLens2 is a transparent visor that allows a person to see a mix of the real world and a computer generated world. It may sound silly, or like some game, but Microsoft is targeting companies. The idea is to buy some for their employees, and make it easier for them to visualize things like: which part to fix, where a building will be built, or where a patient needs treatment. At $3,500, it’s expensive for most people; but that’s cheap for a company if it saves them one trip or avoids one mistake.

I’ll leave the intriguing consumer applications for another post, someday.

So, why would the MVIS community be popping corks? Look at one of the first graphics in Microsoft’s presentation.

Screenshot 2019-02-25 at 13.58.38

That looks very much like, and could very well be, MicroVision’s key component that they’ve been supplying to various companies. MVIS is the stock for MicroVision; but MicroVision has disclosed very little about the companies, the products, the quantities, and the contracts involved. This leaves MVIS shareholders (the owners of MicroVision) unaware of what their company is producing and selling. MicroVision management has even said the company’s involvement will probably be announced by someone who buys a product, tears it down, and posts the report. Don’t expect an announcement from MicroVision nor from their customers. So, investing becomes a guessing game, which means owning MVIS is more properly termed a speculation. It also means that an image in some other company’s presentation attracts a lot of interest from one of the most active investment/speculation communities I know.

Any announcement would be welcome. An announcement from a company like Microsoft pops those corks. A major announcement like HoloLens2 make owners giddy, even without consuming the bubbly.

Guessing, speculating, evaluating the possible stock price kept many busy on Sunday. Euphoria and optimism had a grand time with estimates of doubling give or take wide margins. I had hopes, but I had doubts (which were not welcomed in the midst of the celebration.)

Monday morning the stock started high, rose for about half an hour, then fell down to ‘only’ being up about 10%. Not, 100%. Just 10%. I admit, I’ve seen other stocks on similar news rise as much as 140% several times, 240% a couple of times, and saw someone else’s stock rise 640% – in one day. Those are heady days, and MVIS was a candidate for it to happen again.

Screenshot 2019-02-25 at 13.45.45

Why didn’t it?

There’s more than one reason because there is more than one investor.

Amidst the cheers and the encouraging news I noticed something, or a lack of something. There was no confirmation that MicroVision is specifically involved. It certainly looks like a MicroVision component, but patents aren’t perfect and can be circumvented. There are competitors, and there’s a strong reason to do whatever it takes to close such a deal with Microsoft. I didn’t expect Microsoft to mention MicroVision. There’s no reason to. I didn’t expect MicroVision to make an announcement given their demonstrated history of saying as little as possible. I did hope they would at least acknowledge Microsoft’s accomplishment, like a team member may applaud without asking for credit, or a neighbor cheering on an neighbor as the two companies are close geographically. One competitor at least confirmed that they were not involved, so that helped. Without confirmed involvement, investors may decide to not commit their investment capital.

But, let’s assume MicroVision is inside HoloLens2.

If MicroVision’s technology is inside HoloLens2, then tiny MicroVision may have enabled one of massive Microsoft’s key initiatives. That’s good for Microsoft, and also may make MicroVision’s technology attractive to Microsoft’s competitors. Excellent.

What’s that worth?

We don’t know.

Owning stock in small companies frequently involves that “Guessing, speculating, evaluating” mentioned above. Is MicroVision involved? How many HoloLens2’s will be sold? How much will MicroVision make on each one? When will revenues be recognized? There are four unknowns that are four reasons to not be as enthused about buying the stock. From the various guesses et al, the median seems to be that the early revenues are already accounted for as one of the unnameable customers, that near term revenues are also already accounted for, and that long term guidance has little to guide it. The most positive and verifiable observation is MicroVision’s CEO’s claim of profitability in the fourth quarter of 2019. This would explain that.

That’s good news for the end of the year, but what about now?

Dream Invest Live coverThere’s an aspect of market psychology that I refer to in my book (Dream. Invest. Live.). Some stockholders have a tendency to limit themselves to percentage changes in the stock price. If a stock is trading at $1, it is hard for them to imagine it quickly rising to $5. It is a powerful tendency, and one that is emphasized by reports of the biggest gainers and losers every trading day. Such assertions make more sense with large companies like Microsoft. They are highly unlikely to suddenly and sustainably increase revenues by 100%. Small companies like MicroVision, however, can see much larger rises in revenues and profits because they start with numbers that are much closer to zero.

I prefer to guess, estimate, value small stocks by doing the same for the company first. My preferred technique is to use ‘Present Value of Future Revenues Discounted for Risk’. If a company is about to make a lot of money, reflect that in the current value, with a discount based on how likely that revenue event will occur. It’s possible that major investors feel that 1) the value of the near term revenues are already included in the price, and 2) that the risk of MicroVision making that money is sufficiently large enough that the future revenues are discounted to zero. If so, the stock wouldn’t move much on news from an existing customer, while also providing an opportunity for investor/speculators who have more faith in the company.

Does today’s price properly reflect the stock’s and the company’s value?

Of course not, except by chance. There are so many unknowns that it is only by luck that a proper valuation can be made. Even the management doesn’t know which contracts will be expanded, added, or curtailed.

The market’s measure of a company is the price of the stock. Traders may only care about the stock price regardless of the company behind it. Investors, however, help value a company with every purchase and sale. Every purchase and sale was one person thinking the stock is worth buying and one person thinking the stock is worth selling. Their motivations may be more than financial, but stocks bounce around a lot because there’s little agreement about the proper price.

Screenshot 2019-02-25 at 13.46.46

MVIS closed today at $1.29. That’s up 10% from Friday’s close. In September 2017 MVIS was over $3. A 100% rise tomorrow wouldn’t bring MVIS up to the price many thought was proper back then. Ten years ago MVIS was over $20. Twenty years ago it was over $100. Those folks thought those prices made sense, too. (I was one of them, though the stock price as $35 for my shares, before the reverse split.) Those last twenty years were a long string of disappointments (hence the possible lack of credibility to future revenues), and massive dilution. As one shareholder shared, back then they owned 1% of the company. Now they own about 0.01%. And they continue to hold, just as I do.

Screenshot 2019-02-25 at 13.46.58

Buy 1% of a $30M company that you think will eventually be worth $3B and your $300K investment can make you worth $30M. That’s rather circular. I was happy enough to possibly work myself up to 0.01% and hope for $3M. MicroVision is currently a $132M company. If they become valued at $1.32B, then the stock (without further dilution or splits) will be worth $12.90. That’s an unbelievable percentage rise for folks fixated on today’s $1.29 stock price, reasonable value for an electronics component maker, and far below the very old estimates that were easily ten times higher.

At this point, I’ve bought more an invested a few years of living expenses into MVIS, which now has a value of a few months of living expenses, while my re-retirement plans require a few decades of living expenses. I doubt that MVIS can provide that soon, if at all. At least, it can greatly aid those efforts.

As I type, the debate continues. Shareholders continue to ask for clarification from the company. I suspect those with sufficient resources may find the best research will be to buy a unit, tear it down, and tell us what’s inside. The price may be low for a company and high for a consumer, but for some investors it may be an excellent piece of due diligence.

MicroVision and MVIS continue to be an archetype of investing/speculating in small companies in today’s America. Every company is different, but they all deal with balancing news, required disclosures, competitive pressures, and the investment community. Such stocks are risky. Hopefully, they are also sufficiently rewarding. I certainly hope so.

About Tom Trimbath

consultant / entrepreneur / writer / photographer / speaker / aerospace engineer / semi-semi-retired More info at: https://trimbathcreative.wordpress.com/about/ and at my amazon author page: http://www.amazon.com/-/e/B0035XVXAA
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4 Responses to HoloLens2 And MicroVision

  1. Sultan says:

    Good summary.. 😦

  2. I don’t expect Hololens2 to sell well, probably double the Hololens 1 sales of around 50,000 units. So, a part that probably has a cost of a few bucks each probably won’t bring that much revenue to MVIS.

    The real questions are “when will we see a consumer Hololens?” and “how many will that sell?”

    Let’s assume we see one by mid 2020 and that will sell somewhere around two million units, which would put it on par with HTC Vive or Oculus Rift.

    Now, assuming Microsoft stays using MVIS (like you said, not a given) then you’ll probably see another bump up over next year.

    And, if it wins other customers, more bumps up.

    Translation: if MVIS really does have the goods for this part, I think there will be more upside, maybe a lot more upside, than potential downside.

    My view, at least. Disclaimer: I don’t own MVIS, although I might buy some based on these comments.

  3. George says:

    “Ten years ago MVIS was over $20.00” Gee, I don’t remember that. Are you sure it went to $20.00? I remember when it reached around $7.49, but I don’t remember $20.00. I would have most likely sold all my shares at $20.00. : /

  4. Tom Trimbath says:

    October 9, 2009 MVIS closed at $44.40

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