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MicroVision schedules 1Q18 report and Fitbit followup -2

18:58 02-May-18


MicroVision has scheduled the report on its first quarter to occur after market close on May 9th.  Only 2 analysts still cover the company and the mid-point of their projections calls for a loss of 8 cents per share on $4.3M in sales, with the current quarter declining to $3.1M.

I will almost certainly prioritize CenturyLink's report, which occurs at the same time, over this one, but I will circle back to report on how much cash is being used in the ongoing development efforts.  Regardless, dilution is coming and management is going to have to show more than device samples in order to offset the impact to the balance sheet.

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There was nothing all that surprising in the Fitbit call, but as long as I am writing again... A stable and pristine balance sheet is part of what originally drew my attention back to Fitbit, but be ready for that to start changing going forward.  The company had $658M of cash and equivalents on the balance sheet, no debt, and an $80M tax refund on the way.  However, management admits that they don't have all the pieces for real healthcare integration in place, and they expect to get them through M&A.  It also labels the new work with Google as being in the exploratory phase, and notes that it will free up engineering capacity.  I think the backlash about privacy in such endeavors is already starting to fade, but it's something that bears monitoring.  Regardless, the outlook (both management's and mine) is for this year as less about growing and more about setting up for 2019 and beyond. 

Getting back to taxes, management echoed something we've heard from other companies by saying it will be difficult to project a tax rate, as that will fluctuate based on geographic sales. This may be further complicated by the goal of transitioning business to software and services, where I think success is far from assured.  Management cites increased engagement, but said Coach revenue grew just 30% YoY.  Perhaps they meant QoQ, since Coach was introduced in August.  No matter what the time frame is, that growth rate doesn't impress me for a new service. 

That leaves management walking a tightrope between developing expeditiously, acquiring smartly, and preserving capital in the face of mounting operating losses. To that end it is shifting development abroad, largely to Minsk and Romania.  Expect some of that development to center around trackers rather than smart watches.  Again, this represents an effort to go after the low end of the market, and probably institutionally sponsored initiatives.  In the meantime, watch sales are expected to exceed trackers in the second half, though management thinks the latter will "trough" this quarter.  We'll see about that.

One of the unmitigated bright points is that GM improved to 44% even without the one-off that I mentioned, as the result of decreased warranty expense.  I think management learned a lot in its fist few years and is putting the experience and capital to good use so far.  That said, it's hard for me to have complete faith in new big data health partnerships.  I'll circle back and try to check on user numbers, but will put more emphasis on what we see from the Versa.  An SA article recapping all this is likely.