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Emerging Leader in AR Positioned in the $120 Billion AR Megatrend
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Starwood Research takes a look at the investment proposition offered by this tech company, asserting it is the only "pure play" stock targeting four multibillion-dollar market opportunities.
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NexTech AR Solutions Corp. (NTAR:CSE; NEXCF:OTCQB) is an emerging leader in the rapidly growing augmented Reality (AR) technologies space, estimated to hit $120 billion by 2022, according to Statista. AR is acknowledged by tech experts as the "the next big wave/mega-trend" in technology—which will impact our world much as the advent of the Internet, or smartphones over recent years, becoming especially pervasive in e-commerce and advertising.
NEXCF's technology platform—ARitize—helps companies create three-dimensional (3D), immersive experiences for e-commerce, education, entertainment and online advertising. Each of these four business segments addresses multibillion dollar market opportunities. Success in just one of these business segments could potentially give NEXCF a billion-dollar+ market valuation—potentially $16/share (based on 65 million shares outstanding).
Upside Potential: $5/share within next 12 months
NEXCF has reached a key inflection point and is now at the threshold of explosive growth.
Significantly, we believe the AR space will be emerging as a dominant investment theme over the next 12 months, as companies like Google and Facebook launch new applications, and Apple is expected to launch an AR device. This will increase investor demand for "pure play" AR stocks to ride this mega-trend. As the only pure-play AR stock, NEXCF offers investors a unique opportunity right now, to get positioned early, and to ride the mega wave as AR becomes the next hot investing theme—much in the same way cannabis emerged a few years ago, sending the then-handful of publicly traded cannabis stocks surging 10X virtually overnight.
If NEXCF executes and builds meaningful traction, given this backdrop, the stock can easily trade at $5+ within the next 12 months, as the company progressively achieves new milestones.
Investment Highlights
Let's start with NEXCF's SaaS based model for e-commerce. NEXCF's AR solution is a potential "game changer" for the $533 billion global e-commerce market, because it's been shown to increases in sales by as much as 400% by giving consumers as close to a "retail" experience as they can get—being able to "try it on" and see a product in immersive 3D—and its size/fit/shape in their own environment.
At the same time, it creates cost savings as product returns drop off dramatically since consumers can see how the product actually looks on them through AR. (Returns are a multibillion-dollar problem for e-commerce, which NEXCF helps reduce.)
NEXCF business model is based on a SaaS (Software as a Service) recurring monthly revenue model, where customers pay $30/SKU each month. NEXCF's potential market is the estimated 12 million e-commerce sites worldwide. (Shopify [SHOP:NYSE] recently surpassed over one million e-commerce merchants on its platform.)
Assuming NEXCF builds a modest customer base of just 8,000 e-commerce business, (that's less than 1% of Shopify's base), and assuming a modest 20 SKUs per customer, this could generate over $56 million in annual revenues. In the current market, SaaS stocks like Salesforce (CRM:NYSE) and Shopify are trading at multiples of 10X revenues, and as much as 20X revenues in some cases.
We can easily see a case where NEXCF could trade at 20X revenues, based on massive growth rates, where valuations are further amplified due to the AR premium. This would be over $16 per share (assuming 65 million shares out).
AR Is an Emerging Mega-Trend
Gartner reports 100 million consumers will shop in augmented reality online and in-store by 2020. Statista estimates the AR technologies space will total an estimated $120 billion by 2022, as brands like Apple, Google, Microsoft, Samsung, Snap and Amazon pour billions into new applications and devices that will make AR pervasive. Expanding rollout of 5G bandwidth will further push AR adoption rates for mobile devices. Many investment experts believe AR is the next "hot investment theme," similar to the way cannabis stocks are today. Because NEXCF is the only "pure play" AR stock, it is ideally positioned to attract institutional and retail buying demand as the AR theme gains momentum.
Traction: The company is developing traction, as demonstrated by an increasing number of new client wins including major brands like Budweiser, Walther Arms, New Balance and more.
NEXCF revenues are growing rapidly quarter over quarter. The company just reported CA$1,513,000 revenue, with a gross profit $694,858, for the quarter ended August 31, 2019. NEXCF management has announced they are targeting 10X revenue growth for calendar year 2020 and improved margins.
Leadership Track Record: NEXCF CEO Evan Gappelberg has a proven track record of creating shareholder value, and making his investors money. Evan's most recent exit delivered a 20X return for his investors. In his 20+-year Wall Street career, Evan has a track record of spotting tech trends early and delivering massive returns for investors. Evan was an early investor and raised capital for Take Two Interactive (TTWO;NASDAQ) when the video game company had only a $30 million market cap (now $10 billion—a 300X increase). In the same way, Evan now sees AR and NEXCF as the next big winner.
Inflection Point: NEXCF is increasingly gaining traction with new client wins, and revenues are rapidly scaling. NEXCF is now at a key inflection point, at the threshold of explosive revenue growth.
Attractive Acquisition Target: As the AR space gains increasing attention, NEXCF can become a valuable asset for a strategic acquirer seeking entree to NEXCF's technology platform, or a client base who can pay a premium price. As we have seen with the multibillion dollar price tags paid for some early-stage technologies by companies like Facebook and Google, etc. for whom "price is no object," (especially when they are paying with high-priced stock).
The Company/Business Model
NEXCF currently generates revenues from multiple sources including: ARitize Platform (SaaS—recurring revenue) for e-commerce, education and entertainment, 3D AR Ad Network (just launched), and a network of AR-powered e-commerce sites (product sales).
ARitize Platform (SaaS—recurring revenue): NEXCF's core business generates recurring monthly revenues through subscriptions to its ARitize platform.
Compelling Business Model: NEXCF has a compelling business model that any SaaS business would envy. Its application is a business necessity, and it pays for itself by helping to increase revenues, and reduce costs, (which makes it a no-brainer buying decision). Best of all it generates monthly recurring revenue, based on the number of SKUs on the platform. NEXCF charges a base rate of $30/SKU per month. To get a sense of the size of this market opportunity, you need to ask what percentage of the likely billions of SKUs now sold online could benefit from AR.
By way of example, Shopify recently surpassed over 1 million e-commerce merchants on its platform. Assuming NEXCF builds a modest customer base of just 8,000 e-commerce business, (less than 1% of Shopify's base), and assuming a modest 20 SKUs per customer, this could generate over $56 million in annual revenues. Whether it's apparel, furniture, etc., just about every serious e-commerce business that wants to increase sales and decrease product returns would benefit from NEXCF AR solution.
Education Market: NEXCF is leveraging its technology platform to also develop applications for the $170 billion education market with ARitize University, which delivers rich, immersive educational experiences and lesson plans delivered through volumetric 3D content. This application is proving specially popular for training in machinery repair, and other applications were 3D visual aids, can help explain complex objects, moving parts, etc.
Entertainment: NEXCF has assembled a team of entertainment industry visionaries to develop next-generation entertainment experiences using its AR platform. NEXCF's AR Studios in Hollywood, Calif., is headed by Barry Sandrew, PhD, who is a visual effects (VFX) pioneer and inventor with over 34 patents and three decades of founding and successfully building and operating VFX production studios in Hollywood. He is the original inventor of digital colorization of black-and-white movies, as well as the inventor of one of the most sophisticated processes for converting 2D feature films to 3D. Sandrew worked on over 100 Hollywood feature films, Avatar, Titanic, Transformers etc.
NEXCF's AR Studios initiative is producing immersive augmented reality content and applications for its proprietary location-based entertainment venue called Presence. This initiative is still in the early stages, but the technology has the potential to equal, or even eclipse NEXCF's other business segments.
3D AR Ad Network: NEXCF just announced they are launching a 3D-AR-360 Advertising Network in Q4/2019–Q1/2020, which could drive substantial revenue growth in 2020. This new 3D AR ad network is highly synergistic with NEXCF's suite of technology services, which help its customers drive e-commerce sales. The ad network leverages NEXCF's current 3D asset creation technology and relationships into 3D-AR-360 ads, opening up a major new revenue channel in 2020 and beyond. The online advertising market is about $327 billion globally, according to emarketer, which opens substantial opportunities for NEXCF.
AR-Powered E-Commerce: NEXCF generates the majority if its revenues right now via its own e-commerce site network. The company has been opportunistically acquiring cash flow generating e-commerce business in niches ranging from vacuum cleaners to pet nutrients, then improves revenues by adding its AR technologies suite. The revenues generated by these businesses support NEXCF's ongoing technology development, while serving as a real-world demo of the AR technology for new clients. Management has indicated that the e-commerce businesses will be spun-off, as the core AR business reaches critical mass.
It should be noted that our upside potential price targets are based only on NEXCF's ARitize for e-commerce SaaS revenues, and do not include the significant upside potential of the other business lines such as, education, advertising, entertainment, or the AR-powered e-commerce business.
Market Opportunity
AR is a real game changer for e-commerce. The transaction volume of goods bought through or influenced by AR was just $14.2 million in 2018, but is expected to grow to $12.7 billion by 2023 (a compound annual growth rate of 289% per year), according to ARtillary Intelligence.
Gartner reports 100 million consumers will shop in AR online and in-store by 2020. In a survey 46% of retailers said they planned to deploy either AR or VR solutions by 2020.
Statista estimates the AR technologies space will total an estimated $120 billion by 2022, as brands like Apple, Google, Microsoft, Samsung, Snap and Amazon pour billions into new applications and devices that will make AR pervasive. Expanding rollout of 5G bandwidth will further push AR adoption rates for mobile devices.
According to Statista, the global online fashion market was worth $533 billion in 2018, and is predicted to grow to $872billion by 2023. In 2018, apparel accounted for 65% of the market, followed by footwear (25%), and bags and accessories (10%). NEXCF's AR powers "try it on" technology can have a significant impact on this market.
Risk Factors
NEXCF, as with most emerging growth companies, faces numerous risk factors, including competition, need for additional financing, execution risks, technology risks, and more. This is clearly a highly speculative opportunity, and should only be considered by investors comfortable with a high degree of risk (SEC 17B disclosure).
Investment Concept
NexTech AR Solutions (OTC: NEXCF)
Current Price: $1.06/share (November 6, 2019)
Upside Potential Target: $5/share; 12 months
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1) An affiliate of Starwood Research has a financial relationship with the following companies mentioned in this article: NexTech AR. Starwood Research's Legal Notice and Terms of Use.
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