VRAR - Glimpse Group: The Forgotten VR/AR Pure Play

2023-06-13 16:26:52 ET

Summary

• Glimpse Group, a provider of software services for VR/AR, is poised to benefit from increased attention to the immersive technology space following Apple's Vision Pro VR headset reveal.
• The company reported strong revenue growth in Q3 2023, with a 79% Y/Y increase, and is making strides towards cash flow neutrality by next quarter.
• Glimpse's diverse customer base, partnerships with major players in the industry, and first-mover advantage in immersive software make it an attractive high-risk/high-reward investment.

The Glimpse Group (VRAR) is one of the only pure VR/AR plays on the market and trades at just 4x EV/sales. They have an $8.3M cash balance and are making strides towards cash flow neutrality by next quarter. The launch of Apple's vision pro has reminded the market that immersive technologies still have a big part to play in Industry 4.0 .

Since my last 'Buy' rating on Glimpse, the company has seen its revenues bounce back from a dip in Q2. They continue to secure new partnerships (such as Denny's and The University of Maryland ) to drive revenue growth whilst also cost-cutting effectively. Prospects have improved, yet the stock price is still channeling between $4 and $6 - I maintain my 'Buy' rating.

The Apple news provides exposure

Apple ( AAPL ) unveiled its vision pro VR headset at WWDC 2023 on Tuesday. It impressed a lot of people.

This was regarded as a highly anticipated presentation for consumers, but also for corporate outfits that operate in the space - like Glimpse. As one of the largest providers of software services (a sign of how fragmented VR/AR is), the compatibility of Glimpse's solutions to the hardware Apple produces is important.

Apple's demonstration showed what immersive technology can do, something Meta (META) struggled to do last year. It has given increased attention to the market which will undoubtedly benefit Glimpse. They may never be a direct partner of Apple's, however they do have a significant first-mover advantage in immersive software with a diverse existing customer base. If more enterprises see the potential benefits of immersive technology, Glimpse will benefit from the capital inflows into the industry.

Immersive technology market participants aren't exactly at odds with each other either, as CEO Lyron Bentovim highlighted in a recent interview (Benzinga)

We have significant partnerships with most of the major players in the space

Glimpse's ecosystem strategy of taking various subsidiaries under one web, allows them to play the role of a partner in the industry, not a direct competitor. They can provide a specific service or solution that is a component of a larger offering. For example, Glimpse is a long-time partner of Snapchat through their subsidiary Qreal which builds augmented reality solutions for Snap Lens.

Currently, immersive solutions may appear unimpressive, but this will improve over time. With a huge resource of talent (previously over 250 software engineers) purely focused on building VR/AR software solutions, Glimpse could be part of this build.

The Vision Pro reveal has provided more impetus for the market to visualise the practical applications of Virtual Reality and Augmented Reality.

Strong revenue growth in Q3'23

Glimpse reported $3.7M in revenue for Q3 FY 2023 , this was a 79% increase Y/Y, 24% sequentially and only ~9% lower than the record quarterly results in Q1. I was happy with these results as they demonstrated a recovery in the top-line from last quarter.

In Q2, the dip in revenues after Glimpse noted it was on a run-rate of ~$15-16M in prior quarters created some concerns. Was the expected slowdown in US economic activity having an effect on Glimpse? Were customers beginning to cut back on some of the more 'experimental solutions' that Glimpse offers? This quarter's results gave us an answer - their solutions are still in demand and their partners are still interested in immersive technology.

A mix of this growth and cost-cutting measures (including headcount and cash salary reductions) means Glimpse only burned through $1.16M in Q3 down from $3.44M. The company pointed investors to its substantiated revenue pipeline in the press release, which they noted may translate into significant revenue growth in the coming months.

With a highly variable cost structure, a diverse base of customers from military to education and the prospect of further growth within the industry - cash flow neutrality looks achievable for Glimpse. At current burn rate, the company would have around $7.14M in cash by the end of Q4. Therefore, they would hold a large cash balance with no/limited future cash burn. This would be a major win for a largely overlooked hypergrowth micro cap play. Stock price upside could be forthcoming on the achievement of this goal. Even if they maintain the current burn rate, they would still have a cash runway of six quarters (18 months). The company is debt free, its only liabilities relate to contingent payments on the achievement of 'significant' future financial milestones for its recently acquired subsidiaries and a small lease liability.

Risks

The most notable risk facing Glimpse relates to competition. Right now, the company is one of the largest VR/AR software services providers in the world, demonstrating the benefits of the first mover advantage it obtained from foreseeing the opportunity early on (founded in 2016). However, the internal resource and capital base is nowhere near the size of Apple or Meta's , if they decide to set up shop to compete with Glimpse, this could lead to loss of clients.

Glimpse has already partnered with many big players in the space and considering their small size, they only need to take a tiny share of the future opportunity to unlock shareholder value. Competition presents a long-term risk, but current partnerships show the willingness of firms to work with Glimpse, not against them.

The company is also a micro-cap stock. Which comes with additional risks associated with stock price volatility and potential barriers to raising capital through debt or equity that wouldn't be experienced by a larger firm. Lyron Bentovim noted on the conference call that getting acquisitions done right now purely through equity is providing difficult due to the low stock price. The liquidity risk is mitigated by a large cash balance and the move to cash flow neutrality.

The bottom line

I maintain my 'Buy' stance. Some concerns crept in following the Q2 results, but a swift recovery in the latest results has put some of those concerns to bed. It remains a high/risk reward play, though I would argue that on balance this is skewed to the upside. The company trades on 4x EV/sales, with a $8.3M cash balance, more buoyant market sentiment towards immersive technology and a first mover advantage - I am cautiously optimistic about Glimpse's future.

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