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Wearable Devices Aims For $18 Million IPO – Seeking Alpha

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Wearable Devices Aims For $18 Million IPO – Seeking Alpha
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Andrii Zastrozhnov/iStock via Getty Images

Andrii Zastrozhnov/iStock via Getty Images
Wearable Devices Ltd. (WLDS) has filed to raise $18 million in an IPO of its ordinary shares, according to an F-1 registration statement.
The firm is seeking to develop a wrist wearable as an electronics control system.
Senior management is asking IPO investors to pay a valuation based on extremely successful future performance despite management not having a previous track record of success in the space.
While WLDS holds some promise, I’m on Hold for the IPO.
Tel-Aviv, Israel-based Wearable, was founded to develop an input interface for ‘metaverse’ applications via its wrist wearable band that uses subtle finger movements for control actions.
Management is headed by co-founder and CEO Mr. Asher Dahan, who has been with the firm since inception in 2014 and was previously an Electrical Validation Manager at Intel Haifa, Israel.
The company’s primary offerings include:
Wearable has booked fair market value investment of $7.5 million as of June 30, 2021, from investors including OurCrowd and others.
The firm has generated revenue to-date by selling its Mudra software development kits to businesses in B2C and B2C markets.
Management says that more than 100 companies have purchased its software development kit and that its Mudra Band for the Apple Watch is ‘in its final stages of manufacturing.’
Sales and Marketing expenses as a percentage of total revenue have risen unevenly as revenues have varied, as the figures below indicate:
Sales and Marketing
Expenses vs. Revenue
Period
Percentage
Six Mos. Ended June 30, 2021
121.5%
2020
503.5%
2019
68.2%
(Source)
The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was 0.6x in the most recent reporting period, as shown in the table below:
Sales and Marketing
Efficiency Rate
Period
Multiple
Six Mos. Ended June 30, 2021
0.6
2020
-0.6
(Source – SEC)
According to a 2021 market research report by Grand View Research, the global market for all types of wearable technologies was an estimated $40.65 billion in 2020 and is forecast to reach $114.3 billion by 2028.
This represents a forecast CAGR of 13.8% from 2021 to 2028.
The main drivers for this expected growth are a rising popularity in the use of connected devices in the context of Internet of Things technologies and improved technological offerings.
Also, wearable devices have obvious applications across a range of health-related monitoring uses.
Below is a chart showing the historical and projected future market trajectory in the U.S. for various wearable categories:

U.S. Wearable Market

U.S. Wearable Market (Grand View Research)

U.S. Wearable Market (Grand View Research)
(Source)
Major competitive or other industry participants include:
Apple (NASDAQ:AAPL)
Facebook (NASDAQ:FB)
Google (NASDAQ:GOOG)
Microsoft (NASDAQ:MSFT)
Logitech International (NASDAQ:LOGI)
Razer (OTCPK:RAZFF)
Amazon (NASDAQ:AMZN)
Samsung (OTC:SSNLF)
Pison Technology
CoolSo
Neuralink
NextMind
The company’s recent financial results can be summarized as follows:
Tiny and uneven topline revenue
Variable gross profit and gross margin
Operating and net losses
Cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
Total Revenue
Period
Total Revenue
% Variance vs. Prior
Six Mos. Ended June 30, 2021
$ 107,000
214.7%
2020
$ 57,000
-76.4%
2019
$ 242,000
Gross Profit (Loss)
Period
Gross Profit (Loss)
% Variance vs. Prior
Six Mos. Ended June 30, 2021
$ 100,000
233.3%
2020
$ 48,000
-78.3%
2019
$ 221,000
Gross Margin
Period
Gross Margin
Six Mos. Ended June 30, 2021
93.46%
2020
84.21%
2019
91.32%
Operating Profit (Loss)
Period
Operating Profit (Loss)
Operating Margin
Six Mos. Ended June 30, 2021
$ (606,000)
-566.4%
2020
$ (1,156,000)
-2028.1%
2019
$ (949,000)
-392.1%
Comprehensive Income (Loss)
Period
Comprehensive Income (Loss)
Net Margin
Six Mos. Ended June 30, 2021
$ (640,000)
-598.1%
2020
$ (1,258,000)
-1175.7%
2019
$ (977,000)
-913.1%
Cash Flow From Operations
Period
Cash Flow From Operations
Six Mos. Ended June 30, 2021
$ (491,000)
2020
$ (1,089,000)
2019
$ (481,000)
(Glossary Of Terms)
(Source – SEC)
As of June 30, 2021, Wearable had $2.9 million in cash and $623,000 in total liabilities.
Free cash flow during the twelve months ended June 30, 2021, was negative ($652,000).
Wearable intends to raise $18 million in gross proceeds from an IPO of its ordinary shares, offering 3.6 million shares at a proposed midpoint price of $5.00 per share.
No existing shareholders have indicated an interest to purchase shares at the IPO price.
Assuming a successful IPO, the company’s enterprise value at IPO would approximate $55.9 million, excluding the effects of underwriter over-allotment options.
The float to outstanding shares ratio (excluding underwriter over-allotments) will be approximately 24.3%. A figure under 10% is generally considered a ‘low float’ stock which can be subject to significant price volatility.
Management says it will use the net proceeds from the IPO as follows:

Approximately $1.95 million to manufacture the Mudra Band for Apple Watch product, which includes the purchase of components, manufacturing of components, and assembly of the product;
Approximately $2.4 million to market the Mudra Band for Apple Watch and to market additional future consumer products of our B2C product line;
Approximately $3.3 million for the continued research and development of our Mudra technology, including the research and development of the Mudra XR wristband, and additional neural signals architecture, algorithms and UX;
Approximately $2.1 million for sales and support of our B2B customers, and for the integration and licensing our Mudra technology into our B2B customers’ products; and
The remainder for working capital and general corporate purposes.
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management says the firm is not subject to any material legal proceedings against it.
The sole listed bookrunner of the IPO is Aegis Capital Corp.
Below is a table of the firm’s relevant capitalization and valuation metrics at IPO, excluding the effects of underwriter options:
Measure [TTM]
Amount
Market Capitalization at IPO
$74,184,250
Enterprise Value
$55,890,250
Price / Sales
570.65
EV / Revenue
429.93
EV / EBITDA
-51.85
Earnings Per Share
-$0.07
Operating Margin
-829.23%
Net Margin
-879.23%
Float To Outstanding Shares Ratio
24.26%
Proposed IPO Midpoint Price per Share
$5.00
Net Free Cash Flow
-$652,000
Free Cash Flow Yield Per Share
-0.88%
Revenue Growth Rate
214.71%
(Glossary Of Terms)
(Source – SEC)
WLDS is seeking U.S. public market funding to begin manufacturing of its Mudra Band for Apple Watch and other corporate funding needs.
The company’s financials show very little revenue and significant losses and use of operating cash.
Free cash flow for the twelve months ended June 30, 2021, was negative ($652,000).
Sales and Marketing expenses as a percentage of total revenue have risen as the company’s tiny sales have varied.
The firm currently plans to pay no dividend on its shares in the foreseeable future.
The market opportunity for wearable products and devices is quite large and expected to grow at a strong CAGR in the coming years, so the company enjoys strong industry growth dynamics in its favor.
Aegis Capital Corp. is the lead underwriter, and IPOs led by the firm over the last twelve-month period have generated an average return of negative (64.5%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
The primary risk to the company’s outlook is the strong competition from major market players who may be able to incorporate any functionalities into their products, if desired.
As for valuation, management is asking IPO investors to pay a valuation based on extremely successful future performance despite senior management not having a previous track record of success in the space.
While WLDS holds some promise, I’m on Hold for the IPO.

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