brightstars/E+ via Getty Images

brightstars/E+ via Getty Images

Now that CES 2022 has drawn to a close, we have identified a number of key industry updates and near-term catalysts for Kopin (NASDAQ:KOPN ) in 2022. In addition, watch for a potential investment in Kopin by one of the established component and IP players who are looking to secure a lead in the emerging Metaverse space. Access to microdisplays, optics and IP will be critical for participation in the Metaverse. Names we are watching closely include: Qualcomm, Nvidia, or AMD. Kopin secured a similar investment from a key ODM in 2017 and we expect it could happen again, and here's why...

Leading up to CES, we noted a couple of very important news items from Kopin customers and partners:

We believe quite strongly that Second Screen AR/Assisted Reality will be the form of augmented reality most widely accepted for Enterprise use cases near term. RealWear and Moziware represent best-of-breed Second Screen AR today. In particular, we think Moziware’s growth will be very strong in 2H 2022 as front line workers in mainland China and around the world snap up the new Cimo device that is so compact it folds up like a wooden ruler and fits in your pocket!

We should note that we continue to believe RealWear is in the process of raising Series C funding of approximately $50M which sets the stage for strong growth and may spur an acquisition or IPO event by the end of 2022. As an early investor, Kopin would see an injection of liquidity from such an event and potentially see hockey stick revenue growth by the end of 2022.

CES 2022 announcements added to 2021 events we observed along the path to broad Metaverse/VR adoption:

Reflecting on these announcements and activity, combined with increasing tempo of rumors about Apple’s 2022 VR entry, we infer the following: VR is mounting a serious comeback as part of a renewed focus driven by the Metaverse. We are convinced Micro OLED-based headsets are the future for VR and will enable much longer Metaverse sessions due to lower weight, reduced power consumption, less heat, and increased comfort. For example, the new Panasonic VR headset is designed for Metaverse users who will be immersed 2,000 hours per year or more than 5 hours per day! This is why we think the Panasonic VR device announced at CES 2022 is so important:

We think the Panasonic/Kopin headset is now the Gold Standard for VR and will set the benchmark for all new high-end devices and commence lower prices for Micro OLED as Tier Ones introduce new devices and take advantage of scale. Additionally, Pancake lenses are emerging as a key component for all Metaverse devices. Watch for next-generation VR devices using microdisplays to increasingly employ patented All-Plastic Pancake lenses - many to be supplied by Kopin. Why is Kopin’s announcement about their new P80 Pancake lens so important? Note the following sentence from the press release:

The P80 Pancake optics provides a very sharp, 77° field-of-view (FOV) image with very long (23 mm) eye relief and a large (12-mm-diameter) eye box. Kopin previously announced the world's first all-plastic Pancake optics with 95° FOV but with a smaller eye relief and eye box.

In our view, the new Kopin P80 Pancake lenses shown at CES enable a high fidelity image with a “very long eye relief” so that devices can be worn over prescription glasses with ease (see Catalyst #1 below). Kopin’s Pancake optics could enable broad Consumer adoption of a new class of Metaverse Glasses.

We expect the following catalysts to trigger strong investor interest in Kopin:

Based on current Enterprise AR, Military program expansion, and 3D Metrology growth (EV car production!), and last but not least Consumer, we see Kopin’s top-line 2022 FY revenue in the range of $60M to $62M - well above current consensus of $52M. Kopin has spent over a decade preparing for the Metaverse. In fact, it's the only display company offering all four key microdisplay architectures (AMLCD, LCOS, uOLED, uLED) under one roof along with a portfolio of patented AR and VR optics. We see more Si backplane deals for Kopin in the future...

You can see Kopin's current Market Cap ($293M as we write this) is about 5x our 2022 top-line forecast. What's important to note is that our 2022 forecast is essentially the existing military book of business with some existing known growth. The real driver for the top-line 2023 forward will be Enterprise AR and Consumer VR. As noted in this Seeking Alpha post from last year, we actually see those drivers pushing revenue to levels that support a market cap well over $1B by 2025 using a 5x multiple.

Following CES, a seasoned Kopin Long summarized the company well:

As John Fan and his team did with the HBT transistor (now in every smartphone on the planet), and is doing now with AR, VR, and the Metaverse, Kopin is again where the market wants to be years before the market knew it was the place to be. This MIT startup has now proven to be both early and right more than once in my opinion!

To further validate these points, in 2017, Goertek, (the "Foxconn of wearables" and a $200B company) who is a Qualcomm XR partner, maker of Oculus Quest 2, PlayStation VR2, and many other headsets, took a 10.1% equity stake in Kopin (7.6M shares at $3.25/share), confirming the strength of the company’s IP portfolio:

This agreement further aligns the interests of both Goertek and Kopin,” said Long Jiang, Goertek’s CEO. “We will utilize Kopin’s industry leading technologies to create a range of wearable products with the most advanced features for our customers. We are excited to see the initial products utilizing Kopin key components hit the market later this year.

Furthermore, from Kopin's most recent DEF 14A (Proxy Statement) filed with the SEC in April of 2021, Goertek has not sold any of their original Kopin investment despite the share price running from $3.25 to $13.62 in 2021:

Kopin DEF 14A Filing 2021 SEC.gov

One can assume that Goertek believes the value of the company is much more than $13.62 per share. We concur.

The Goertek example could be repeated soon. Given Kopin's extremely strong position in areas of microdisplays and optics, we expect another big name could step up and take an equity stake. Two candidates are Qualcomm (QCOM) and NVIDIA (NVDA). But also watch AMD (AMD). All of these companies have huge Metaverse aspirations and will want to be in a position to offer necessary high-value components to AR and VR headset and glassmakers. As in smartphones, the display the user sees will be the highest value component in each device. We feel Kopin's IP portfolio for these areas is not being correctly valued by the market but a strategic investment from a large player could certainly change this. We keenly await developments in this area.

In 2022, we believe Metaverse investors will open their eyes to Kopin’s deep IP for all XR wearables if any or all of the aforementioned events and catalysts come to realization. Also, watch for a big name to take an equity stake in Kopin which could signal heightened urgency to bring the companies IP to market driving the share price higher.

Investors should note that the AR, VR and Metaverse adoption curves may take longer than we expect. In fact, many investors have already demonstrated a high degree of patience holding Kopin through a number of ups and downs including failure of a consumer version of the Google Glass device (2013), VR struggling to retain momentum, etc. There is some risk that this time it "won't be different" and a headset revolution could still stall out. Much of this thesis is based on the best available industry news about upcoming devices and activities. We will have to continue to monitor device launches, adoption rates and adjust expectations and forecasts accordingly. In a scenario where broad adoption is pushed out significantly, Kopin's share price could stagnate and trade sideways for a time, but we do not see it falling significantly below the current valuation which is well-supported by a steady and growing Military business. It just means the upside could be limited in the short term.

This article was written by

Disclosure: I/we have a beneficial long position in the shares of KOPN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.