September 23, 2017 -
As the biometrics industry continues to grow, Biometric Update is bringing a new focus to the stories around the stocks in the sector. Check in with this space each week for a rundown of the financial news and interesting ideas from the week that was.
What a weird couple of weeks. Stock markets continue to hit record highs. The Dow Jones Industrial Average, the MSCI All Country World Index and the S&P 500 all continue to arc into uncharted territory. Market types had been worried that Donald Trump’s inability to get anything done in the White House would douse investor optimism. But over the last week there seems to be a new hope that the president is finally showing a little more discipline. A new U.S. Army general as chief of staff and the axing of Steve Bannon have helped on that end. The improved governance structure in the White House seems to be providing some optimism. Trump’s apparent willingness to work with Democrats was another bit of positive news. All in, investors seem to think the White House might actually get some work done. As a result markets continue to hang in at record highs. Good times.
Life within the technology sector was not quite so easy. New concerns around security spiked as retail credit reporting firm Equifax suffered what is now considered to be the largest leak of private financial data, a massive gusher involving personal ID information on some 143 million people. That a company entrusted with all that data updated a basic Microsoft security patch months after its release was a shock to many. How can a company storing the SIN numbers of most North American consumers not get that done? Startling. The weirdness continued when news emerged that the online data filing system at the Securities and Exchange Commission (SEC) was breached. Publicly-traded companies in the United States file their quarterly and annual reports into a system known as EDGAR. Individuals access this system to look up information on listed companies. Now it seems as if someone hacked the system, gained access to nonpublic data, and even traded on that information over months. If the most basic consumer credit reporting companies and securities regulators can’t keep data safe, who can?
-Within the biometrics sector Nuance Communications was mentioned in a report from Opus Research. The report looked at the growth among voice-based biometric products. Nuance, of course, has been working on voice-based methods for identity confirmation for several years now and is now poised to cash in. According to Opus analysts, “… voice biometrics has emerged as a critical enabler to delivering customers ease of authentication while also detecting fraud, and its use is poised to grow in the years to come.” By 2020, “… more than half a billion individuals will be able to use spoken word, rather than PINs, passwords or answers to personal questions, to initiate conversations or transactions using their phones, laptops, tablets, smart speaker/appliances, and connected cars,” according to the report. Among the companies competing in this sector Nuance was also recognized for having, “…the greatest breadth of offerings in contact center authentication and is the only provider to be recognized as a leader across on-device, hybrid, and remote mobile authentication…” This is good news for investors in Nuance. The company’s is now trading at about USD $16 a share. The report went on to note a Nuance product, FraudMiner, “… a growing application as large financial services companies look to voice biometrics to detect and eliminate fraud.” The program director at Opus was quoted as saying, “We are finally seeing the long-awaited growth in deployments and registered voiceprints, indicating that voice biometrics has reached a tipping point and is poised to play a pivotal role in Intelligent Authentication… Our prediction is that this trend will continue across multiple industries, globally, and Nuance is ideally positioned to leverage its multi-factor capabilities to fulfill on an ever-increasing set of very exciting use-cases.” The report also noted that growth in this area is being driven by the emergence of virtual assistants like Siri. According to the analyst, “Voice biometrics will enable them to identify and authenticate individual users to both simplify and personalize search, shopping and purchasing.” Another positive piece in the Nuance business case: The number of companies offering voice biometric engines to support the enrollment of voiceprints for speaker identification and authentication, “… is relatively short thanks to consolidation and attrition… At the same time a community of solutions providers [including] resellers, integrators or channel partners… have emerged to define and fulfill new requirements and grow the market.”
-Of course, the really big news in the sector this past week was the release of Apple’s iPhone X. It is the first handheld device to feature facial ID. The appearance of the new phone just shifted the trajectory of the industry. Many had expected Apple to evolve toward an in-display fingerprint scanner on the latest iPhone. That didn’t happen as that technology failed to materialize, and so here we are in the new era of facial ID. A report from brokerage KGI Securities suggests that Face ID, “… may fully replace Touch ID on future Apple devices…” The report also notes that Android-based rivals are now scrambling to keep up and are suddenly furiously working away on similar technologies. According to the KGI analyst, “… suppliers affiliated with facial recognition technologies will see strong growth over the next three to five years.”
-That the industry is now moving beyond fingerprint scanners has not been the greatest news for companies like Fingerprint Cards AB, which announced revised third quarter financial estimates this past week. According to a press release the company expects revenues to fall this quarter. According to the release, “As previously announced Fingerprint Cards does not provide forecasts but chooses to disclose this information since the company considers that this level of revenue significantly differs from the expectations currently in the market.” Blame it on iPhone X. The presser went on to say that Fingerprint Cards is currently experiencing a “cautious market and one contributing factor is Apple’s launch.” According to the company, “Distributors and module houses delivering to the company’s OEM-customers have therefore minimized their inventory levels. In spite of this, Fingerprint Cards estimates that the number of shipped sensors from the company during the third quarter will increase with around 40 percent compared to the second quarter.” But even if the volume of shipments expands, a shift in the industry to less expensive scanners will still decrease revenue. “The product mix has changed as most of Fingerprint Cards larger OEM-customers have chosen to switch to backside mounted sensors that have a lower price. This has resulted in a decrease of the average selling price of sensors, which has a negative impact on revenues. Fingerprint Cards has previously communicated an expected reduction [in revenue] exceeding 20% per annum, but the current rate is approximately 30%,” according to the press release. Stock in the company was off this week, trading at about USD $2.87. The company will present the report for the third quarter as planned on October 26. The release went on to note that, “Despite changing market conditions in the mobile segment, Fingerprint Cards is still the market leader, has world-leading products and innovation capabilities as well as a strong cash position. Prerequisites for both growth and profitability are therefore favorable. Fingerprint Cards views the introduction of low cost sensors as positive since it enables increased attach rate of within the smartphone segment and continued volume growth.”
-BIO-key International is scheduled to make a presentation to investors at a conference organized by Sidoti & Company in New York on September 28th. Investors will surely be impressed with the story at BIO-key. The company announced this week it had signed another deal with a manufacturer that will see its tech built into another new device. Also reassuring is news that corporate insider Fong Wong Kwok bought 26,300 shares of the company’s stock in a transaction filed with the SEC this past August. Investors love to see corporate insiders buying stock in the companies they run. No one knows better than the insiders what the prospects are for a company. Kwok seems to think business at BIO-key looks good. He loaded up on $81,530.00 worth of stock. Following the transaction Kwok now owns 1,345,737 shares in the company he works for. The total value of the holding is about $4,171,800. Shares in BIO-key were up almost 3% in a single trading session recently. Kwok acquired his shares at an average price of $3.10. It is impressive to consider that the company’s shares were trading as low as $0.13 within the past year.
-Another bit of biometrics-based market news this week comes from ImageWare Systems. The company announced it has completed a direct offering of stock to certain accredited investors. ImageWare sold 11,000 shares at $1,000 a piece, bringing in $11 million to corporate coffers. The company says it will use the proceeds for general corporate purposes such as marketing, sales and working capital. “This financing recognizes the strong progress we’ve made to commercialize our leading identity management solutions for the enterprise and consumer markets, as well as our significant prospects for growth in those areas,” said Jim Miller, ImageWare’s chairman and CEO. “Not only are we now in a better position to capitalize on the growing industry demand for biometric solutions, but we believe our bolstered balance sheet and operational momentum will enable us to further expand our partner agreements for our mobile and cloud-based products.” The company also announced it appointed Robert Clutterbuck and Charlie Frischer to its board of directors. Clutterbuck is already a significant holder of ImageWare stock. He is the founder, managing director and portfolio manager at Clutterbuck Capital Management. Charlie Frischer currently works as a self-employed private investor according to an official bio.
-SmartMetric pulled off a smart bit of marketing this week, releasing a presser that tied the Equifax data loss into developments at the company. With wider attention focused on the issue of data security over the past week, the marketing folks at SmartMetric hustled to get the company’s name into the conversation. The press release noted that the loss of the 134 million private identity information records at Equifax, “… now makes offline biometric ID validation a security imperative.” The release goes on to note that, “…the theft of more than 134 million personal information identifiers such as driver’s license numbers and social security numbers now makes this information useless for identifying individuals. With the ease of the creation of forged documents these once important identification information data sets are now rendered useless in verifying the identity of individuals.” The release went on to state, “There is no more critical area, now affected by the private individual data haul by cyber thieves from Equifax, than the banking industry. The ramifications go to the heart of the banking world and even its ability to now comply with Federal Regulations such as Know Your Customer requirements… What were once trusted identifying data sets have now become useless in substantiating the identity of individuals who present themselves at say a bank branch to open an account. Especially with the ease of obtaining counterfeit drivers licenses and social security cards.” Luckily SmartMetric will help the industry cure its big new headache. The release quoted SmartMetric’s President and CEO, Chaya Hendrick, who explained how her company’s cloud-based system would help prevent such leaks. “Learning from the fundamentals of security in that a distributed database is far safer than a central database, we made having a person’s biometrics stored on their own credit or identity card a must have requirement when creating our biometric card technology,” said Hendrick. The company has spent more than a decade in the development of its inside the card biometric fingerprint storage and scanning technology. “We have had more than our fair share of problems in our product development process. Such as when a few years ago we were ready to launch our card, our fingerprint sensor component supplier discontinued manufacturing this important component forcing us to start virtually from the beginning in the development of our biometric card. We are excited that we now have completed our research and development stage and are now able to present our biometric solution to banks and the general security industry.” These are exciting times in the biometric sector, indeed. What a week!