Invest in IoT and RFID Tags with an IPO from Impinj

We’ve talked before about how the Internet of Things (IoT) will open up the door for billions of devices to connect to “the cloud” and provide us with even more “big data” sets that we can learn from. While there are all kinds of IoT devices being developed, inexpensive RFID tags (also referred to as “tag integrated circuits” or tag ICs) that can track your average retail item in a bricks-and-mortar retail outlet would be the most widespread devices used for IoT given the incredibly large number of retail items sold by companies such as Walmart for example. One company that has developed RFID tags and has a 65% leading market share in RFID tags is Impinj.

Founded in 2000, Seattle Washinton based startup Impinj has taken in just over $130 million to develop RFID solutions that deliver “item intelligence” to retail, healthcare and other industries. Investors included Unilever, Samsung, and Intel which led to Impinj acquiring Intel’s RFID division in 2008. Just a few weeks ago, Impinj filed for an IPO to raise $60 million and plans to trade under the ticker PI. This is the Company’s second attempt at an IPO as they previously filed for IPO back in 2012 but then withdrew. Impinj is in the business of making RFID tags which they call “Monza Tag Chips” that can be attached to any item and then easily read such as the tags seen below:

Impinj has built an entire infrastructure around these chips that includes readers that can make read/write calls to the tags, gateways that can continuously identify items and their locations in large areas (think loss prevention here), and an enterprise software platform that pulls the whole thing together. All of this is protected by over 200 patents issued and pending. You will see Impinj refer to their solution as “RAIN RFID” so let’s demystify the acronyms here.

RFID stands for Radio Frequency IDentification which uses electromagnetic fields to automatically identify and track tags attached to objects. RAIN is an acronym also derived from RAdio frequency IdentificatioN and in this context refers to a global alliance that was formed by Google, Impinj, Intel & Smartrac in order to promote RIFD growth and to help define industry standards.

In April 2015, Impinj announced that they had sold their 10 billionth Monza chip. The industries that they are primarily targeting are retail, healthcare, and consumer electronics. In 2015, Impinj sold 3.5 billion RFID tags which represented 67% of their product revenue. Back of the napkin math would estimate the cost of their tags at about 1.5 cents. Impinj estimates that only about 5-10% of economically taggable apparel items are currently being tagged. In 2015, Impinj had leading market share with 65% and 61% of the tag and reader IC unit volume. The growth of their RFID tag sales can be seen below:

Revenue growth for Impinj has been consistent and their losses appear to be narrowing. Here’s an overview of their financials for the past 4 years:

The vision of having every single “economically taggable” retail item in the world eventually tagged means that the total addressable market (TAM) for Impinj seems astronomic. Note that the term “economically taggable” means that at a certain price point, you can’t justify tagging the item because it just isn’t worth it. Any item sold for under a dollar as an example probably wouldn’t be economically viable to tag.

Impinj is a market leader in a high-growth industry with steadily growing profits and a one-stop-shop for RFID tags. While they do have competitors like Alien Technologies, It’s hard to see anyone coming along and upsetting their market share lead. If you’re looking to get some exposure here to RFID tags, wait until after the dust has settled from the IPO before you buy your position. As always, you should look to accumulate your position with a series of small trades over time as opposed to pulling the trigger on the entire position all at once.

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