Investing in Smart Glass and Windows with View Stock
They say you shouldn’t run a business unless you can describe what it is to a small child during an elevator ride. Here at Nanalyze, we find smart people who spent too much money on their educations and pay them peanuts to tell stories about exciting technology companies. Many of the people who read these stories want to invest in these companies, so they pay us money for our premium research. We then take that money and spend it on food, electricity, salaries, computers, and the occasional satchel of hard drugs. Now, go run along to your mommy little Timmy.
In a similar manner, investors love a big bold investment thesis that’s easy to understand. Cars that run on electricity, building a new type of motor, getting energy from the sun, these are all simple ideas that sound like they’d make for very lucrative investments. The same holds true for smart windows that can harvest solar power, tint on demand, or even display media.
Investing in Smart Windows
Tomorrow’s smart cities will be full of smart buildings equipped with smart windows. It’s a thesis we last visited in March of 2017 in a piece titled Is Smart Glass a Smart Investment Yet? Two well-funded players we noted in that piece were View and Kinestral. Founded in 2007, View opened their first factory – a $130 million manufacturing facility – in 2012 which is capable of producing five million square feet of glass per year. As of today, the company has deployed 75 million square feet of smart glass that’s either installed or in the process of being installed.
We’re having a hard time understanding why it has taken so long for this company to get traction. They’ve raised a massive $1.8 billion to date, the majority of which came in the form of a $1.1 billion Series H round led by Softbank in November 2018 with no other investors participating. That’s according to an article by Tech Crunch this past April noting that View was laying people off. So, the timeline looks something like this:
- 2008 – 2012: Raised $134.7 million and built a factory to produce smart glass
- 2013: Raised $60 million with Corning, a $28 billion materials company, as the lead investor
- 2013 – 2016: Raised another $315 million with 7.7 million square feet installed to date
- 2017: Raised $200 million with BlackRock as a lead investor
- 2018: Raised $1.1 billion from SoftBank
- 2020: Layoffs in spring and then looking to raise $750 million in fall.
The good news is that they’ve been selling some smart glass. Here are the numbers from the last several years along with what they’re expecting this year:
Selling $30 million in smart glass isn’t a big number when you consider how long they’ve been at it. A 2016 article by Silicon Valley Business Journal talked about how the company had a factory in operation since 2012 that’s capable of churning out 5 million square feet a year at full capacity. The same article talked about how View had “now installed its product on 200 buildings totaling 7.7 million square feet of floor area.” The latest SPAC presentation talks about how they’ve installed 23 million square feet. That means they’ve installed an average of 4 million square feet per year over the past four years. These are small numbers when you consider how much their backlog grew over the same time frame:
The story here seems to be promising. There’s loads of demand for smart glass, so View needs loads of capital to produce it all. Once it all comes together, revenues will go through the roof. However, just four years ago the product cost 50% more than traditional glass. From the aforementioned article:
The technology greatly improved, but View still had to sell an industry on a new product without much of a commercial track record and which executives acknowledge costs 50 percent more than traditional glass on installation. That task remains View’s biggest hurdle today as it seeks broader acceptance.
Four years later, and the company says their 4th generation product – enabled by machine learning and protected by over 1,000 patents – is finally “ready for mainstream.” They’ve now installed their smart glass in every major market in North America. With a market share exceeding 80% and backlog of over $500 million, they’re all but ready to dominate a trillion-dollar market. You do the math on what that’s worth:
That’s one side of the story. Or, it could be that View has an over-engineered product that’s not economically viable aside from vanity projects, and which has become a money pit for investors who continue to throw money at the story in hopes that it finally comes to fruition. View has set some pretty lofty revenue growth expectations moving forward, with an expected compound annual growth rate of +76% over the next five years:
This year, View is expecting just over $30 million in revenues. In four years’ time, they’re expecting revenues approaching a billion dollars, and nearly double that number the following year. These are some very aggressive numbers, but nothing out of the ordinary for your typical SPAC.
To Buy or Not to Buy
You may have seen SPACs in the news lately as the herd of pundits predictably starts to question the sustainability of the SPAC craze. There are too many SPACs being issued, the amount of money flowing into them is shrinking, and the post-IPO performance sucks. These are all valid criticisms being leveled by pundits, but they ignore the many other problems SPACs present for retail investors. This past summer, we complained about “How SPACs Reward Everyone Except Retail Investors.” While we have found several SPACs with solid revenue-generating businesses – Desktop Metal and Butterfly Network – we would highly advise investors to avoid SPACs as a rule. Some main reasons for that include:
- Shares trade on hype and often trade at a premium
- Grand revenues growth estimates seem far too optimistic
- The quality of these businesses is poor – always on the cusp of greatness
- Lofty comparisons to other success stories and ridiculous comparables
In regards to the first bullet point, shares of CF Finance Acquisition Corp. II (CFIIU) are trading at $10.75 right now so that’s completely acceptable. You’d be buying shares at a less than 1% premium compared to what institutional investors paid.
View ticks the boxes on our remaining points of contention, but that’s typical of most SPACs. It’s comforting to see they’ve had double-digit growth for the last few years (assuming they hit their estimates for 2020). After burning through nearly $1.8 billion in cash, they’re now ready to execute on their grand plan. All they need is another $750 million to do it.
We’d consider this a play on smart cities which we classify under “The Internet of Things.” Smart glass is a capital-intensive business that’s subject to the whims of the construction industry. We’re having a hard time seeing how there will be any boom in construction given what’s happening with “the Rona.” The fine print on their backlog slide says these wins reflect a “signed letter of intent that includes quantity, price, and delivery date.” One wonders if those intentions might change given today’s uncertain environment.
Whenever a great business takes the SPAC route, it leaves us wondering why they didn’t just go with a traditional IPO. SPACs are a sloppy mechanism that benefits everyone but the retail investor. Sure, it serves the purpose for a company looking to raise some quick money, but do you really want to join the likes of Nikola Motors or Momentus just to avoid all that extra paperwork? With some very rare exceptions, we’ll be planning to avoid SPACs entirely going forward – and that includes View.
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