Universal key
Wave is a participant in the development of a trust ecosystem. This ecosystem relies on the existence of secured hardware within equipment attached to the network. Software of various types and from various vendors operates on top of this hardware. The more software vendors participate in the trust ecosystem, the more the ecosystem itself will grow.
Wave has a long run strategy. Its strategy is to provide services which support users of trust solutions. The fact that other companies also provide services that rely upon the existence of a trust ecosystem is - in most cases - likely to be a positive for Wave. The larger the population of participants, the more opportunities there are for Wave to provide its own solutions to customers.
Just because a company is providing a trust service or trust software does not mean it is competitive with Wave. To be fully competitive with Wave demands that a company must have competing products. So where a person imagines competition, the key way to check if the competition actually exists is to demonstrate that the putative competitor actually provides a competing product set. At this juncture, I see some companies nibbling around the edges but no core competitor.
Wave's oft-expressed business model is to maximise revenue. The revenue maximising strategy is not the same thing as a profit maximising strategy. If a company is maximising revenues, this implies it is not maximising profits. Indeed, it may be it is running a loss, just as Wave is doing. So observing that Wave is making a loss merely restates the obvious fact that Wave is pursuing the revenue maximising strategy it said it would pursue.
In Wave's case, the accounts clearly show that recently the company has been operationally cash flow positive. It has made the decision also to invest in its future (R&D costs) and this has resulted in some pressure on its net cash flow. This pressure is alleviated when Wave makes a major order and the customer payments are made upfront. But it is also implicit in an investment activity that other sources of funds may be required; and as Wave does not have a large cash balance, the recourse to equity should not be a surprise. The company is calculating that its future opportunity is enhanced as a result of its research and development.
To the extent that a stock price reflects the present value of future cash flows - which is a baseline for a valuation - then assuming they do so wisely, the fact that Wave is investing monies in its future should not be a negative.
So from a strategic perspective, Wave is following its plan. The results look much like one would expect of a revenue maximising company. Revenues have grown consistently. Profits have stayed sub-zero by a small amount. Cash has been stretched as far as possible, but the wish to be at least cash flow neutral is being balanced against the desire for growth.
Is the demand which Wave needs appearing? - Looks like it. The DoD is in a gradual adoption phase, having required the inclusion of TPMs in PC purchases for many years. Now it wants to protect the BIOS and seems to think trusted hardware is a useful addition. In the last quarterly results, small orders grew noticeably, implying a broader market adoption. MS now seems to be in an adoption phase. The phone industry is moving in the direction of trust solutions at last.
Things look bright for Wave, in my view. Wave has a visionary and determined management. The opportunity is heaving into view and it is a nice one with a gigantic scale. That some don't see it is not so surprising.
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