About Tobii Stock and Tobii Dynavox Stock
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Stop reading this article for a moment and stare at a point on the wall. How much of what you see is rendered in high resolution? The Verge took a break from politics and wrote an excellent article on how the human eye sees things. Only about 0.1% of what you see in your field of vision is rendered in high resolution. The rest is blurry, but you never notice that. It’s because your eye twitches very quickly to render a scene and your brain fills everything in so that it seems like everything is high resolution.
Foveated rendering is a term used to describe a method of rendering in virtual reality that only displays high resolution in the 0.1% of your field of vision that can see it. Just think of how much bandwidth you can save by only showing someone high resolution where their gaze rests. To accomplish foveated rendering, you to track the movements of the eye with incredible speed and precision. That’s the sort of stuff a Swedish firm called Tobii (TOBII.ST) does.
About Tobii Stock
The last time we looked at Tobii stock was in late 2018 when we wrote about The World Leader in Eye Tracking Technology. Since then, Tobii has doubled in size reaching a present-day market cap of around – a return of +174% vs a Nasdaq return of +142% over the same time frame. As the company approaches a billion-dollar market cap, it comes on our radar as stock we might consider investing in (we only invest in companies with a $1 billion market cap or higher). The problem is, the Tobii of next year will look a whole lot different than the Tobii of today.
Tobii Stock vs. Tobii Dynavox Stock
The three main business segments that Tobii operates in are as follows:
- Tobii Dynavox (58% of revenues) – World’s leading provider of products that enable users with disabilities to speak and communicate effectively with 40% market share.
- Tobii Pro (28% of revenues) – World’s leading supplier of eye-tracking solutions for understanding human behavior with 60% market share.
- Tobii Tech (14% of revenues) – Supplies eye-tracking technology for integration into consumer electronics and other volume products.
By the beginning of next year, Tobii Dynavox will be spun off as a separate company. The other two divisions – Tobii Pro and Tobii Tech – will be rolled into a single business – Tobii – which may then choose to segment its revenues in any number of ways. So, why did the company choose to split its business up? It may have to do with the slowing growth of Tobii Dynavox.
Tobii Dynavox
Providing products that enable users with disabilities to speak and communicate effectively is a great thing. It’s also a total addressable market (TAM) that’s limited by the number of disabled people who can afford such a product, or the number of organizations that have budget to purchase such solutions. Up until The Rona struck, Tobii Dynavox was enjoying steady growth. (The three revenue charts found below are all in Swedish Kroner, so divide by 8 to get rough USD approximation.)
The falling revenues are blamed on the pandemic and a supply chain disruption, the latter causing 70 million SEK in revenues to roll over to Q3-2021 (so next quarter should be a good one). We won’t spend much time on this segment as it will soon be traded separately and doesn’t reflect the sort of disruptive tech use cases we’re after (which is part of the reason it was spun out).
Tobii Pro
Eyes are called the windows to the soul for good reason. Watching someone’s gaze tells you a lot about what they’re thinking. That’s why researchers use eye-tracking solutions to measure human response to all sorts of stimuli. Tobii provides the tools to make this possible, like their recently released mobile eye tracking solution, or their portable eye-tracking solution that’s encapsulated into a pair of glasses.
Tobii Pro has a global market share of more than 60% and its customers include over 3,500 companies and 2,500 research institutions with more than 2,500 research papers referencing Tobii Pro solutions. As expected, revenues have been affected by the pandemic with Tobii mentioning “a temporary budget freeze for universities in China.”
This brings us to the last segment which will be joined with Tobii Pro to form Tobii 2.0.
Tobii Tech
Tobii believes that most computers, VR and AR headsets, cars, and a large number of other products will increasingly be equipped with user-friendly sensor technologies, such as eye tracking. Tobii estimates that the total market in the long term could amount to one billion units with eye tracking annually, something that’s expected to take place gradually over several years. The competition mainly consists of small players who specialize in a certain market segment, and Tobii’s growing portfolio of intellectual property will help them maintain their leadership position.
The Automotive Thesis
About a month ago, Tobii announced its entry into mass-market automotive integrations with the release of its Driver Monitoring System, Tobii DMS, and the acquisition of Phasya, a Belgian startup that offers solutions for detecting drowsiness and measuring eye movements. Tobii will pay up to $4.75 million for Phasya of which half is contingent on performance over the next five years. That’s according to an article by Silicon Canals which talks about how Phasya uses AI to process “biometric signals such as eye-tracking or heart rate to monitor cognitive states, including drowsiness, cognitive load, and distraction.” The technology can also be used in other verticals such as virtual reality.
The Virtual Reality Thesis
At the 2018 Oculus 5 virtual reality conference, Facebook’s Lead Researcher at the time, Anton Kaplanyan, talked about how foveated rendering would be here in four years along with eye tracking to match. Seems about right. Today, you can buy the HTC Vive Pro Eye Virtual Reality System with Tobii’s eye-tracking technology for a mere $1,399.
Tobii’s tech can also be found in other virtual reality hardware devices including the HP Reverb G2 Virtual Reality Headset and Pico Neo 2 Eye, priced at $629 and $699 respectively. Having your tech in a high-end headset is cool and all, but just how big is the TAM for $600 VR headsets? Virtual reality hasn’t taken off as everyone expected, and it remains to be seen if the emergence of foveated rendering is what VR needs to reach Gartner’s “plateau of productivity.” In the meantime, Tobii Tech’s revenues seem to be the least affected by the pandemic.
Should You Buy Tobii Stock?
When the spinoff takes place and Tobii trades as two different stocks – Tobii stock and Tobii Dynavox stock – each entity will have its own market cap. This should theoretically “unlock value” in the new Tobii where higher growth is expected which commands a higher valuation. Whatever that valuation might be, it’s likely to be meaningfully less than the company’s current market cap of $840 million, meaning it now needs to grow a whole bunch more before it crests a $1 billion market cap. So, we’re on the sidelines until that happens. This will also give us a chance to see what Tobii looks like following the corporate event.
While researching Tobii, we came across another Swedish pure-play eye-tracking company called Smart Eye (SEYE.ST). It’s a firm that derives most their revenues from automotive eye tracking applications, though they just spent $74 million acquiring Affectiva. One can’t help but think a corporate event might be in the cards for Smart Eye and Tobii, but in the meantime, we’ll look to cover Smart Eye in a coming article. Quite a few companies are developing driver monitoring solutions and market research firms only peg the TAM at around several billion dollars in five years’ time.
Conclusion
Whenever a series of corporate events come together such as what’s happening with Tobii, it’s always best to wait for the dust to settle and see what we’re left with. Tobii’s focus on automotive is puzzling because there are so many other competitors offering driver monitoring solutions. The progress they’re making in enabling VR hardware manufacturing with eye tracking is great, but just how many units will they sell? We’ll take another look at Tobii next year when the company has successfully split.
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Third quarter July – September 2021
Revenue increased to SEK 390 million (317), corresponding to organic growth of 26%. Revenue in the quarter was positively impacted by a recovery of previously communicated delivery delays, and negatively affected by delays in a US logistics terminal at the end of the quarter.
Cheers for that update Stan. Maybe a private equity firm should acquire Tobii and Smart Eye and make them one?
Today Tobii is up +26.5%.
I see news released today: “Tobii selected by Sony Interactive Entertainment to be the eye tracking technology provider for PlayStation VR2”.
“PlayStation VR2 establishes a new baseline for immersive virtual reality (VR) entertainment and will enable millions of users across the world to experience the power of eye tracking,” said Anand Srivatsa, Tobii CEO. “Our partnership with Sony Interactive Entertainment (SIE) is continued validation of Tobii’s world-leading technology capabilities to deliver cutting-edge solutions at mass-market scale.”
Tobii will receive upfront revenue as a part of this deal starting in 2022 and revenue from this deal is expected to represent more than 10% of Tobii’s revenue in 2022. Due to the rapid evolution of the VR industry, revenue contribution guidance beyond 2022 is associated with significant uncertainty. Consequently, at this point, Tobii cannot provide guidance on the revenue potential beyond 2022.
Thank you for the heads up Stan. Great news for Tobii!