The biometric card industry is finally rolling out cards around the world, albeit slower than expected and we expect IDEX (NASDAQ:IDBA) to reach volumes that would make its cash flow break even in 2024 just based on the customers it already has. According to Nilson, it operates in an industry with an addressable market of 2.5 billion cards per year. The banks that have already launched with IDEX inside have a total of 16 million customers. The 12 manufacturers that are now buying from it produce 1 billion cards per year and even at a 1% penetration that it is $30-40 million in revenues to IDEX which at its goal margins makes it a highly profitable company. This does not even address the other applications which pay much higher prices such as access control and high-profile crypto wallets. The company is targeting 50% gross margins and 30% operating margins and it expects to keep operating expenses fairly flat to achieve those percentages. We expect next year's margins will be below that target as revenues ramp.

Biometrics hopes to replace the arduous multifunction authentication currently in use that takes much time and effort and includes sending codes to phones and has many steps. Biometric authentication is by definition already two-factor but it occurs instantly in a single step. Hopefully, biometrics can replace authentication in other applications. Many users are already used to using fingerprints on a laptop, and they may demand them on all other applications due to speed and simplicity. We are comfortable with fingerprint authentication on cards compared with other biometric methods as they do not require a database of fingerprints out there somewhere as the customer’s fingerprint is stored strictly on the card. Hacking and skimming are not possible with this scheme and entities (corporations or governments) cannot collect and store your biometrics.
IDEX expects 12 launches of payment cards in 2023 with six already identified. The six identified are Rocker, Manager.one, fidor, First Abu Dhabi Bank (FAB), Selma, and Accomplish Financial. The 12 are the total combined from Zwipe, banks and issuers, and via IDEMIA.

As a fabless semiconductor company with high operating leverage, it is expected to be at very high pretax margins once it ramps revenues and it deserves an enterprise value to sales valuation in line with its peers that trade at 8.4 times 2023 revenues. It currently trades at an $85 million market cap and a $69 million enterprise value. Depending on how fast the industry ramps we believe that by 2026 it still has the potential of $500 million in sales at which point it could be valued as a $3.3 billion company.
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