AR Estimates

AR Estimates
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As analysts we pride ourselves on making the more accurate estimates possible for areas that we specifically model in the CE space and take care to define as much as possible as to outside estimates that we use in our notes.  That said, other than in our own models, it is difficult to know what is included or not included in CE product or market estimates, which can lead to vast differences between estimates and considerable confusion when trying to make comparisons.  Some CE product categories are relatively easy as they have been established for years and at least basic data is available if one knows where to look, however newer CE products can be quite difficult to track making estimates unreliable and conflicting, which tends to make investors (or should) nervous about putting capital to work in that area.
One of the more difficult of the new CE product categories is AR/VR, as distribution channels are varied, ranging from direct from manufacturer, brick & mortar sales, app stores, or distributors, and the inclusion of items like hardware or software development costs or consulting revenue can make market estimates unreliable.  That said, in some cases we can get a better definition as to what is included in estimates, and while that tends to not be the case in the VR/AR world generally as hype is a big part of this developing industry, there are some exceptions that we believe may lead to more reliable estimates.
We have seen recent data concerning AR revenue estimates that includes both consumer and enterprise categories, where we can get an idea of what is included or excluded from the data.  While we might agree or disagree on what should be included or not included, at least we have some understanding of what is in the numbers.  Here is what is in and out of the data:
Included

• AR Hardware – AR glasses
• AR Software – AR Application sales
• AR Ad campaign (paid Ad placement) - but not the production costs of the campaigns
• AR software sales that is used to facilitate purchases but not the value of those purchases
• In-App Purchases
• AR content creation software

 
Not Included

• Smartphone sales – Despite the fact that some AR devices need to be paired to a smartphone, the phone can be used for other purposes so the cost of the phone is not included.
• PC/Laptop/Game Console – Same as above
• Enterprise consulting revenue
• Development costs to produce AR content or applications
• Transaction value of goods purchased using AR – If you buy a chair using AR, the value of that transaction is not included as it would be a retail furniture sale not an AR related product.

Network costs
 
We take exception to the idea that ad campaign revenue should be included in such data and wonder about what the category entitled ‘Enterprise Productivity’ actually means as we don’t have the ability to drill down further into the data, but it looks to be ~1/3 of the revenue stated for 2021, which gives us cause for concern, although it grows far more slowly that the overall totals for each subsequent year.  That said, at least there is a basis for understanding what is included and excluded from the data, which gives it more value than most.  We have additional concerns about the fact that while the growth rate decreases, which is to be expected, the trend line for forecasted years is quite linear, which is rarely the case in the CE world, but for now we take the data as at least a legitimate attempt at understanding the ability of AR to generate revenue.  The CAGR during the 2020 to 2025 period would be 24.9% based on the data.

Mobile AR Revenue Spending & Forecasts - Source: SCMR LLC, ARTillery Intelligence