Weekly Innovation Review (WIRE) #12
Latest News from the World's Leading Innovators
The holiday season hasn’t slowed deal-flows and rumour mills, with all signs pointing to a very active start to the new year (following a mad rush of IPOs, cap raises and deals through early-mid December).
Headline Developments
Alibaba (BABA) has been called in by China’s State Administration of Market Regulation, who have officially started investing the group over suspected monopolistic practices and “forced exclusivity” - where merchants are forced to choose only one platform as their exclusive channel for sales and distribution. Alibaba unit Ant Group will also come under scrutiny, with a group of regulators including the China Securities Regulatory Commission (CSRC) meeting Ant in the near future to “supervise and guide Ant Group in accordance with the market principles and rule of law”.
According to Reuters, Apple (AAPL) plans for a 2024-25 launch for its electric and driverless car (called Project Titan). The mass-market car could include Apple's own battery design that would aim to "radically" reduce the cost of batteries and increase the vehicle's range. The company could also simply design the autonomous driving system for OEMs (such as for Daimler, Ford, Toyota), however, a 4-5 year lag until that product hits the market will give Google and Tesla and even more significant advantage.
Nuro (private) has received the first commercial permit to operate autonomous vehicles in California. The permit spans to counties near the company’s Bay Area HQ with the commercial partner announced soon. Likely partners included Dominos (DPZ) and Kroger (KR) and Walmart (WMT) who have all previously done trials with the AV company.
Apple could have sped up its self-driving and EV ambitions by purchasing Tesla (TSLA) for ~1/10 of its current value (~$600bn)in 2018 when the company was near collapse. Elon Musk revealed in a tweet that he reached out to Apple to discuss the deal but that CEO, Tim Cook “refused to take the meeting”.
According to The Information, Zoom (ZM) is considering expanding its services into e-mail, messaging and calendar services, in a bid to rival Microsoft (MSFT) and Alphabet (GOOG). Zoom already integrates with third-party productivity platforms, like Dropbox and Asana, but now has begun work on a "next-generation" email platform the Information reported, citing anonymous sources. However, the report notes that the project is in its early stages.
Other Developments
Roku (ROKU) the leading distributor of streaming video apps in the US (via set-top devices or smart TV operating software) has waged several battles this year with entertainment industry giants over how to split the spoils of video streaming. In its latest dispute with HBO Max, Roku fought for free content on The Roku Channel as well as a share of ad space on HBO Max in the lead up to the streaming release of Wonder Woman 1984. Given its 38% share of the streaming market, it's fair to assume Roku will continue to push its weight around in future content distribution deals.
Messaging app Telegram (private) has said they are approaching 500m users, with plans to monetise the platform next year. The predominant revenue stream will be via its ad platform which, according to founder Pavel Durov will be “one that is user-friendly, respects privacy and allows us to cover the costs of server and traffic”. Another way Telegram could monetize its service is through premium stickers with “additional expressive features,” he wrote. “The artists who make stickers of this new type will also get a part of the profit. We want millions of Telegram-based creators and small businesses to thrive, enriching the experience of all our users.”
Spotify (SPOT) will launch in Korea in 2021, giving Korean listeners access to over 60 million tracks and 4 billion playlists. South Korean artists (including popular K-pop stars) will be able to reach their local fans and Spotify’s 320 million listeners globally.
Concentration in the defence industry could increase with the $4.4bn acquisition of Aerojet Rocketdyne (AJRD) by Lockheed Martin (LMT). Aerojet’s main business is supplying rocket motors for missiles. It’s only direct competitor, Orbital ATK was bought by Northop Grumman (NOC) in 2018. Regulators will need to decide whether to approve the deal after the megamerger of Raytheon (RTX) and United Technologies in 2019.
IPOs
UiPath (private), the robotic process automation (RPA) startup, filed confidential paperwork with the SEC ahead of a potential IPO. The company has raised more than $1.2 billion from investors like Accel, CapitalG, Sequoia and others. It raised $225 million led by Alkeon Capital in July 2019 at a $10.2 billion valuation. RPA helps companies automate highly repetitive manual tasks (e.g. extracting data out of invoices).
XLFleet (XL) hit the market just ahead of Christmas, with shares surging over 40%. The company specialise in converting class 2-6 commercial vehicles (small trucks and vans) to electric via their XLH hybrid electric drive system and XLP plug-in hybrid electric drive system which offer 25% and 50% miles per gallon (MPG) improvement.
Israeli-based, Chinese-owned gaming company Playtika (private) has filed for an IPO. The company, which generates a bulk of its revenue from online casino games (i.e. Slotomania, World Series Poker) generated $2.3bn in revenues in the past twelve months, mostly from the US via in-app purchases. It is targeting a valuation of ~$10bn.
Ouster, a US startup that makes LiDAR sensors for self-driving cars, has agreed to go public through a merger with SPAC Colonnade Acquisition Corp (CLA). The deal values Ouster at ~$1.9bn and follows on from fellow lidar manufacturers Velodyne Lidar (VLDR), Luminar (LAZR), Innoviz (INVZ) and Avea (IPV) agreeing to SPAC mergers. Ouster’s lidar technology extends beyond autonomous vehicles to areas such as drones, smart cities and robotics.
Poshmark (POSH) has publicly filed its S-1 for an IPO. Poshmark is an e-commerce marketplace that allows users to sell new and used fashion-related goods to one another. The company delivered $1.1bn GMV in 2019. GMV has grown 30% in the first 9 months of 2020. Poshmark had 6.2m active buyers on its platform as of Q3 2020.
M&A | Cap Raise
PE firm Thoma Bravo has agreed to buy RealPage (RP), for $10.2 billion. RealPage is a full-service property management platform with services like renter portals, site management, expense management and financial analysis for building and property owners. The offer of $88.75 per share is a ~30% premium to the pre-bid closing share price and equates to ~9X FY20e Revenue and 32X FY20e EBITDA.
Movie Studio MGM Holdings (private) is exploring a formal sale process. MGM is behind the “James Bond” franchise, the “Rocky” franchise and TV shows “The Handmaid’s Tale” and “Vikings”. The company's largest shareholder, Anchorage Capital, is betting that MGM’s library of content will prove attractive to suitors looking to grow in streaming video.
Tidal (private), the music streaming platform owned by Jay-Z and backed by T-Mobile (TMUS), is reportedly in sale discussions with Jack Dorsey’s Square (private). The company doesn’t release its subscriber numbers, but reports put them between 1 million and 5 million, well below industry leader Spotify’s 286 million global subscriber base.
Peloton (PTON) announced it would acquire Precor (private) for $420m. Precor is one of the world’s largest suppliers of commercial fitness equipment such as ellipticals and rowers. Peloton expects the deal will enable entry into new markets, thanks to Precor’s existing relationships with hotel chains, multifamily residences and college campuses. Peloton will assume Precor’s ~625K square feet of manufacturing space, giving its extra capacity to meet its growing Treadmill and Bike order book.
Philips (PHG) has agreed to buy cardiac diagnostics and monitoring firm BioTelemetry (BEAT) for $2.8bn. BioTelemetry primarily focuses on remote monitoring of heart rhythm disorders. Philips CEO said, “With COVID we have seen an acceleration of demand and we think this acquisition fits perfectly in this ear where remote patient monitoring will become even more important”. This deal follows Teledoc’s (TDOC) $18.5bn merger with chronic disease management firm Livongo Health.
Vimeo, the online video platform, will be spun off from InterActive Corp (IAC) in the second quarter of 2021. IAC shares rose more than 14% on the day of the announcement. Vimeo, founded in 2004, has long offered a more professional alternative to YouTube, avoiding the advertising-based model in preference of selling subscriptions. They currently have ~200m users and were last valued at $2.75bn.
Happy holidays, happy new year and have a wonderful week ahead.
Charlie
LinkedIn or E-Mail (cnave@granitebaycap.com)
Granite Bay Capital is an innovation-focused investment company with a deep focus on the companies at the leading edge of innovation across major themes such as AI, ubiquitous computing, sustainability, automation and longevity. Any views expressed in this article are those of the author(s) and do not constitute financial advice.