Weekly Innovation Review (WIRE) #22

Latest News from the World's Leading Innovators

Headline Developments

Disney’s (DIS) streaming service Disney+ continues to outpace all expectations, breaking through 100m global subscribers.  Combined with Hulu and ESPN+, Disney is slowly but surely catching Netflix (NFLX) who are a touch over 200m subscribers.  Disney originally targeted 60-90m subscribers by 2024 and, due to enormous success, CEO Bob Chapek says they are significantly increasing their investment in high-quality content with a target of more than 100 new titles per year across Disney Animation, Disney Live-Action, Marvel, Star Wars and National Geographic.  Separately, Disney is planning to reopen their California parks in late-April with some cruise ship operations targeted to resume later in the year.

Gaming platform Roblox (RBLX) surged 55% in its market debut; vaulting the company at $38bn.  This put the company on a ~48x 2020e P/S vs Unity Software (U) on ~35x and Skillz (SKLZ) on 42x.  The Roblox platform is targeted at children, with users creating content and building games within the various Roblox worlds.

Canada will invest $2.75bn to electrify the country’s mass transit over the next five years, including the purchase of more zero-emission buses.  So far the Government has purchased 300 eco-friendly buses with a 5-year target of 5,000 buses.  This is likely to benefit domestic bus makers like GreenPower (GPV), New Flyer (NFI) and Nova Bus (owned by Volvo, which in turn is owned by China’s Geely).  Another company to keep an eye on is Proterra (merging with SPAC: ACTC) which creates electric powertrain technology for electric bus manufacturers.

Amidst a global chip shortage, US-based chip foundry GlobalFoundries (owned by Abu Dhabi Sovereign fund Mubadala), has announced an investment of $1.4b to raise output at three factories in the US, Singapore and Germany.  The company may also bring its planned IPO forward to late 2021, from a previous target of late 2022 or early 2023.  The company will look to ramp up production of its 12 to 90-nanometer chips (nb. the more advanced chips like the 5nm is still cornered by TSM and Samsung).

Google’s (GOOG) latest project, Wolverine, is looking to give us a superhuman hearing.  The technology, being developed by Google’s X lab (responsible for Waymo and Loom) is in its early stages and aims to isolate people’s voices in a crowded room and make it easier to focus on one person during overlapping conversations.  According to reports from Insider, multiple people from hearing technology companies have jumped on board, including talent from Starkey Labs (private) and Eargo (EAR). Similar solutions are also being researched by Facebook’s Reality Labs (FRL).

Other Developments

Tesla (TSLA) have announced that they are expanding the size of their full self-driving beta program by 2x for v8.2 and 10x for v8.3. Tesla first released the beta in October last year, enabling full-self driving without significant intervention. However, this is by no means “driverless” technology as it’s intended for use “with a fully attentive driver, who has their hands on the wheel and is prepared to take over at any moment”.  The FSD capability at present has auto-lane change, auto park, smart summon (your car will drive to you in a parking lot), highway off-ramp navigation and autosteer on city streets (upcoming).

In a move to expand its investment in electric vehicles, GM (GM) is looking to build its second battery factory in the US with JV partner LG Chem (051910.KR). The two companies are already building a $2.3bn battery facility in Ohio, expected to open next year. The new facility, possibly based in Tennessee, is expected to be a similar-sized investment.  GM is planning 30 new EV models globally by 2025. 

EV startup Canoo (GOEV) will introduce a pod-like pickup truck (below) in 2023, following companies like General Motors (GM), Rivian (private), Tesla (TSLA) and Lordstown (RIDE) in the popular auto segment.  The company will start taking pre-orders in 2Q21.  According to Canoo Executive Chairman Tony Aquila, the truck will be the “size of a Ford Ranger, can take the payload of a full-sized pickup and (has) the turning radius of a Prius.”

Bloomberg reported that Nintendo (7074.JP) will unveil a new Switch model later this year, with a new, Samsung-produced 7-inch OLED display and 4K capabilities when docked in TV mode. This is quite a step up from the 6.2-inch 720p LCD panel of the current Switch and the 5.5-inch display of the Switch Light. An OLED display in a Switch model means better battery life, higher contrast and faster response times when compared to the Switch’s current liquid-crystal display.

Google (GOOG) plans to stop using tracking technologies that uniquely identify web users as they move from website to website across the internet. Google had previously announced it would block the use of 3rd party cookies by 2022. Now the company is saying it won't develop alternative tracking technologies or use those developed by others (e.g. The Trade Desk (TTD) Unified ID 2.0) for its own ad-buying tools. It will instead focus on targeting based on larger groups or “cohorts”. Note that Google has ~40% share of ad buying across the open internet:

Netflix (NFLX) will roll out 41 Indian films and shows this year as the company furthers its aggressive push into the world’s second-largest internet market. The streaming giant will 3x its investment on locally produced content relative to the $420m spend in 2019 and 2020 combined. Media consulting firm MPA estimates that Netflix has about 5 million subscribers in India. This compares to Disney’s Hotstar which has amassed over 30 million paying subscribers and YouTube which reaches more than 450 million internet users in India.

Honda (7267.JP) claims its new “Legend” luxury sedan will be the world’s first passenger vehicle to hit the market equipped with “level-3 autonomous driving technology”.  This is a great feat and puts them on pace with Tesla (TSLA), Mercedes (due to release level-3 this year), Ford (aiming for level-4 this year) and a long list of other emerging and incumbent OEM brands.

Atari (ATA.PA) is making a comeback, of sorts, announcing plans to build an online casino on the Ethereum blockchain.  Under the plan, Atari will release branded games in collaboration with Decentral Games (private), placing bets using MANA or DAI cryptocurrencies, as well as new Atari token (ATRI).

Meitu (1357.HK), a Chinese photo-editing app, has become one of the first major companies in the world to buy ether, ‘investing’ $22.1m in the digital currency on top of $17.9m in bitcoin.  The move provides diversification away from holding cash and said it is “evaluating the feasibility of integrating blockchain technologies to its various overseas businesses” including the potential launch of ethereum-based apps.

IPOs

Indian e-commerce giant Flipkart (private), 77% owned by Walmart (WMT), is considering a merger with a SPAC which would value the business at around $40bn.  Flipkart is a leader in India’s e-commerce market, owning valuable fashion businesses Myntra and Jabong, the logistics outfit eKart and payments startup PhonePe.  However, the company is facing intense competition from Amazon (AMZN) and local conglomerate Reliance Industries, whose Jio Mart unit is pushing hard to onboard smaller neighbourhood stores.

Leading quantum computer company IonQ (private) will go public via a merger with dMY Technology (DMYI) in a deal expected to value the company at $2bn (and pull in $650m in proceeds).  The company is backed by an enviable list of investors including Bill Gates, Michael Dell, Silver Lake, Bosch, Lockheed Martin, Amazon, Samsung and HP.  IonQ expects the proceeds from the SPAC deal will fund the company until it’s breakeven on cash flow in 2027, as it unlocks more commercial markets for its technology, outlined in the graphic below.  The system was called the world’s most powerful quantum computer late last year, 32k x more powerful than its closest competitors.

Olo (private) a startup that provides order processing software for restaurants, is joining rival Toast (private) in going public, aiming to raise $373m.  The company has 64k restaurants signed up to its platform including Five Guys, Shake Shack, Chilli’s, Applebee’s and Denny’s; with a GMV of $14.6bn.  Revenue has grown 94% YoY and the company, unlike many other tech listings, actually pulled in Net Income for the past year.

Crypto mining company Cipher Mining (private) is going public via a SPAC.  The company, which will combine with parent Bitfury, aims to be a US-centric bitcoin mining “champion with potential to reach a cumulative deployed capacity of 745MW by the end of 2025”.

Another Bill Gates portfolio company is going public via a SPAC - crowd-safety firm Evolv Technology (private).  The company leverages advanced sensors and AI for touchless security screening for airports, event spaces and stadiums including Six Flags, The Met and Lincoln Center.  Its technology can scan 3,600 people per hour to provide a “line-free” security experience.

London based food delivery company Deliveroo (private) is looking to IPO on the LSE at a ~$10bn valuation. Deliveroo claims to have over 115,000 food merchants, 100,000 riders and six million consumers across 12 countries. The Amazon-backed company grew Gross Transaction Value (GTV) by 64.3% YoY, reaching $5.7bn in 2020 compared to Delivery Hero’s (DHER.DE) $14.8bn GTV (a similar 66% YoY rise) and DoorDash’s (DASH) expected $33bn for 2021. 

Hippo Enterprises said it will go public through a merger with a SPAC (RTPZ), backed by LinkedIn founder Reid Hoffman and Zynga founder Mark Pincus. The deal will give the merged entity a proforma enterprise value of $5bn. Hippo, which offers online home insurance, says customers can get an insurance quote within a minute and buy a policy within 5 minutes. Lemonade (LMND), another insurance technology startup, has seen its shares triple since its IPO last year. Other recent insurance-related listings include Root insurance (ROOT), Oscar Health (OSCR) and Metromile (MILE).

Coursera (COUR) has filed its S-1 ahead of an expected IPO next month. The Massive Open Online Courses (MOOC) platform offers students access to free online courses all the way up to $45,000 degrees from top universities. In 2019, spending on global higher education was $2.2 trillion, according to research from HolonIQ, of which $36 billion was in the online degree category (forecasted to hit $74 billion by 2025). In 2020, Coursera’s revenue grew by 59% to $293.5 million (partly driven by the pandemic) with total registered learners up 65% to 77m.

M&A | Cap Raise | Earnings 

Square (SQ) announced a $297 million deal for a majority stake in TIDAL, with TIDAL shareholder Jay-Z joining Square’s board. TIDAL is a global music and entertainment platform that brings fans and artists together through exclusive music, content, and experiences. While the rationale for the deal is not immediately obvious, Square Cash has helped millions of entrepreneurs with tools to help better reach customers. Cash App could enable TIDAL artists and musicians to sell merchandise powered by Square eCommerce, increasing both the engagement and reach of both platforms.

Cloud accounting software provider Xero (XRO.AX) has made its largest acquisition to date, acquiring European workforce management platform Planday (private) for €183.5m (including a €27.8m earnout). With more than 350,000 employee users across Europe and the UK, Planday simplifies Employee scheduling, allowing businesses to forecast and manage their business costs. This move aligns with Xero’s strategy of becoming the operating system for small business and will allow Xero to extend Planday’s into other markets where Xero currently operates.  

Dropbox (DBX) is forking out $165m to buy DocSend (private), a secure document sharing and analytics vendor with more than 17k customers.  Dropbox says the acquisition is a perfect complement to their product roadmap alongside Hellosign which it bought in 2019.  “By bringing Dropbox, HelloSign, and DocSend together, we’ll be able to offer a full suite of secure, self-serve products to help them manage critical document workflows from start to finish” said Dropbox CEO Drew Houston.

Epic Games (private), 40% owned by Tencent (700.HK), is boosting the capabilities of its Unreal Engine game development platform, by acquiring Capturing Reality (private).  The Reality Capture technology (below) greatly enhances Epic Games’ ability to import 3D scans of real-world environments and objects into their games like Fortnite (i.e. mountains, cars, tanks, buildings etc).  Recall last week we discussed Microsoft’s Mesh platform (to bring hologram avatars into real-world environments via VR).  Well now imagine playing a medieval version of Fortnite (with photorealistic castles) alongside friends (holoporting into a VR environment).  That’s the future of gaming.

This segways nicely to our next update, with Microsoft (MSFT) receiving approval to acquire video game publisher Bethesda (private) during the week.  Bethesda is responsible for games like DOOM, Fallout, Wolfenstein and The Elder Scrolls.  As an aside, if we fast forward 10-20 years it’d be interesting to see how much PTSD will be brought on by VR sessions of DOOM and Wolfenstein!

Dish Network (DISH) will acquire mobile virtual network operator (MVNO) Republic Wireless (private), adding ~200k customers to its 5G network which is planned to launch later this year.  Dish was able to push into 5G following its acquisition of Sprint’s mobile business for $1.4bn (Sprint had to sell the business to appease regulators under the T-Mobile merger).  Separately, Dish is trying to block Starlink’s (SpaceX) application to the FCC to be an Eligible Telco Carrier (ETC) in the 12 GHz band (a band Dish are looking at utilising for their 5G network). 

Starling Bank (private), a leading challenger bank that launched in 2017, has raised $380m on the back of four successive months of profitability.  Starling’s gross lending now exceeds $2.8bn, with $7.5bn in deposits.  The funding comes as the UK Government’s bounce back loan scheme (BBLS) and coronavirus business interruption loan scheme (CBILS), which were integral to keeping the business afloat, start to wind back.

Finally, Swedish autonomous vehicle and logistics company Einride (private) is seeking $75m in new funding while also exploring the potential for a SPAC listing.  The company is testing its autonomous technology with oat milk maker Oatly (pending listing) and German supermarket chain Lidl (private).  Oatly began using Einride’s electric trucks on its delivery routes from each of its Swedish production sites in October 2020. Thus far, the trucks have driven over 8,600 km electric and as a result has saved over 10,500 kg of CO2 compared to diesel, according to a statement from the companies.

Have a great week.

Charlie and Vishal

LinkedIn or E-Mail (cnave@granitebaycap.com)


Granite Bay Capital is an innovation focussed 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.