Weekly Innovation Review (WIRE) #41

Latest News from the World's Leading Innovators

Headline Developments

Steam, the video game distribution platform owned by Valve (private), has released the long-rumoured handheld gaming device the Steam Deck; available from December (although big delays are expected with the premium $649 512GB version not available until 3Q22!).  Although the announcement comes fresh off the back of Nintendo’s (7974.JP) new OLED Switch, it’s targeted at very different consumers (i.e. Steam’s cohort of ~120m active, and more serious, gamers).  Powering all of this is AMD, who have created the Accelerated Processing Unit (APU) for the device; which (like an SoC) integrates the Zen 2 CPU and RDNA 2 GPU.

Sticking with gaming, Netflix (NFLX) have said they are in the early stages of an expansion into games, building around earlier efforts on interactivity (eg. Black Mirror Bandersnatch) and Stranger Things games - confirming what we’ve known for quite a while.  What’s new is confirmation that the games will be included in members’ Netflix subscriptions at no additional cost, with an initial focus on games for mobile devices.  This all comes on the back of Netflix recent hire of Mike Verdu, who brings a wealth of experience from Facebook (VP, AR/VR), Electronic Arts (SVP, EA Mobile), Kabam (President of Studios), Zynga (Chief Creative Officer) and Atari (Studio Head).

The US, EU, UK, Australia, Canada, NZ, Japan and NATO have accused China of being the mastermind behind a series of malicious ransomware, data theft and cyber-espionage attacks against public and private entities, including the massive Microsoft Exchange hack earlier this year. Dominic Raab, the UK Foreign Secretary said “The Chinese Government must end this systematic cyber sabotage and can expect to be held to account if it does not”.  On its part, Chinese Foreign Ministry spokesman Zhao Lijian told reports “The United States ganged up with its allies to make unwarranted accusations against Chinese cybersecurity”, going on to say “This was made up out of thin air and confused right and wrong. It is purely a smear and suppression with political motives.”

Joe Biden has picked Jonathan Kanter, a vocal Google critic, to lead the Department of Justice’s (DOJ) Antitrust division.  This is another blow to big tech after the earlier appointment of Lina Khan, a vocal critic of tech concentration, as chair of the FCC.  Kanter has previously represented complaints accusing Google of anti-competitive behaviour alongside prior antitrust cases relating to Amazon, Mastercard and Uber.  For Lina Khan, her appointment triggered a motion from Facebook demanding she is excluded from any decisions relating to the company.  It’s highly likely Google (and others) submit similar motions relating to the appointment of Kanter.

Other Developments

Revolut (private), fresh off an $800m cap raise, has just announced a new feature called Stays - an in-app product enabling users to book holiday accommodation straight from the Revolut app, with up to 10% cashback.  The new booking feature, available in the UK now (and Europe / US in coming months), has plans to expand from accommodation into other travel verticals such as flight booking, car hire and experiences.

Square (SQ) is launching “Square Banking”, offering fee-free checking and savings accounts, plus its existing Square Loans, to its expansive network of small business customers.  Existing users will be rolled into the new checking account, with no minimum deposits or monthly maintenance fees.  The upside of this is that credit card sales processed via a Square device will be made available instantly within the new checking account which, in turn, can be instantly rolled into Square Payroll (or to make any other transfer via the Square debit card).

Dish Networks (DISH) will be paying $5bn over ten years, under a new network services agreement stuck with AT&T (T).  This agreement will see AT&T’s 4G and 5G networks made available to Dish’s mobile virtual network operator (MVNO) providers Boost Mobile, Ting and Republic Wireless effective immediately.

A few new details for Snap (SNAP).  Firstly, they’re making bitmojis (user avatars) full-body and 3D (as opposed to purely head and shoulders).  Why is this innovative?  Well, already, users can use their bitmoji avatars to play games against friends or have their bitmoji star in a cartoon series.  Expanding the feature (in parallel to ongoing investments in AR/VR like this week’s Vertebrae deal) enables further product development for Snap - more immersive games, more experiences and greater upside from ad revenue.  It may also open the door to their own metaverse, with bitmojis engaged in a more ubiquitous digital environment.  On top of this, HBO Max (owned by WarnerMedia) is partnering with Snap to bring free episodes from its original programming (i.e. Game of Thrones, Gossip Girl) to Snapchat users in the US who can invite up to 63 friends to co-watch the shows, all whilst sharing bitmoji reactions!

Continuing a fairly gamified theme this week, Peloton (PTON) are now getting in on the fun, announcing an in-app video game called Lanebreak (below) which is going into beta later in the year.  The game, only available to Peloton owners and subscribers, involves users changing their cadence and resistance to meet various goals, and control an on-screen rolling wheel.  The game involves three types of challenges, Pickups (staying within your lane), Streams (rewards based on cadence) and Breakers (rewards based on energy output).

Uber (UBER) has announced its first major expansion into grocery delivery in the US, more than doubling the number of service areas to over 400 cities and towns including San Fran, NY and Washington DC.  The expansion was largely thanks to a partnership with grocer Albertsons who have ~2,200 stores nationwide including Safeway, Jewel-Osco, Acme, Tom Thumb and Randalls.  Uber Pass and Eats Pass subscribers don’t need to pay delivery fees on grocery orders over $30.

A big week for LiDAR!  Firstly, Aussie LiDAR innovator Baraja (private) has struck a deal with Sweden’s Veoneer’s (VNE) to develop, market and integrate its spectrum-scan LiDAR (below) for Veoneer’s next-generation autonomous vehicle technology.  Secondly, AEye (pending listing) is trying to build excitement ahead of their upcoming SPAC merger, announcing supply deals with German conglomerate Continental (CON.DE) and the newly listed autonomous trucking company TuSimple (TSP).  Continental is an existing shareholder in AEye and plans to integrate the sensors into its autonomous driving systems.  Lastly, Luminar (LAZR) has acquired one of its suppliers, OptoGration (private) who provide custom laser light detectors for LiDAR (and have the ability to produce 1m such detectors each year).  Oh, and Velodyne’s (VLDR) CEO stepped down this week for now reason, sending their shares down 6%!  That’s a lot of LiDAR news!

Nasdaq (NDAQ) is making it easier for you to access shares in private companies - shifting its Private Market business into a new stand-alone entity in collaboration with Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C) and SVB Financial (SIVB), the parent of Silicon Valley Bank.  According to the announcement, the JV will “establish an institutional-grade, centralised secondary trading venue for issuers, brokers, shareholders and prospective investors of private company stock”.  The banks involved will help develop a unique distribution network that will be broker-neutral whilst enabling “employees a safe and easy way to generate liquidity while they are building their businesses”.

IPOs | SPACs

Fast Radius (private), which offers on-demand 3D printing, CNC machining and various other advanced manufacturing services, is merging with SPAC ECP Environmental (ENNV) in a deal that will value the business at $995m.  Instead of developing the 3D printing hardware, which is becoming quite saturated, Fast Radius has developed a Cloud Manufacturing Platform, what they call a “first of its kind infrastructure to design, make and move industrial-grade parts in the digital age”.  The platform, which is outlined in more detail in the investor presentation, helps companies like Aptiv, Toyota and Colgate, discover technologies and materials, get design insights and feedback, order on-demand parts and store those parts in a Virtual Warehouse.

Russian game developer Nexters (private) is proceeding with a Nasdaq listing by the end of September by merging with SPAC Kismet Acquisition One Corp (KSMT), giving the company a value of ~$1.9b.  The company, which develops popular games Hero Wars and Throne Rush, has (like most game developers) seen a rapid rise in demand during covid, with 1Q revenue rising 48% YoY and 2Q revenue rising 40% to $154m from ~400k monthly paying players.

Israeli fraud-prevention firm Riskified (private) has filed for an IPO on the NYSE.  The company, which was founded in 2013, has developed an e-commerce fraud prevention platform that makes it easier for online merchants to accept high-risk credit card transactions.  They do this by reviewing, approving and guaranteeing transactions with a series of machine learning tools, reinforced through aggregate data. Products include Chargeback Guarantee (auto-approval of online orders), Policy Protect (identifying customers who may abuse a merchant's T&Cs), Deco (combating bank authorisation failure during checkout) and Account Secure (securing a consumer’s saved account details).

M&A | Cap Raise | Earnings

Sketchfab (private), likely the world’s largest repository of 3D assets, is being acquired by Fortnite and Unreal Engine developer Epic Games (private).  Strategically this makes a lot of sense, with significant synergy with the Unreal Engine platform which is the world’s most advanced real-time 3D creation tool used across gaming, architecture, automotive and, as we saw last week, broadcast.  According to an announcement from Epic Games, “by joining forces, Epic and Sketchfab will be able to make 3D, AR and VR content more accessible and grow the creator ecosystem, which are critical to an open and interconnected Metaverse”.

The WSJ reported that Intel (INTC) is in talks to buy GlobalFoundries (private) for ~$30bn from owner Mubadala Investment Corp.  This has been suggested before and seems, at face value, misaligned to the company’s focus of fabricating more higher performance chips (10nm-2nm processes) to compete better with market leaders TSM and Samsung.  In fact, GlobalFoundries fastest processors start at 24nm and is focussed more on the ‘rest’ of the market - so it wouldn’t really give Intel much of an innovation edge 

Zoom (ZM) is spending $14.7b to acquire Five9 (FIVN) - a provider of cloud contact center software, in efforts to further bolster the organisation's enterprise offerings.  Zoom believes such an acquisition will create an omnichannel engagement platform that will seamlessly integrate across enterprise communication workflows and multiple customer engagement touchpoints (e-commerce, MRM, help desk etc).  In terms of financials, Five9 generate $478m in revenues, with 37% revenue growth; implying a trailing 30x P/S multiple (or 22x 2022e P/S).  A huge price to pay, but one that offers a significant expansion of TAM (below), with substantial synergies.

Tencent (700.HK) has announced a $1.26b deal to acquire UK-game developer Sumo Group (SUMO.L) - the team behind LittleBigPlanet 3 (and spin-off Sackboy, below), sending shares in the company up 44%.  Such a deal expands Tencent’s gaming universe even further, with existing ownership in Riot Games (League of Legends), Epic Games (Fortnite), Supercell (Clash of Clans) to name just a few. Despite its dominance, Tencent’s whopping market share in gaming tends to fly under the radar of most regulators (certainly vs acquisitions in more critical industries as we see with the Newport Wafer Fab) and it’s likely we see the Chinese giant further consolidating in the sector in the coming year.  

One of India’s most successful startups Byju (private) is buying US-based kids online reading platform Epic (not the game developer!) for $500m, expanding the company further into English-speaking markets.  Acquiring Epic will help Byju’s expand its US footprint with access to more than 2 million teachers and 50 million kids in Epic’s existing user base, which more than doubled over the last year due to the pandemic.  

Google’s (GOOG) YouTube is buying Indian social media startup Simsim for an undisclosed amount expected to be north of $70m.  Simsim is just two years old but has seen rapid growth since its founding, helping small businesses in India transition to e-commerce via video content (connecting influencers, business and customers).  According to an early backer of Simsim, Good Capital’s Rohan Malhotra, the overarching thesis is that “micro-influencers are more effective at building a targeted audience (growth), creating entertaining experiences (retention), building trust (higher value) and personalising messaging (conversion)” and larger consumer platforms like Facebook, YouTube and Instagram cannot meaningfully monetise via advertising-financed models in India.

Cybersecurity platform Rapid7 (RPD) is acquiring threat intelligence platform IntSights (private) for $335m; to further bolster its offering amid a surge in demand for enterprise cyber solutions.  Rapid7 CEO Corey Thomas says IntSights’ platform features will be brought into Rapid7’s extended detection and response solution, InsightIDR, in the coming weeks - providing customers with a view into threats, attack surface monitoring, relevant insights, and proactive threat mitigation. 

Leading EV charging network Chargepoint (CHPT) has struck a deal to buy European charging software company has.to.be (private) for $295m.  The target’s software currently manages more than 40,000 networked ports throughout Europe (plus 250k network ports through open roaming agreements), and is aligned to the company’s growth strategy to expand beyond the North American market.  In all, ChargePoint has more than 115k charging spots globally.

Crypto exchange FTX (private) has raised $900m from more than 60 investors including Softbank, Sequoia, Thomas Bravo, Coinbase Ventures and Circle.  The round values FTX at ~$18b, with the capital being put towards the expansion of the company’s product line, growth of its user base, strategic investments and partnership expansion.  At present, FTX is one of the top five crypto exchanges in the world, with a daily volume exceeding $1.1b.

Australian startup Go1 (private), which provides curated online learning material and tools for enterprise, has closed a $200m Series D round led by Softbank, AirTree and Salesforce - valuing the company at over $1bn.  The company currently works with over 3.5m users and more than 1,600 enterprises globally, but what makes it unique is that users (much like Spotify or Apple News+) have access to over 150k pieces of content from a range of publishers including Pearson, EdX, Coursera, Blinkist and Harvard Business Review.

Have a great week.

Charlie

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

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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.