Monday, Mar 7, 2022 • 10min

Is the AR and VR market only for trillion dollar companies?

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Hello and welcome back to Equity, a podcast about the business of startups, where we unpack the numbers and nuance behind the headlines. Every Monday, Grace and Alex scour the news and record notes on what’s going on to kick off the week.

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Alex Wilhelm

Transcript

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Break

Alex Wilhelm

00:25

Hello and welcome back to Equity, the

Techcrunch

podcast where we unpack the numbers and the nuance behind the headlines. This is Alex, it is March 7th, 2022. And boy do we have an absolutely packed show for you.

00:37

As always, we're going to start off with a look at the global markets, but we're going to flip it today because there 's more action in the stock market than the crypto world. So first tokens, major crypto are actually pretty boring in the last 24 hours. So there's just not that much to talk about. NFT volume on

OpenSea

is falling, but it's a little bit too early to call a trend there.

00:56

And you know,

Bitcoin

and

Ethereum

are up like a point or down like a point. So not much going on in the last 24 hours. So where is the action? Well, it is in the global stock markets, looking around the world, everything looks pretty bad. Asian stocks are really taking a hammering the

Nikkei

over in

Japan

is off about 3%.

01:12

The

Shanghai Composite

is off a little more than 2%. Over in

Europe

, things are bad, just a little bit less bad. Major exchanges are off about a half a point to a full point. And here in the

, well, looking at the futures and the early trading things look kind of bleak off about half a point to a full point depending on what exchange you're looking at. What 's going on. Well, ensure concerns about inflation, the global economy, the Russian invasion of

Ukraine

are all still weighing on investors minds.

01:37

And narrowing our lens down to just the stocks we care about the most. Cloud stocks. This is the Twilios and Datadogs of the world. What's going on? Well, it's not looking good there either. In fact, I just checked this morning. Cloud stocks as measured by the best cloud index, have given back essentially all their gains since June or July of 2020. And they grew a lot in that time period, which means that revenue multiples are down to kind of where they were or worse. That's not very good news for startups.

Speaker 1

02:04

Alright, our top story today is as always

Ukraine

and the Russian invasion. There off we are taking a look at this story from a technology perspective. But don't forget, this is a political story and economic story. It is more than just the way we talk about it.

Alex Wilhelm

02:16

However, from the world of technology, what's going on? Well,

and

Epic

are going to stop selling their games inside of

Russia

. Of course,

Electronic Arts

and

Epic

are two major gaming companies behind a number of titles that you know and probably have played.

02:28

We also recently learned that

Netflix

is pausing its service inside of

Russia

. And just turning back the clock a couple of days, we recently learned that

Visa

and

Mastercard

are also spending operations in

Russia

. And that

Tiktok

has started to change its service in light of new local regulations in the country.

02:42

Starting content as the Russian government looks to crack down on, it 's citizens knowing what is actually going on the tech markets choices matter is actually super clear. It feels majors are pulling out.

02:52

Startups are rushing to keep their Ukrainian staff safe and the Russian economy is increasingly ostracized alone and stuck with a falling currency. We are really seeing technology industry step up and kind of meet morgue nation state-level sanctions with their own decisions. It's rather encouraging, frankly.

03:08

Now, what are we seeing? Well, a race to get weapons into

Ukraine

while sanctions and economic decoupling do damage and hope that the latter, which is a terminal state before

Ukraine

loses the war.

03:18

Yes, this is a grim damn way to start the week. But it is what matters most because we're talking about the future of

Europe

, a key market for both. I don't know... people, yes, and also, I'll just say it, startups. And so what comes out of

Ukraine

will impact a great host of companies that we do care about here on the show. So expect this to be the top story for a couple more weeks.

Break

Alex Wilhelm

04:18

Normally we kick off our B block as we say in the script with a look at the big technology companies. But today we're gonna look at the big technology companies of the startup world. So yes, we're gonna talk about what I'm calling mega unicorns. A couple of notes about them today.

Speaker 1

04:30

First up

FTX

is moving into

Europe

FTX

is a huge global crypto trading platform and is essentially adding the European continent to its overall geographic mix. Now you've probably heard of

FTX

. It's raised a lot of money. It has sponsored all sorts of things from

Formula 1

cars to other sporting franchises. Essentially if you watch sports, you've probably seen

FTX

which is their goal. Anyways, it does have a US subsidiary and opposite services elsewhere in the world as well.

Alex Wilhelm

04:57

But they will build a new subsidiary in

Switzerland

to help serve the European continent more generally. How can it afford this? Well, the company last raised 400 million at a $32 billion this January. So it 's certainly not short of cash or investor demand.

05:11

I'm just thinking out loud, I'm presuming that that fundraise was put into place in anticipation of this European expansion because it won't be cheap. But here's the overall equation. We're looking at new markets for

FTX

equal new trading volume. New trading volume equals new revenues and new revenues of course equal growth. Which is what everyone wants to see.

05:28

Now there is a caveat here.

Coinbase

is an American company also operates a crypto trading platform and it is kind of seen as value fall apart. The company is now worth around $164 per share. Down around its all-time lows and far below its $250 per share direct listing reference price. Even more, the company saw its stock rise to about $430 per share at one point in time. So it is down sharply from then.

05:51

So the

FTX

bet on more markets as notable as is its fundraising. And the question is can the company keep up the growth so it doesn't get re-priced as

Coinbase

appears to be right now to a profit multiple and not a revenue multiple.

06:03

Sticking to the European continent. Next up in our list of mega unicorn results is

Klarna

. Now

Klarna

of course is the BNPL giant buy-now, pay-later, a popular way for consumers to buy things online and also increasingly in the physical world. A lot of competition around the world. A firm of course it's a BNPL company in the

etcetera etcetera etcetera.

06:22

So how did

Klarna

to do last year? Well, if you read through its earnings document, you will see page after page after page of pretty positive commentary from the company about their operations and credit losses and overall kind of GMV growth.

06:35

And then you scroll and scroll and scroll and you get to the actual financial results and what do you see? Well, medium growth and accelerating losses. So here's the numbers as a matter for us this morning Revenue at

Klarna

grew to 13.75 billion Swedish Krona last year up from about 10 billion in 2020.

06:53

Okay, But its net loss skyrocketed from 1.375 billion Swedish Krona in 2022. A net loss of more than seven billion Swedish Krona last year. Now we're still trying to figure out why costs went up so much of the company, but basically it does appear that the BNPL market is looking increasingly competitive to grow inside of.

07:11

Now, that means that intracompany competition is looking good and consumers are getting probably better deals at their checkouts. But it's not great news for BNPL companies with huge valuations to defend. There are a lot of startups in the space, a lot of bets on the startups in the space. So there is a lot of risk here and

Klarna's

numbers are not exactly as encouraging as we might have hoped.

07:33

Alright, startups. Now the round that really caught my eye this morning was from a company called Circular. io. One, love the name, I can spell it, it's going to be easy to google and two, dot io, I love that. Are those coming back? That's my favorite TLD. Absolutely a blast. Now the company is based in

Madrid

and is building what it calls a quote talent sharing platform.

07:52

Now, what the hell is that? We'll check which writes that. The company is building a quote new model for hiring using a platform approach which encourages companies to recommend to tech talent that they were unable to hire to circulars recruitment network.

08:05

Interesting. I have a lot of questions about that, but essentially the talent market for tech workers is so bonkers hard right now that we know the company has effectively unlimited tam. The question is just really efficacy. Does this new model that we kind of understand actually help folks hire more tech workers more quickly? If so the recent $10 million dollar raises Circular just put together is going to be not the last round that it does raise if it doesn't really work well, it'll go away. But I love the idea of using startups to help fix a key startup problem.

08:34

And to close out our startup news a item from late last week that I missed and if I missed it, I'm presuming that other folks did too, because I'm on Twitter far too much. Last week as we kind of wrapped up,

Founders Fund

announced that it raised $5 billion across two new funds.

08:49

That is, is simply insane amount of money and really a

Founders Fund

had pulled this off five or 10 years ago, it would have been the headline of the month, not something that we missed, the dollar amount that

Founders Fund

just raised indicates that are still institutional demand for venture allocation at historically high levels. And it also means that

Miami

which has seen an influx of both venture and tech talent, has a lot of folks now on the ground with extra cash to spend.

09:11

So the startup game is really a foot, forget everything we set up top on the show, all the bad news, all the concern, all the worry, five billion for

Founders Fund

. Let 's go!

09:22

Closing out today, a reminder that there is an

Apple

event coming up, this Tuesday, we are expecting new hardware and the possibility of something involving AR and maybe VR. If you're into

Apple

gear, this is going to be a big day for you and really there's a startup angle here. AR and VR are increasingly, it seems, things for big companies to play with

Facebook

has a VR strategy,

Apple

has an AR and VR strategy,

Microsoft

has an AR strategy.

09:48

Okay, cool. But is it really only a market for trillion-dollar companies or is there room for startups to actually make a dent here from a hardware perspective and not just a software perspective? Will the same platform companies build a new platform or will a new platform player kind of emerge? I don't know. What I do know, is that because I bought an

IMac

late last year, I'm presuming the company will drop new

IMacs

that are better and cost half as much.

10:10

And also it'll be curious to see if the company makes any notes about supply chains or the broader geopolitical environment because well, that matters! Even if yes those are not really traditional

Apple

hyped topics.

10:23

Alright, that is our show. A couple of really brief notes, you can follow me on Twitter where tweets under the handle alex@, but more importantly, you can follow Equity on Twitter where we tweet under the handle equitypod@, and that matters because this is our live show week, which means on Thursday we're gonna be recording our Friday episode live on hopping jump in there if you wanna ask us questions or if you're not into that, it will also be live on Twitter spaces -hence why our Twitter account matters- and a number of other platforms as well, that episode will come out on Friday as usual.

10:53

But if you want to drop in on Thursday asked questions, listen live whatever it is, we'll be doing that. We'll see you then. Bye.

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