Introducing the TechCrunch Bubble Index

Today, I thought it could be interesting to introduce the TCB Index that has been making the ‘headlines’ lately. First of all, what does the Index tell us? The TCB index counts the number of headlines on TechCrunch (blog: see techcrunch.com) over the past 90 days relating to startups raising money (‘startup fundraise’ means that the amount raised was at least $100K and less than $150mio). Therefore, the higher the index, the better the fundraising environment.

For instance, if we have a look at the chart below (source: Todd Schneider’s website), we can see that the startups business has been going through a difficult time for the past few months. On November 16, 2014, the TCB Index was at 209, which means there were 209 TechCrunch headlines about startup fundraise in the 90 days preceding that (roughly 2.3 per day), down from a high of 346 in April this year.

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 (Source: Todd Schneider)

Quick thoughts on Twitter’s IPO and the dotcom bubble 2.0

It makes me think the way I felt when I saw the headline ‘Twitter files for IPO’ last year. As a reminder, the company sold 70mio shares on the IPO (November 6, 2013) at $26, raising $1.82bn in its Initial Public Offer. In addition, I was asking myself how a company, that wasn’t profitable at the time it went public, could be valued over 10 billion dollars?

In its first public financial statement, Twitter reported $79.4mio in losses for the year 2012 (after a negative net incomes of $67.32mio in 2010 and 128.3mio in 2011), and was predicting even steeper losses for 2013 (guess what: losses reached 645.32mio that year).

I concluded that we were in a second dotcom bubble. Below I added a chart from the Wall Street Journal (which sums up briefly what I just said).

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(Source: Wall Street Journal)

 Is it just the beginning?

Today, as the TCB Index shows us, there is less money in the startups business and we are starting to see some weaknesses. For instance, we heard lately that Fab (a design-focused commerce company), a once-to-be Silicon Valley’s darling valued $1bn back in June 2013, is about to sell for $15mio according to some sources (the acquire: PCH International) as it had struggle to sustain its growth. With the Fed considering starting raising rates for the first time since 2009, are we going to experience more of those cases?

 ‘A thing is worth only as much as it can be sold for.’

Publilius Syrus

The Candy Crush Saga

As you may have heard this week, King Digital Entertainment, the designer of the ultra-popular mobile game ‘Candy Crush’, officially began as a publicly traded company. The company, listed as KING on the New York Stock Exchange, issued 22.2 million shares at a price of $22.50 on Tuesday, giving the IPO an initial value of 499.50 million dollars. After its first day of trading, the company’s share was down 15.6%, far from the 72.7% Twitter’s gain as you can see it on the graph below. As some of the sell-side analysts would say, not such a royal IPO.

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(Source: SIX Financial Information, from WSJ)

Is the bearish trend going to continue in the coming weeks?

To begin with, unlike some of its internet-based friends valued over 1 billion US Dollars without making a single dime (Twitter, Snapchat, Pinterest…), KING has generated an annual revenue of $1.89bn (profit of $568mio) despite offering games to players for free (more than 1000% growth compared to the ‘shy’ $164mio revenue in 2012). For instance, Twitter, which was launched in 2006, managed to raise $1.82bn in its IPO last year (November 7) by selling 70 million shares at $26 a share. They are now trading at 47.3 after reaching a high of 73.3 on December 26th 2013, which still represents a 81.9% increase. However, if we have a look at the Income Statement, we can see that Twitter hasn’t recorded a profit for at least the past four years with net losses that came in at $67m in 2010, $164m in 2011, $79.4m in 2012 (its first public financial statement) and $645.3m in 2013 .

Secondly, our thoughts about the company were: ‘is it going to be all about Candy Crush or there are other projects coming?’ The most popular game (Candy Crush Saga), which was created in March 2011 and has managed to catch people’s attention to become an addictive time-waster especially in a tube journey, generated 78% of KING company’s revenue for the last three months of 2013 and approximately has a 100-million user each day. Like most of the game companies, the profits come from a minority of users who buy extra-lives, ‘super-power’ and other add-ons.

But according to his last interview this week, chief executive Riccardo Zacconi who has led King since its start in 2003 seemed really confident about the company’s future. He emphasized that the company’s strategy is to continue to build a portfolio of games and a network of players, and not just ‘find another megahit like Candy Crush’.

We keep a bullish view in the medium term as we believe that KING inherited from the market’s bearish sentiment on the Tech stocks. The heavy-tech NASDAQ composite index was down 2.8% from last Friday’s close to 4,155.759, with Facebook, Twitter and Zynga all down by 10.8%, 7.1% and 10.7%.

Quick chart review: As you can see it in the graph below, the stock continued to plummet after its 15.6% daily loss on Tuesday and ended the week at 18.08 (which represents a 19.7% decrease). It found support below the 18.00 level after it reached a low of 17.62 on Friday.

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(Source: Bloomberg)