Netmarble IPO: A Pattern of Greed Will Hurt This Company’s Performance

Netmarble IPO: A Pattern of Greed Will Hurt This Company’s Performance

Lawrence Abrams No Comments

Netmarble is the ninth largest mobile app game publisher in the world and the largest in South Korea.

The company is seeking to sell 17 million shares on the Korean KOSPI stock exchange in early May garnering proceeds of between $1.8 Billion and $2.4 Billion USD (all USD figures converted from Korean Won at .00088 USD / Won). Roughly half will be used for new acquisitions and half will be used to retire debt.

This is a big deal IPO by both Korean and USA standards.

It represents the largest IPO in S. Korea in 7 years. It would rank as the one of the largest tech IPO globally in last 2 years.

In January 2017, Netmarble launched a mobile role-playing game called Lineage ll: Revolution based on licensed IP from NCSoft’s legendary PC game Lineage. According to app analytics company App Annie, the game immediately rose to #1 on the S. Korean revenue rank charts.

Netmarble told the Korean press that the game generated $176.6 Million in revenue in the first month. That translates into an annualized revenue run rate [ARR] of $2+ Billion.

Obviously, that run rate is not sustainable. But, even if the game managed to produce $1+ Billion in revenue during 2017, it would place Netmarble in the rarefied company of Niantic, Supercell and MZ (formerly Machine Zone) as the only companies that released a $1+ Billion Dollar game in the last 2 years.

The IPO will be watched closely by the mobile game industry given the poor post-IPO performances of King Digital Entertainment in 2014 and Zynga in 2011.

A case could be made that these IPOs were anomalies and not a fair test of how a mobile game stock is capable of performing. Both Zynga and King Digital had enough numbers in their S-1s to suggest that their best days were behind them at the time of their IPOs.

However, there is absolutely no question that Netmarble’s best days are ahead of it. There is no question that its revenues and profits will soar in 2017 if Lineage II manages to sustain an ARR greater than $1+ Billion.

Lineage II is not all that Netmarble has going for it in 2017. In February 2017, the company completed a $700+ Million acquisition of the Vancouver studio of the USA mobile game company Kabam.

If managed properly (questionable as we will argue below), Netmarble could generate a fresh $100 to $300 Million in revenue from two Kabam game. One is Marvel: Contest of Champions which has been a long running Top 15 revenue rank game in the USA. The other is the recently released game Transformers: Forged to Fight based on IP licensed from Hasbro.

No question, 2017 will be a spectacular year for Netmarble. The Korea Times has reported that analysts there expect Netmarble’s forward 2017 revenue to be around $ 2.7 Billion, a whopping 107% YoY increase. This is a far cry from Zynga’s and King’s anemic post-IPO YoY revenue growth rates of 12% and 20%, respectively.

The question is has all of this been priced into Netmarble’s IPO price and valuation?

Our analysis will show that expectations for revenue doubling in 2017 has been fully priced into the IPO. Netmarble’s IPO is priced for perfection.

Furthermore, there is a pattern of greed on the part of Netmarble’s management that has not served it well. It includes:

While Netmarble’s short term prospects are tied to the performance of Lineage II in Korea, its long term prospects are tied to success in the West.

The company has announced that it intends to localize and release the Lineage game in China but those prospects are uncertain, even with Tencent (TCEHY) as a significant minority stockholder.

The uncertainty is result of China’s recent freeze on licensing new games from Korean companies due to geopolitical tensions between the two countries.

In our opinion, Netmarble’s greedy handling of the Kabam games causes us to believe that Netmarble’s current and future acquisitions will underperform due to employee and player defections.

We start with a summary of the IPO — the expected price range, and the expected post-IPO valuation based on those prices.

The next spreadsheet is our valuation of Netmarble as a multiple of 2017 forward sales. We have been unable to find any official company forward looking revenue statement. If there is one in the Korean version of their S-1, we have found no reference to it by the Korean financial press.

Lacking official numbers, we use $2.7 Billion for Netmarble 2017 forward sales, a number reported by The Korea Times that analysts there expect.

Any lesser number would only increase our estimated price / forward sales ratio (P/S), which is already high. Any greater number would be incredulous as Newzoo has reported that TOTAL Korean game revenue (mobile + console + PC) was only $4 Billion in 2016.

Moreover, given the $4 Billion Newzoo figure, it seem incredulous that there would be enough demand in Korea to sustain any single mobile game at an $1+ Billion ARR.

The next spreadsheet is a comparison of the valuation / forward sales (P/S) ratios of Netmarble — 3.3 — with Com2uS — 2.61.

Com2uS is a Korean-based mobile game company listed on the Korean KOSPI exchange. Gamevil, a smaller publicly-held Korean game company, holds controlling interest in Com2uS.

Com2uS is much better known in the USA than Netmarble due to its global hit mobile game Summoners War. The game was released in the USA in June 2014 and has maintained a remarkably consistent Top 20 revenue rank in the USA for the last two years.

Based on this comparison, we believe that Netmarble’s IPO is overpriced by 26% at its announced price range of $106 to $138 USD or 121,000 to 157,000 Korean Won.

We believe that it would be a buy only around $84 USD or 95,250 Won.

You might argue that Netmarble’s upside potential is higher than Com2uS. That is true. But, we are not talking about financials, but stock prices whose movement is based on perceived and actualized performance that has not already been built into the current prices.

Netmarble is a buy at the announced IPO range if you believe that it will exceed an expected 107% in revenue growth this year. We think not.

Netmarble is a buy if you think it can successfully localize and release the Lineage II game in China in late 2017 or 2018. We say wait a half year before you invest to get a better feel for geopolitics between S. Korea and China.

Finally, Netmarble may be a buy if you believe that the newly released Transformer: Forged to Fight game will become a Top 8-10 hit like its cousin Marvel: Contest of Champions. We think not.

Our four years of reading App Annie charts suggests that there are no more “late bloomers” in the mobile game world. If a newly released game does not crack the top 50 in the first few days, it will never crack the Top 10.

Our reading of the App Annie chart says that the Transformers game is a bust.

(Source: App Annie)

While the Transformer game began development under Kabam, the final architecture and release schedule came under Netmarble’s watch. Both reflect a greediness that we believe has resulted in its quick bust.

The game was rushed into global release on April 5th after a relatively short two month soft-launch shakedown in Singapore and Canada.

Experienced early players of the game report that it is “too complex to play” and there is “kitchen sink” approach to development with a mashup of game genres and a mind-numbing complexity to scorekeeping and purchasing. To us, this suggests that the priorities are early monetization over long term player engagement.

In sum, Netmarble in not a buy at the announced IPO price range. Wait at least six month and evaluate its performance then.

Trumpcare Needs Milton Friedman

Lawrence Abrams No Comments

Trumpcare has focused exclusively on eliminating mandates, reducing tax credits, and rolling back Medicaid expansion to the working poor. But, the consequences of this are an estimated 24 Million people dropping coverage and huge increases in premiums for those who wish to remain covered.

Trumpcare is up for a vote in the House of Representatives and its passage very much in doubt despite a 24 vote majority held by Republicans. Even it passes the House, its chances of passage in the Senate are deemed slim seemingly by design.

To appeal to moderates, Trumpcare needs to preserve Obamacare’s affordability, keep the Medicaid expansion, while at the same find a way to reduce overall budget costs in the order of 20%. To appeal to conservatives, Trumpcare must reduce overall costs in the order of 20% plus eliminate mandates which was a source of affordability by providing cross subsidies between health-risk cohorts.

The only way we see out of this conundrum is a move to consumer-directed healthcare espoused by the late economist Milton Friedman.

While Friedman is probably better known for his voucher plan for schools, he had similar ideas espoused in a paper written in 2001 called “How to Cure Healthcare.” A condensed version has been made available online by the conservative think tank The Hoover Institute.

Friedman’s big idea in 2001 was this:

“Two simple observations are key to explaining both the high level of spending on medical care and the dissatisfaction with that spending. The first is that most payments to physicians or hospitals or other caregivers for medical care are made not by the patient but by a third party — an insurance company or employer or governmental body. The second is that nobody spends somebody else’s money as wisely or as frugally as he spends his own.”

Friedman was no knee-jerk conservative. He made it clear that Federal subsidies to the uninsured was a fairness issue and not some handout. This is because of the unfairness of the current system of giving tax exemptions only to employer-provided medical insurance.

When Friedman wrote his healthcare piece in 2001, the estimate of this tax shelter was $100 Billion. Today, The Brookings Institute estimates this selective subsidy at $261 Billion.

When Friedman wrote this piece in 2001, consumer-directed healthcare with payments made from a Health Savings Account (HSA) was a new idea. He envisioned HSAs eventually as centerpiece of both Medicare and Medicaid through a combination of Federal contributions deposited in HSAs to cover normal expenses supplemented by Federal government single payer, high-deductible catastrophic insurance.

There have been three trends since Friedman’s 2001 article that have made consumer-directed health care so much more a viable option today. Trumpcare should take advantage of these trends.

The first trend — a negative one — is the dearth of Federal Trade Commission challenges to anti-competitive mergers among healthcare insurers and pharmacy benefit managers (PBMs). It is ludicrous today to think that insurance companies and PBMs compete for customers today by working hard to hold down healthcare costs and associated premiums. We have written extensively about the bilateral oligopolies in the drug supply chain and the misaligned PBM business model.

The second trend — a positive one — is the extent to which the Internet, payments technology, and mobile phones have lowered transactions costs — price discovery, evaluation of treatment options, patient advocacy, and payments — associated with the purchase of healthcare. This includes the substitution of the costly paperwork that used to plague HSAs with HSA-linked debit and credit cards programmed to pay only for SKUs certified as reimbursable healthcare costs.

Interestingly, it was Friedman’s colleague at the University of Chicago, the late Ronald Coase, that had the big idea that transactions costs could have profound effects on markets and institutions.

Notice, we said nothing about the need for government mandates for healthcare price transparency similar to the recent bipartisan legislation introduced in Congress.

We have no doubt, as would have Friedman, that consumer-directed healthcare would create such an explosion in provider price transparency as to make regulation unnecessary.

Recently, the U.S. House Oversight Committee Chairman Jason Chaffetz admonished people who complained about increased premiums under Trumpcare. He said they should get their priorities straight and cut back on luxuries like iPhones.

If Trumpcare were consumer-directed, this admonishment would be ironic because smartphones would pay for themselves by helping consumers hold down costs. For example, it is a sure thing that there would be app-based patient advocate services you could summon on a moment’s notice upon being admitted to a hospital. All bills would be run through the service. Consultants would be available 24/7 to review proposed treatments.

Indeed, we would argue that under consumer-directed healthcare, a portion of a smartphone’s expense should be a deductible.

The third trend — a positive one — is the exponential growth in venture-capital funded startups focused on healthcare price discovery, cash-only drop-in clinics, lab tests for early detection of cancer, low cost step-therapies, etc. All of these services are in a symbiotic relation with consumer-directed healthcare.

We would like to mention just two of the many healthcare startups out there with services focused on enhancing consumer-directed healthcare. Both would thrive if Trumpcare were based on Milton Friedman’s ideas.

One is a basic healthcare clinic just starting up in San Francisco called Forward. The innovation here is an out-of-pocket only subscription business model of $1,800 a year billed annually. They do not accept insurance. This type of clinic is made-to-order for consumer-directed healthcare.

The other startup we want to mention is the crowd-sourced price discovery website Clear Health Costs. Here is just one screenshot to give you some idea of its value to consumer-directed healthcare.

Screenshot from Clear Health Costs Website

Again these are just two of the hundreds of healthcare startups that would make consumer-directed healthcare a viable alternative to Trumpcare as initially designed.

We conclude below with a table outlining how Obamacare, Trumpcare, and Trumpcare + Milton Friedman would address major issues:

Trumpcare + Milton Friedman

The Bancorp: An “Extend and Pretend” Loan Operation That Never Ends

Lawrence Abrams No Comments

Advice First — Then Analysis:

Coinciding with a new CEO Damian Kozlowski, The Bancorp (TBBK) has been forthright in taking additional markdowns on it discontinued commercial loan portfolio. But, this has resulted in three successive quarters of unexpected losses followed by double digit percentage declines in its stock.

This article will present the case that these quarterly losses will continue throughout 2017 culminating in the need once again for a private placement to shore up its status as a “well capitalized bank” per Dodd-Frank.

The stock is NOT long term buy.  Nor is it a short at this time as there will be value funds like the bank’s 5th largest shareholder, Fuller & Thaler (of  behavioral finance fame) that will jump in when the stock falls below $4.75 / share.

At best, it is a short term trade with buys made AFTER quarterly announcements of losses and sells one month later as value funds complete their accumulation.

Analysis

Systemic problems with mortgage loan operations — originations and modifications — are flows which are capitalized into a long-dated assets or stocks.  Correcting bad origination practices, or changing the flows, does not change the prior stocks created by the flows.  

There were systemic problems with the origination and securitization of subprime residential mortgages a decade ago.  The process was corrected. But financial institutions, mostly the Federal Reserve Bank, still have a good portion of those troubled assets on their books.  The flawed origination process was stopped years ago, but the troubled loans still produce losses to this day.

Here is the analogy of the subprime debacle a decade ago to The Bancorp’s “continuing problems with a discontinued operation”:

On October 31, 2014, The Bancorp (TBBK) announced that it was discontinuing its commercial lending operations and set aside for sale a loan portfolio with a principal of a $1,124 Million. During the Conference call, the former CEO Betsy Cohen stated that  “…we do anticipate those sales being completed within the next 120 days.”

The flow process ended. But, two years later the bank still has nearly half of its loan portfolio either on its books or off-loaded to a non-consolidated, self-financed LLC.

There have been surprise loses due to markdowns / write-offs for the past three quarters.  During the 3Q16 conference call, the new CEO Damian Kozlowski sought to reassure rattled analysts by claiming  

“We believe this (markdown) is not systemic. We believe this is a one-time item.”

During the 4Q16 conference call, when pressed about another private placement in late 2017, the CFO Paul Frenkiel said,

So right now we’re fairly comfortable we can work our way to a higher capital base without raising additional capital at this time.

At the end of this unusually long and testy call with analysts (a first!),  CEO Kozlowski wearily pledged,

“I want to wind it down as quickly as possible…”

The purpose of this article is question all of those statements.

Summary of Our Past Work

We have written a number of papers for Seeking Alpha on The Bancorp’s “continuing problems with its discontinued operations.”  There are two basic points we have tried to make:

  1. The portfolio was not fairly marked initially because “fairly marked assets sell fairly quickly.”
    1. The Bancorp: Bad Moon Rising (January 2015)  
    2. The Bancorp: Continuing Problems with a Discontinued Operation (March 2015)  
    3. The Bancorp: Why the Continuing Delays in Filing Its 10-K (May 2015)
  1. Once the bank began to take additional markdowns, the hits to equity brought it close to going below the Dodd-Frank standard of a “well capitalized bank”.
    1. The Bancorp: Private Placement Needed To Shore Up Status as ‘Well Capitalized Bank (August 2016)
    2. The Bancorp: Oversold Says Richard Thaler’s Behavior Finance Fund (September 2016)

We have also written an accounting paper The Bancorp: A Test for Post-Enron GAAP which challenges the bank’s election not to consolidate the LLC created to off-load the most toxic portion of the loan portfolio.

Systemic Problems With The Bancorp’s Operations

Thankfully, the new CEO Damian Kozlowski has eradicated one systematic problem that plagued the bank in the past: a slowness to book markdowns / write-offs.

But,  we have identified two other systematic problems  related to specific bank operations.

The first systemic problem is the bank’s approach to what it known as  “troubled debt restructurings” — described by the bank in its latest 10-Q  as “loans with terms that have been renegotiated to provide a reduction or deferral of interest or principal because of a weakening in the financial positions of the borrowers.”

It turns out that the bank’s commercial lending operations had a practice of “extend and pretend” or “kicking the can down the road” which can disguise the true quality of a “performing loan.”

The classic example of turning a non-performing loan back into a performing loan is to modify the terms to allow for interest only payments for a number of years followed by a huge balloon payment at the end.  Shades of subprime mortgage debacle of a decade ago?

Evidence of the bank’s practices comes from interviews with former employees found in court documents (p.25-29) connected with a class action suit by investors suffering losses for the class period January 2011 through June 2015.

Here is detail explanation (p.27) of the practice from one former bank employee “CW3”

For instance, CW3 stated, “rather than actually calling the loan or forcing a liquidation or calling it what it is, sometimes the action that was taken was funding new money to pay the existing loan down, that was delinquent.” CW3 stated that another technique Bancorp used to “try to turn nonperforming loans into performing ones” was to “switch up” a loan’s amortization, which changed the cash flow and decreased required payments.

That class action lawsuit was settled out-of-court by fake do good lawyers for a paltry $17.5 Million or 15.5% of the $112.5 in total stock market losses claimed by  the plaintiffs.  Worse, the settlement was covered by The Bancorp’s insurance (see 3Q16 10-Q p.32) and so there was no hit to the bank’s financials.

The second systemic problem was the way the bank has wound down this discontinued loan portfolio.  

The most toxic portion was sold off first to an unconsolidated LLC accompanied a bare-bones 8-K sneakily filed the day before New Year’s Eve 2014. Two years later in 4Q16, The Bancorp finally provided enough detail to support our early 2015 assessment of the toxicity of  this off-balance sheet portfolio. (see spreadsheet below)  

With the most toxic portion removed, the bank has spent the last two years getting rid of the cleanest portions.

About 25% of the principal has been payed off / paid down. The bank touts this as a success. But, this means that the borrowers with the best finances and opportunities to refinance are off the books.  

The corollary is that the remaining borrowers have little ability to pay down and have relatively high loan-to-value (LTV) precluding them from refinancing with another lender at a lower interest rate.  

The remaining portfolio on the bank’s books has been shopped around to every regional bank in the Mid-Atlantic region for the past two years.

In 2Q15, loans totalling $150 Million were “cherry-picked” by the Cape May Bank, NJ ($102M) and another unidentified bank.  In 3Q16, a loan package of $65 Million was “cherry-picked” by the First Priority Bank, Malvern PA.

What is left is stuff no regional bank in the Mid-Atlantic would touch.  It’s like they say —  never shop at the farmer’s market at the end of the day as it’s all been picked over.

A Comparison of the Two Loans Portfolios

Below is a spreadsheet comparing the remaining portion of bank’s two loan portfolios in terms of

  • % markdown of remaining principal
  • % non-performing
  • % of initial principal that has been paid-down / off

And, in a later spreadsheet

  • A “reverse engineered” disaggregation of average % markdown overall into average % markdown by performing class  

This data comes from the end of the bank’s announcement of its 4Q16 results.  After two years of providing next to nothing, the bank suddenly discovered financial transparency.  This was likely due to a crescendo of pressure from investors coupled with a new CEO realizing that financial transparency (not the same as GAAP) is best in long run for the bank.

There are three statistics in the spreadsheet below that confirm our suspicions made two years ago that The Bancorp’s strategy was to bundle the most toxic and unsellable loans first and off-load them to an unconsolidated LLC which it obviously had to self-finance as no third-party would partner with them otherwise.

The first piece of confirming data was a 41% AVERAGE markdown of the LLC portfolio despite 77% of loan principals classified “performing.”  What a joke!  The incongruity of these two statistics confirms the meaningless of  “performing” as a sign of loan quality when a loan operation engages in  “extend and pretend.”  

Obviously, a lot of the so-called “performing” loans had been modified to interest only with a balloon payment after a number of years. And the non-performing loans probably involve skipped balloon payments rather than skipped flat payments according to a normal amortization schedule.

With no more “extend and pretend” possibilities, or refinance because the borrower is “underwater” with a current loan-to-value (LTV) > 100%, the endgame here is foreclosure followed by Chapter 7 or Chapter 11 followed by sheriff’s sale.

This sequence is similar to the loans largely responsible for The Bancorp’s losses in 2Q16 (The Schuylkill Mall in Frackville, PA) and 3Q16 (The Fashion Square Mall in Orlando, FL).

A third telling statistic is the difference in % paydowns / offs.  Here 62% of the bank’s original portfolio was paid down / off versus a paltry 6% for the LLCs portfolio.  

A high % means that the bank’s portfolio contained a lot of borrowers with spare cash to pay and/or appreciating assets — low current LTVs– that provided opportunities to refinance at lower interest rates.

A low % means that the LLC portfolio contains a lot of borrowers with interest first loans with no spare cash to paydown and depreciating assets — “underwater” LTVs > 100% — that provides no opportunity to refinance.

An Estimate of Future Losses

The commercial lending operation was discontinued in 3Q14, but it wasn’t until 2Q16, coinciding with a new CEO,  that The Bancorp finally began to account for the deterioration in the loan quality in the two portfolios.

Below is a chart of the FY16 discontinued portfolio markdowns and LLC note write-offs.

The Bancorp uses mark-to-market accounting for the portfolio still on its books, taking account of specific events like the 3Q16 foreclosure and subsequent Chapter 11 filing of The Fashion Square Mall in Orlando, FL.

The accounting is entirely different with the off-balance sheet portfolio in the LLC.

The LLC itself uses mark-to-market accounting internally per GAAP.  But because the LLC is unconsolidated and overwhelming financed by notes taken back by The Bancorp, the bank uses note valuation accounting here.

Note valuation affords the bank discretion in models and interest rate parameters chosen to calculate discounted present value of the notes.   This variability in possible valuations was discussed at length during the  4Q16 conference call.

All of this is evidenced in the difference between 4Q16 LLC write-off of $13.2 Million discussed during a January 31st private call with analysts and $25 Million write-off discussed February 10th during the 4Q16 conference call.

Below is our estimate of addition mark-to-market markdowns for both portfolios.  The caveat is that our estimated markdowns for the LLC portfolio are internal to the LLC.  Whether or not they are reflected in the opaque, discretion-laden note valuation model used by The Bancorp is another matter.

The key to our estimate is a disaggregation of average % markdowns supplied by The Bancorp into markdowns by performance type.  The Bancorp helps us do this for the portfolio still on their books.

They disclosed an average 41% mark for subclasses like shopping malls which are laden with non-performing loans versus a average 5% mark for subclasses laden with performing loans.  

Tellingly, the bank did NOT reveal marks by subclass for the LLC portfolio.  But, simple tie-out math dictates that the components that weight the LLC  41% average be higher than the components that weigh the bank’s 15% Average.

We could see the LLC booking  $30+ Million yearly markdowns for the next 3 years.  Again, there is a caveat that what the LLC books internally according to mark-to-market GAAP  is not the same as what The Bancorp books as changes in discounted present values of notes from an unconsolidated LLC (now insolvent according to my reconstruction of its 4Q16 balance sheet).

In any case, the losses will not end soon and will plague the new CEO Kozlowski for the next three years despite his 4Q16 pledge  “I want to wind it down as quickly as possible…”

A Unicorn Startup’s Kiss of Death: Kabam Field

Lawrence Abrams No Comments

The year 2016 will be remembered as a year when titillating stories came out about Unicorn excesses — Dropbox’s Chrome Panda sculpture, Hampton Creek’s covert buy-backs of Just Mayo inventory, and Zenefits’ sex in the stairwell.

This is a story about Kabam, another fallen Unicorn, and its excesses. More than just descriptive, we analyze its history to locate the source of its downfall in the emergence of a “talk the talk” culture championed by hired professional managers who focused Kabam on short-term revenue goals and a quick IPO.

We even pinpoint a moment in time when Kabam’s fortunes first turned for the worse — a late December 2013 acquisition of the naming rights to the University of California at Berkeley (Cal or UCB) football field for $18 Million paid over 15 years.

In a March 2014 article, we first predicted that this conceit would be viewed in hindsight as Kabam’s “kiss of death” — a sign foreshadowing bad things about to happen. Sure enough, two and a half years later, the once high flying Kabam now is in the process of being dismantled and sold off.

Kabam’s most valuable asset, its Vancouver studio, has just been sold to the Korean gaming company Netmarble for a reported $800 Million. After this deal closes in 1Q17, the company has announced that the rest of the company’s remaining studios will be offered for sale as acqui-hires. Nothing has been said about the future of Kabam’s three co-founders, but their days as Unicorn executives are over.

Also, nothing has been said yet as to the disposition of the naming rights for the football field. While the future name of Cal’s football field might have low priority for those in charge of disposing of Kabam’s assets, its has enormous social-psychological value to the tens of thousands of people who care passionately about the Cal and its football team.

Where Did Kabam Go Wrong?

Kabam was founded in 2006 by Cal alumni Kevin Chou, Michael Li, and Holly Liu. The company had early success developing mobile “freemium” games based on movie IP licensed from major studios.

But, beginning in 2013. Kabam stopped making visionary choices. In our opinion, this was due to the emergence of a the “talk the talk” culture beginning with the hiring of Steve Swasey from Netflix to be head of Corporate Communications.

In January 2016, Swasey was hired away from Kabam by Lending Club CEO Renaud Laplanche, only to leave several months later after Laplanche was forced out by Lending Club’s Board when they discovered the CEO’s involvement in loan doctoring.

Our interest in Kabam began in 2013 when we discovered the app store analytics company App Annie. We saw a rich set of quantifiable financial data and developed a methodology for translating app store revenue ranking data into global annualized revenue dollars.

Based on comparable valuations for publicly-held companies as a multiple of their revenue, we were able to derive solid valuations for mobile game startups like Kabam and Machine Zone (now rebranded as MZ).

We were also able to make prescient buy recommendations in 2014 for two Japanese publicly-held pure play mobile game companies KLAB and Mixi.

While our focus has been on financial analysis of mobile game companies, in 2014, we starting writing about the differences between MZ and Kabam’s approach to publicity. Not only were the differences between the two extreme, but extreme for Unicorn startups in general.

MZ rarely talks to the press. Between 2013 and today, CEO Gabe Leydon has given two interviews a year and official MZ press releases happen about twice a year. There is no MZ employee chatter to be found on the internet other than anonymous comments on Glassdoor. This is shocking for a tech Unicorn, more extreme than the secretive Palantir, whose core competency is secrecy.

Kabam is the complete opposite of MZ when it comes to publicity. Forget about the number of times the tech press has interviewed CEO Kevin Chou or COO Kent Wakeford. Forget about the progressive “moussing” of CEO Chou’s hair that we have noted in photos and videos over the past five years.

What shocked us was the discovery that Kabam had a practice of issuing press releases every January between 2012 and 2015 giving specific numbers for revenue, headcount and cash in the bank: 2012 (for 2011), 2013 (for 2012), 2014 (for 2013), 2015 (for 2014).

This has allowed us to graph the rise and fall of Kabam’s revenue and headcount — a publicly available graphic that is rare for a tech startup.

The idea for this practice can directly be traced to Kabam’s former SVP of Corporate Communication Steve Swasey. Swasey was also key in pushing the naming rights deal with Cal.

In 2013, CEO Kevin Chou began talking to the press about timetables for an IPO. In early April of 2014, he announced publicly that revenue was forecasted to grow 80% or more and be in the range of $550 — $650 Million.

This public announcement of revenue projections — exceedingly rare for a Unicorn startup — solidified our view of Kabam as an extreme example of a “talk the talk” culture among Unicorn startups.

To achieve its announced short term revenue goals, Kabam started timing new releases to coincide with the releases of mega-hit movie sequels like Fast and Furious and the Hunger Games. The games had no long-term engagement value and “freemium” revenue plummeted within a few months after release. The result was a disastrous string of five failures and one success.

What Should Become of Kabam Field?

The height of Kabam’s “talk the talk” culture occurred in December 2013 when Kabam announced that it bought the naming rights to the Cal’s football field for $18 Million paid over 15 years. One can understand the desire of Kabam’s co-founders, all three Cal grads, to give back to their alma mater.

But, tech founders should wait years after their IPO to consider funding the construction of new university buildings named after them. For example, buildings names on the the Bay Area campus of Stanford and Berkeley include no less than Gates, Allen, Moore, Varian, Hewlett, Packard, and Wozniak.

Now that Kabam is in the process of being dismantled and sold off, the question is what should become of the naming rights to the Cal’s football field?

As we said in the introduction, the name of a university football field has high social-psychological value to the tens of thousands of people who care passionately about Cal and its football team.

The need for the Cal’s administration to address the field renaming issue could not have come at a worse time as they have just fired their football coach Sonny Dykes and Bloomberg has just written an article on university athletics finances naming Cal as the most debt-ridden program in the country. This is largely due to a $400 Million seismic retrofit of the football stadium after the discovery of a fault line running through it.

To begin cleansing Cal football of its recent bout of bad karma, one solution would be for Kabam and its Cal alumni co-founders to pay off the amount due the University from proceeds of the sale of other Kabam assets. The co-founders could also stipulate that the field renaming be crowd-sourced to University alumni and students.

But, one problem with this suggestion is that there is no obvious Cal sports hero or accomplished coach to rename the field after. Marshawn Lynch Field, Pappy Waldorf Field, Joe Kapp Field. All good, but none as obvious as Bryant-Denny Stadium at the University of Alabama or Amos Alonzo Stagg Field at the University of Chicago.

The other problem is that the naming rights to a Division I football field is an appreciating asset. For example, in September, 2015 the University of Washington received a whopping $4.1 Million per year over 10 year for “Alaska Airlines Field” at Husky Stadium. This is over three times Cal’s 2013 deal of $1.2 Million per year over 15 years for “Kabam Field” at California Memorial.

Given that the naming rights are far more valuable today than in 2013, and given the debt-ridden state of Cal’s athletic program, the University would surely prefer a solution involving a cancellation of the Kabam contract and the tendering of fresh bids from corporations.

The University can be expected to derail quietly any populist solution like a crowdsourcing of a new name. No, the University would much prefer Chase Field or PowerBar Field at $4 Million a year than any other solution.

Product Hunt Will Become The Launch Pad for Acquihires Under AngelList

Lawrence Abrams No Comments

Product Hunt: The Launch Pad for Acquihires

Product Hunt: The Launch Pad for Acquihires

If the tagline for AngelList has become “The LinkedIn for Startups”, will the tagline for Product Hunt become “The Launch Pad for AcquiHires”?

To me, the acquisition of Product Hunt is another signal of the narrowing of business models for standalone apps. Product Hunt was never in the running to scale enough to attract advertisers. The referral fees from Amazon for purchases of makers’ products launched on Product Hunt never really took off.

I suggested that the Product Hunt team morph to become paid, virtual, consultants to Fortune 500 companies looking for world class UX. http://glomoinvesting.com/an-alternative-business-model-for-product-hunt/

I said that they should become the McKinsey of the “Software Eats World” World, starting with becoming the premier consultant for Slack implementations.

Instead, they are headed down the path of becoming part of Angel List’s talent pool for hire. A more curated, nuanced LinkedIn. IMHO, this is a sad day.