Month: April 2023

Netflix released its Q1’23 financials yesterday, and at 3.7 % year-over-year revenue growth it is no longer a high growth company. But it had $2.1 billion in postive cash flow, which is a decent amount of change. Especially as all the video streaming contenders are, likely, still bleeding billions of dollars per year.

Some interesting comments were that Netflix’s cheaper plan with ads is making more money than their standard plan, despite being at a lower consumer price. This is similar to what’s been said by Disney+, Hulu and others for their ads plans so maybe not too surprising.

In addition to the strong free cash flow, Netflix operating income reached $1.7 billion instead of $1.6 billion forecasted due to ongoing expense management and timing of hiring and content investment. I think we will hear that combination of actions from a lot of tech companies in the next 3 to 6 months.

Yubico, makers of multi-factor authentication hardware, will be acquired by the SPAC ACQ Bure for $800 million and be listed on Nasdaq First North.

Björn Jeffery writes about the deal in SvD (in Swedish).

I’m surprised at the quality of company ACQ Bure is acquiring. Yubico is a world leader in its space with $150 million in sales and profitable.

It’s stranger why Yubico shareholders want to sell in a tough market at not a high valuation. Do they think that the slower sales (3% y-o-y in Q1) excluding currency effects will continue?

At the SaaSiest conference in Malmö today I really enjoyed April Dunford’s presentation on positioning of SaaS products. I ordered her book Obviously Awesome after the talk, which probably is as strong as endorsement of a keynote talk I can give.

When revenue growth slows down for a technology startup, a company’s value creation framework cannot only be revenue growth. It needs to evolve and cover efficiency, free cash flow and other metrics as well. This is a part of what Big Tech is doing right now, driven by lower growth and higher interest rates.

On the Invest Like The Best podcast the authors of Lessons From The Titans (covering how some of the best industrial companies are operating) are interviewed about the topic.

For small startups revenue growth (with software gross margins) still is the best value creation metric, if you only chose one.

Transcript and on Spotify.

In January there was news about Playtika wanting to purchase Rovio, the maker of Angry Birds, for $810 million even if the offer was non-binding. Those discussions apparently fell apart, but now the Wall Street Journal is reporting that Sega is expected to offer about $1 billion for Rovio next week.

This seems to be the end result of a strategic review (a.k.a. “can we sell the company at a good price?”) that Rovio started in February, after having received the Playtika interest in January.

It seems like the valuation of Rovio would be in the range of 2.85x sales and the $1 billion price would be about the same as Rovio’s price at its initial public offering in 2017. Creating shareholder value after an IPO as a public company is hard.

With Substack having made paid newsletters popular and a possible way for writers to make enough money to pay themselves a salary (and Kickstarter, Patreon and other services doing it in other domains), the practical application of “1,000 True Fans” is here.

After discussing the topic with a friend I re-read Kevin Kelly’s article 1,000 True Fans from 2008. It is still an excellent read, especially considering it pre-dates most of the successful services supporting creators looking to serve 1,000 true fans.

Tom Tunguz has written an interesting blog post on the how the reduction in burn multiples for startups hasn’t lowered revenue growth. (via my Alliance VC colleague Arne Tonning)

Burn multiple is net burn / net new ARR. I.e. the negative cash flow from all of a company’s operations divided with new revenue.

It might seem counter-intuitive that lower costs doesn’t have a direct negative impact on sales. But there are some good reasons.

When a startup has raised a large $10+ million round and aims to grow revenue 100-200 % or more per year, there will be a lot of costs outside direct selling costs for the last quarters and the coming quarters.

Those costs will likely include investment in product R&D that for product and features that will be sold 12-24 months out, additional admin staff, investment in marketing that will bring in leads that can turn into customers in coming quarters, sales people that are not yet at quota, a larger talent acquisition team to hire for coming quarters, new office space to grow into, international expansion with legal, office and hiring costs among other things. And when eyes are on hyper growth, few companies can operate with tight cost control so the general cost level is likely to increase too.

With this in mind, the burn multiple doesn’t really capture sales efficiency, but captures the overall cost ramp for a company in relation to new sales.

This is also the reason why technology companies can improve profitability quickly by slowing down and cutting costs outside core product development, sales and customer success without initially hurting sales. Get cost cuts wrong and stop investing in product development and sales, and it will hurt sales growth at some point.

Make Something Wonderful – Steve Jobs in his own words is a collection of interviews, emails and speeches by Steve Jobs. It covers his life from childhood to his too early death in 2011.

A unique view into the life of one of the most important individuals in the technology world (Apple) as well as entertainment (Pixar) of the last 50 years.

A nice bonus is that the book is free to read online, as a downloaded EPUB (for Kindle etc) or in Apple Books (of course).

Bitcoin fell together with both high valued stocks as well as bonds in 2022. It didn’t turn out to be a great inflation hedge, as its price fell as inflation rose. However, it seems to have turned out as a decent financial system hedge as the price rose after Silicon Valley Bank and Signature Bank were taken over by the U.S. government.

So digital gold might continue to be a good way to describe Bitcoin. Not the most practical way to pay for things, but it can play a part in a financial portfolio. Especially when times are rocky for the financial system.