Magic Leap – Mythical numbers

Magic Leap will be very lucky to sell for $1bn.

• Magic Leap is exploring its strategic alternatives which in English means that it has run out of money and is struggling to raise more.
• This includes a sale where the company seems to be hoping to get around $10bn.
• This combined with its history leads me to think that no one in their right mind will pay anything like $1bn.
• Magic Leap is a company that has strongly divided opinion for several years where the range of views goes from “best thing since sliced bread” to “fraud”.
• I do not think that either of these is correct but what is clear is that Magic Leap’s technology is no better than anyone else’s (Microsoft, Apple etc) and that developing this technology is cripplingly expensive.
• Magic Leap exploded onto the scene several years ago in a blitz of publicity and blue sky promises that the company has catastrophically failed to meet.
• The company’s biggest problem has been its inability to set and manage expectations (see here and here) which has badly soured sentiment.
• The company is now sitting on a string of broken promises as well as nearly 100,000 units of inventory (see here) which is hardly a recipe for an ideal investment.
• There is nothing wrong with the Magic Leap One Creator’s Edition as its performance is broadly in line with that of its peers, but it was so badly over-hyped that its launch was a huge disappointment.
• I suspect that this was a large contributing factor towards its utterly dismal sales performance.
• To date, Magic Leap has been the only AR company to remain primarily focused on the consumer and has only recently tilted towards the enterprise.
• Magic Leap is still a viable contender in the race to produce a decent user experience that will sell to consumers, but I think that it is very late and consequently far behind when looking at enterprise-focused AR.
• The technical challenges remain immense meaning that it will continue to require a lot of money just to remain in the game.
• Microsoft and Apple are spending huge amounts of money (>$1bn per year) on their offerings meaning and they can continue to do so in the absence of any revenues.
• This has led to the current situation where Magic Leap is out of cash and has already pledged its patents as collateral to JP Morgan (see here).
• Hence, I suspect that not only is the company out of cash, but it is also up to its ears in debt.
• With very little prospect of any real revenues soon, Magic Leap may be approaching insolvency.
• Consequently, how anyone can consider paying $10bn to acquire the company when its assets are pledged as collateral and it has no revenue is beyond me.
• I can potentially see NTT DoCoMo, Apple or Google picking this up but at a figure closer to $100m rather than $10bn.