Investing in Realvision

Today, we’re excited to announce a new investment in Realvision. We see great opportunity in the crossover between AI and VR. The company’s machine learning and computer vision platform creates immersive 3D, VR-ready models for real estate listings. Not only does the platform create immersive models, but also creates an auto-generated floor plan and offers still photos to provide a comprehensive marketing package to enhance real estate listings, creating a better experience for prospective home buyers. Making the real world consumable in VR is a complex but valuable task. We look forward to working with Realvision to change the way we buy real estate.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Feedback Loup: College Panel

We recently hosted a panel of 8 college students from the University of Minnesota. The goal was to better understand how millennials think about social media, communications, video, VR, AR, the selfie generation, the future of work, and privacy. Here’s a summary of what we learned:

Text Is Dying

  • Quote: “Texting replaced email, and photos have replaced text messages”.
  • Message: Text is being used less frequently by each of our panelists. They view text as a formal way to communicate. Snap, Facebook and Instagram are the preferred communication platforms, with Facebook settings being switched to photos only. The panelists mentioned tech platforms promoting messaging within games as a way to maintain usage.
  • Takeaway: Text is slowly going away, replaced by video and photos. Text is viewed more as a formal way to communicate.

Fake News

  • Quote: “I like Snap for news.”
  • Message: Our panelists get their news from a wide variety of sources. 7 of 8 panelists are not concerned about fake news. Snap was the most popular way to aggregate news from traditional sources (3 of 8), followed by mainstream news outlets; e.g., CNN and WSJ.
  • Takeaway: Professional news is still respected but not paid for by these college students.

The Future of Work

  • Quote: “It’s scary. If we can’t have cashiers, truckers and fast food jobs. . . how will people live?”
  • Message: College students know they are entering a workforce that will have dramatic changes over the next 30 years. They have concerns about who’s going to control everything as resources become more concentrated. The University of Minnesota offers a class titled “Size of the Future” that addresses the risk of job loss to automation. The group did consider these changes when thinking about a career, with an increased interest in a more technical education that feels more defensible. Ultimately these students believe that the negative impact of lost jobs will be partially offset by the positive impact of new industries being formed.
  • Takeaway: College students understand that the workforce is changing. They envision social challenges emerging from displacement of workers with lower levels of education. But they believe a college education will ensure that their futures are safe.

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Snap’s IPO And The Road Ahead

Snap priced its IPO at $17 per share, implying a $23.6 billion market cap.  To put the valuation in perspective, we think Snap could grow revenues by 100% to ~$800 million in 2017 and believe some buy side investors think the number will be closer to $1 billion.  Therefore, Snap is trading at about 29.5x our CY17 revenue expectation and 23.6x the early bullish whisper.  For comparison, Facebook trades at about 10x the Street’s CY17 revenue estimate of $37.8 billion.  There is a vast difference in forward growth that helps justify the difference in multiples: 100%+ y/y growth for Snap this year vs 36% for Facebook.  Snap is obviously at a much different stage in its lifecycle as a company vs Facebook and is actually attacking social networking from a different angle – the camera.

We believe investors will have questions over the next year as to what being a “camera company” means.  Philosophically, we think of it as Snap trying to own the tech stack one step above social.  The camera has already established itself as the future of communication.  Snapchat, Snap’s flagship product, relies on smartphone cameras to enable its service.  Without connected cameras, Snapchat doesn’t exist.  By trying to own, or at least influence, the camera layer itself, Snap evolves beyond a social media app into an enabler of communications.  In that sense, Snap’s focus on the camera is not all that dissimilar from Facebook with its experiments with VR and AR.  The difference is Snap appears to be all in.

Trying to own the camera layer may come through multiple products.  Most obvious is software that uses and enhances current cameras.  Snap already does this with products like Lenses.  We expect the company to continue to develop software that utilizes the camera both in core Snapchat and perhaps outside of it as well.  The second camera product is Spectacles, which we view as the most useable AR glasses on the market today.  There is next to no learning curve because the glasses focus on one simple task: recording video through a camera.  Spectacles aren’t the future of AR, but they are a baby step toward the next phase that will add a little more functionality.   Beyond Spectacles, we believe the company is experimenting with other hardware, which may be other consumer wearables or may be products they look to partner with existing hardware manufacturers.

We don’t know how the stock will react tomorrow or over the next year.  What we do know is that the camera is at the centerpiece of communication already, and if Snap can find a way to own the camera they will be rewarded handsomely.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Current State Of VR ARPU

While it’s still early, we think that VR gamers are already spending a significant amount on software. Based on an analysis of the top 100 VR-only Vive games on Steam, we estimate that about $35 million in software has been sold for the HTC Vive to date. We believe that HTC has sold over 300k Vives since the device launched in April 2016, which means that Vive owners have spent an average of about $119 on software over the past 10 months. Given an average sale price of ~$15.50 for the top VR games on Steam, this means Vive users are buying about 7 or 8 games on average. We looked at VR-only software for our analysis, which requires a VR device for its use, and excluded software that is PC based with additional VR content. In our view, VR-only software sales is the best indicator of what people are truly spending on VR. We also excluded Oculus Rift software sold on Steam in this analysis.

The vast majority of paid software available for the Vive is gaming related, thus we believe gaming is the best way to contextualize Vive ARPU. Note that these comparative ARPU numbers are for a full 12 months vs our Vive estimate over 10 months. In 2016, we estimate that total gaming software revenue for PCs and consoles (excluding mobile games) was about $33 billion. We believe there are about 170 million PC/console gamers worldwide, so gaming software ARPU is about $194 per year. For comparison, we believe that the mobile apps market, including gaming and non-gaming software, was worth $50 billion in 2016. With 2.1 billion smartphone users, mobile app ARPU is $23 per year. Finally, we note that mobile games made up the vast majority of mobile app sales, representing $42 billion in sales in 2016.

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Envisioning The Future Perfect

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.