Magic Leap Explores Sale
Yesterday Bloomberg posted a story that Magic Leap is exploring options which include a sale. This is not surprising to many since the company raised way too much money to be sustainable and the market adoption for this technology is simply too far off.
I have always had my concerns for Magic Leap. I knew the solution was incredibly early and the technical problems they were trying to solve were not easy ones. The massive amounts of venture money they raised was necessary to try and solve these technical problems and they simply could not raise enough to solve those problems and play a patient capital game and wait for the market to develop. We honestly may still be 5+ years away from any reasonable AR solution and a decade or longer away from the mass adoption of AR head-mounted solutions. Magic Leap simply can’t wait for the market.
What gets tricky in the analysis of this market and Magic Leap’s role, is historically we have needed companies to try and fail in order to pave the way for an upcoming market. If you look at the history of any major technology going back to shipping and railways, perhaps farther, early entrants learned the hard lessons and paved the way for future companies to succeed. It’s unfortunate it took a tremendous amount of capital, that won’t likely be returned for a dividend, but hopefully, Magic Leap is purchased and the tech and IP used at a larger company who has a better chance at future success.
A Global Recession Looms
It seems like COVID-19 and its impacts are completely dominating the conversation right now, but for good reason, we need to be well informed and wisely charting a path forward. It seems ever likely things are going to get worse before they get better and while we will likely get past this virus, the impact from it is looking more likely to linger much longer.
The economic impact and fallout are looking to be significant and government involvement seems absolutely necessary at this point to help aid in the situation. Countries leadership is going through a scenario we have never seen before, and for which there is no manual. It will be a defining point, or a crumbling point, for many governments.
For China, even the quick action they took as a nation will see prolonged pain. Even though they seem to have contained the virus and are now starting to return factories to full capacity, the markets in which they export are being hit and likely going into financial/economic distress. So while China was hit economically as they dealt with the virus, they are now going to be hit a second time as nations whose markets they rely on could go into recession and possibly a prolonged one.
While the Chinese government puts on a posture of affluence, those who study the reason know they are leveraged beyond what is economically viable as they overinvested in their growth, real-estate, and to some degree economy, and could be strained to figure out how to support their people if a prolonged recession hits and many people lose their jobs, even if temporarily.
Even as we hear in the US work to contain the virus the government is already trying to propose an economic stimulus package. We are starting to see the job losses in retail, food, travel, entertainment, and while small for the moment we should expect this to grow. This is not just happening in the US but those workers impacted when people stay home in mass is inevitable. Bigger companies are at least still paying their hourly workers even if they can’t come in but not every local or small business has that capability.
My personal view on the matter is that if nations can not contain COVID-19 quickly, and by quickly I mean in the next month or two at most, then we face the reality a deep recession is likely and it will take years to recover. This scenario impacts everyone, not just a few.