Hello, and have a wonderful weekend! Today, we will discuss insurtech SPACs, how well direct listings handle IPO price. First, let us talk about crypto. The crypto beat was active this week, with Coinbase results providing insight into the asset class’s robust trading activity in the third quarter. If you remember Robinhood’s earnings, Coinbase’s offer will not come as a shock. Coinbase’s aggregate trading volumes and income declined substantially in the second quarter of the year, after a steep drop in the American stock investing platform’s crypto revenues.
In related news, FTX’s U.S. operations revealed some of their own performance statistics, demonstrating that, despite a general decreasing trend in the three-month period ending this September, growth in the crypto trading market is still feasible. All of this is to indicate that the cryptocurrency market continues to change — molt — at a breakneck pace. The activity surrounding big chains and lesser coins might vary dramatically from quarter to quarter. This entails fluctuating sales and earnings for firms like Coinbase.
However, because Coinbase is cash-rich, short-term difficulties are not a major concern as long as crypto activity’s long-term trend remains favorable. Crypto-gaming firms are another group of enterprises depending on a long-term increasing trend. They have been quite busy in recent months. Patron, for example, recently secured a $90 million fund to invest in crypto-based games; Mythical Games raised $75 million this summer to develop crypto games; Parallel, a trading card game, recently raised $500 million round; and Axie Infinity just raised around.
Forte raised $725 million this week to fund its crypto-gaming infrastructure. This makes me question how much cash the blockchain games will be able to absorb in the near future.
After all, games have a history of being terrible venture capital investments, at least according to conventional wisdom. Because games haphazard, with some titles selling well but fading in terms of income after their first release.
Strong, reliable, and rising revenues appeal to investors. Investors, on the other hand, are less fond of erratic revenue and uncertainty. The sort of uncertainty that might accompany new titles’ potential to fail, Gaming firms, coated in crypto, are hot, right. Are the economic and societal hazards that games have long displayed — the exact factors that have made them less appealing venture wagers — better when they are based on a blockchain backbone? That does not seem to be the case. Investors, on the other hand, are investing money into them as if they already have. Let us examine how the payout of the different bet, or do not pay out, over time.
We are in the middle of earnings season right now, with all of the giants behind us smaller firms taking up a lot of our time and attention. Following are some observations based on a handful of phone conversations this week: Insurtech is difficult: With the announcement that Metromile was sold to Lemonade, you’d be excused for asking what the future holds for public insurtech businesses in general. Root’s earnings this week, on the other hand, provided the business’s stock a big bump after investors appreciated what they saw from the auto-focused insurance firm.
Even if one of its competitors finds a new corporate home, it does not imply Root will have an easy time. The Exchange recently spoke with Root CEO Alex Timm on how difficult it may be to predict growth in the insurance industry. The CEO indicated that Root has scaled back its near-term expansion plans due to market uncertainty about how to price coverage, a challenge that many vehicle insurance businesses are currently facing; this is not, however, a Root issue.
Inflationary pressures on the cost of automobiles and labor have made determining the cost of insurance more complicated, causing various market actors to be more cautious when it comes to recruiting new policies. This does not imply Root is doomed in the end, but it does show how macroeconomic conditions may make life difficult for digital and tech-enabled enterprises. The root is a bet that data and clever software may help insurers price insurance more accurately over time.
However, according to Timm, the company is seeing a shift in the core economics of its business that is essentially unprecedented, just after it went public. That issue may have contributed to Metromile’s decision to sell its operations so soon after its public debut.