Where’s did the Swedish tech wonder go?

June 22, 2024
by Björn Jeffery
SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024. 

Many companies seized the opportunity to go public during a period of temporarily high valuations. However, the aftermath is severe, and the Swedish tech miracle is significantly shaken, as revealed by an extensive review conducted by SvD’s tech analyst Björn Jeffery.

A large bell, mounted on a two-meter-high stand. It was the solution to a problem we will likely never face again in our lifetime.

In the spring and summer of 2021, the tech stock market was hot. The list of companies eager to go public was long. Adam Kostyál, then the Swedish head of listings at Nasdaq, faced an unusual challenge. With corona restrictions still in place, filling Nasdaq’s office in Stockholm with people celebrating was not an option. At the same time, it seemed impossible to list a company without ringing the iconic bell.

If the companies couldn’t come to Nasdaq and the bell, the bell had to come to the companies instead.

Thus, the mobile Nasdaq bell was invented.

For a couple of years, it shuttled between the offices of hopeful tech companies ready to meet the stock market. Celebratory and relatively corona-safe.

From 2020 to 2022, about 35 tech companies were listed on Nasdaq Stockholm and First North. Interest rates were low, and risk appetite was high.

“The Swedish tech miracle” is a term often mentioned. It primarily refers to the number of startups and a handful of major successes, like Spotify and King.

Whether it is a miracle or not is debatable. But one thing is clear: on the Stockholm stock market, it is now more “tech crisis” than “tech miracle.”

The development since the many IPOs has been weak. The market deflated completely, and most companies have not recovered.

What happened?

First of all, there is currently no good way to even track the sector described as tech on the Swedish stock market. These are companies that exclusively operate and conduct business in a digital environment.

Nasdaq has a blunt categorization where companies end up in the “Data/IT,” “Finance,” or “Services” boxes. Nasdaq’s own index “OMX Stockholm Technology PI” is a mix of consulting firms, electric vehicle chargers, and various software. Essentially all major and newer tech companies on the stock market are missing from it.

Swedish tech funds like Robur Technology and TIN Ny Teknik do not only invest in Swedish tech companies, making them misleading as a guiding star. Investment banks often have private indices their clients can access, but they are rarely public or complete.

To try to grasp how Swedish listed tech companies are developing, SvD took matters into its own hands. Together with the American service Thematic, we built our own index to depict the development.

The index takes the 30 largest tech companies from Sweden, according to specific criteria, and compiles them into a unified picture. It is reweighted four times a year and includes Swedish companies that have chosen to list abroad – such as Spotify. The index is equally weighted to avoid small price movements in large companies overshadowing everything in the smaller ones.

So what does this index show?

The starting point is set to January 2022. Overall, the Swedish tech stock market has lost more than a third of its value since then – down around 39 percent. This can be compared to the broad index for the Stockholm Stock Exchange (which is weighted) that has declined by 4 percent in the same period.

The absolute best performer among the 30 in our index has been the gaming company Betsson, with an increase of 128 percent. The opposite can be found in Viaplay, where 99.4 percent of the value has been erased since January 2022.

Fortnox – long in the spotlight for its stock market success – saw its significant rise from 2018 to 2022 but has since had a more modest increase of around 13 percent.

The communications company Sinch – which reached its peak in September 2021 – has slid significantly since then. Since the index’s start, they have lost over 79 percent of their value.

Of the 30 largest tech companies on the stock market, only nine have increased in value since January 2022. And two of them – MTG and Lime – have only increased by single-digit percentages.

The global tech sector has also had a tough period. But compared to the tech-heavy Nasdaq 100 index, which has risen nearly 20 percent in the same period, and the S&P 500, which has increased by over 17 percent, the Swedish tech sector’s performance is much worse.

The aforementioned Nasdaq 100 includes many tech companies but is not solely composed of them. Companies like PepsiCo, Marriott, and Starbucks are also among them.

For a more accurate comparison, we need to look at something with a more pronounced tech profile. One option is the exchange-traded fund First Trust Cloud Computing ETF (SKYY), which exclusively contains companies engaged in cloud services.

It includes 65 companies in total and includes some of the largest ones, such as Alphabet (Google) and Amazon. It is not a perfect comparison, but it is illustrative enough to show a picture.

Despite a sharp decline in SKYY from the beginning of 2022, American companies have recovered better. In total, it has fallen by around 8 percent, which is a weak development but significantly better than its Swedish counterparts, which have dropped over 36 percent in the same period.

That tech companies generally underperform on the stock market is not just a Swedish phenomenon. But our index and comparison with the U.S. also reveal something else: the enormous importance of size.

Of the nine tech companies that have increased in our Swedish tech index, only two belong to the lower, smaller half of the index (in terms of market value). Our index only looks at the 30 largest tech companies with Swedish ties, but if we made the list twice as long, the pattern would be the same. To be a successful tech company on the stock market, you need to be big.

On the American SKYY, the pattern is identical. Only four of those with positive development are among the smaller half of the index. The big winners are also very familiar names. Microsoft, Google, Amazon, Oracle, and Salesforce. With only a handful of exceptions, it is clear that smaller tech companies have performed significantly worse on the stock market than the larger ones.

This is largely due to the enormous advantage that tech giants have had over the past 10–20 years. Several have been de facto monopolies in their respective areas. This has created enormous value and an advantage that is nearly insurmountable.

Looking at the list known as the “magnificent seven” – the seven tech companies representing around a third of the value on the S&P 500 – several of them reappear: Apple, Meta (Facebook), Amazon, Alphabet (Google), Microsoft, Tesla, and Nvidia.

What SvD’s review shows is an extension of the development for these magnificent seven. The absolutely largest tech companies perform disproportionately well. The rest have had a much tougher development.

The tendency is also noticeable in our Swedish index, where Spotify is among the few in the positive table. They are also by far the largest – and their market value is higher than all the other 29 companies in our index combined.

One question to ask is whether many of the tech companies are small because they have performed poorly, or do they perform poorly because they are small?

It’s leaning towards the latter. In both our own index and SKYY, those who have performed best are many times larger than the rest. They are on the same lists, but are essentially entirely different kinds of companies.

Hemnet – which has performed incredibly well and increased by 73 percent – is today more than six times larger (in terms of market value) than Storytel, whose stock has fallen 65 percent.

Small companies have generally performed worse than the stock market as a whole since January 2022. Down 14 percent for Nasdaq’s Swedish Small Cap index during the period.

But the Swedish listed tech companies are much worse than that. Look at the gaming companies Stillfront and Embracer, for example. Down 70 and 72 percent, respectively, since our index started. Admittedly, they are still up compared to their listing, but the declines are brutal.

Tech investor VNV – which owns a large stake in Voi – is down 73 percent.

The acclaimed communications company Truecaller has also fallen by over 67 percent.

Has it always been the case that smaller tech companies have fared worse on the stock market? It’s possible. But why do tech companies continue to go public then?

It may be related to the reason they even considered the stock market in the first place.

Previously, companies went public to raise money. Historically, this has likely been the reason for most who chose that path. Access to capital and financing – in various forms – increases significantly.

Looking at the smaller tech companies on the stock markets, you also find several examples of the opposite.

Companies that go public so the owners can cash out instead.

Venture capital and private equity firms‘ business model is to sell for more than they bought for. It’s a well-known model that has generated significant value, especially in Sweden. When they take companies public, the purpose is often to create liquidity to sell off a large portion of their shares.

One example is the survey company Cint. At the IPO, funds linked to the venture capital firm Nordic Capital owned over 93 percent of the shares. The company had a good first year on the stock market, but has since seen very weak development. The stock price has fallen over 84 percent since the start. Nordic Capital’s share today is around 8 percent.

Another example is the e-commerce company Revolution Race. The major owners there are the venture capital fund Altor and the couple Pernilla and Niclas Nyrensten. Since the IPO, the major owners have reduced their ownership from around 61 and 34 percent to about 20 percent each.

They have followed their lock-up periods but have gradually reduced their ownership in the company. Revolution Race’s stock has also fallen over 34 percent since the IPO but has rebounded significantly since the worst dip in 2022.

Then there are companies that perhaps should never have gone public in the first place. Their development was boosted by consumer behavior during the pandemic that proved difficult to recreate.

The interior design company Desenio is one such example. When Sweden was indoors avoiding infection, they invested in posters and artwork for decoration. Desenio went public in February 2021.

Three years later, revenue has nearly halved, and the stock price has collapsed. At the IPO, the major owner Verdane sold shares for 72 SEK. Today, the price is just under 0,30 SEK. They are thus excluded from our stock index today.

The selling parties in all these companies have made good deals. The liquidity on the stock market has enabled trading for both funds and small investors. But the development of the stock price since they went public has often been stumbling. While in private ownership, they grew significantly.

A partial explanation for the pattern is that in all three cases, there are venture capital firms among the owners whose model is to exit their investments when favorable. Each company also has its unique situation and motivation behind the listing. Some, like Desenio, had enormous tailwinds that quickly subsided. Others, like Revolution Race, are working to recover from the drop after the introduction and owner sales.

But for many, the stock price collapses seem difficult to reverse. It’s hard not to think that many of these new, smaller listed tech companies may not fit so well on the stock market, after all.

Of course, there are also examples of a different type of journey. The slow company building, using the stock market as a method.

Friday, March 20, 2015. It is the first trading day for the gaming technology company Evolution Gaming on Nasdaq First North. The business press noted the event but had more important things to think about. The Riksbank had just cut interest rates between its regular meetings.

Founders Fredrik Österberg and Jens von Bahr, however, had a good start in the listed environment. They sold picks and shovels to the gold rush in online casinos. Somewhat in the background of the large companies, Evolution made strong progress on Nasdaq’s smaller exchange.

Just over two years later, they were admitted to the Nasdaq Stockholm’s main list. Gambing technology – this somewhat derided genre – had been socially accepted.

A visionary investor who invested in Evolution in 2015 has had an almost unbelievable development. The stock price has increased by nearly 6,500 percent since then. And it has also become a favorite among small investors with around 83,000 private shareholders.

Österberg and von Bahr have sold many shares along the way as well. Both in the IPO and most recently for billions in May 2021. But the difference is that the value of the company has continued to increase for the remaining shareholders since then as well.

The competitor Kindred Group (formerly Unibet) has had a similar development.

They went public in 2005 and have had a price development of over 320 percent since the start. But it has taken them almost 20 years to get there.

The journey that Evolution and Kindred have made is desirable but unusual. They were early, found an incredibly profitable business segment, and delivered quarter after quarter. A role model for new companies on the stock market. They grew and scaled up in the listed environment.

At the same time, it is a type of journey that does not resemble many others in the Swedish tech category – at least not yet.

Looking at the new Swedish tech companies on the stock market, they have lost 80–90 percent of their value since the introduction. Especially the smaller ones, as mentioned. The stocks will have difficulty recovering in the short term. And doing new share issues at such low prices would lead to a somewhat devastating dilution. If they do not manage to reverse the stock price development in time, there is a risk they will become zombie companies. They live, but are essentially dead on the stock market.

The opportunity to buy them out of there has thus rarely been better – or cheaper.

Can there be another Swedish tech miracle on the stock market in the future? It depends mostly on the quality of the companies that might consider going that route.

A number of larger companies – with a long business history, at least by tech standards – such as the shopping service Klarna, fintech company Trustly, and database company Neo4J, have all been mentioned as potential candidates within the near future. Likely before 2025 ends, unless new major macro crises occur.

For a miracle to happen, long-term owners are also needed. Those who use the stock market to develop and build these companies further over a long time.

The stock market is meant to be a trading place – not a final destination. The big values are usually built over a very long time horizon. But then one must survive an often winding road ahead.

Our index suggests that the stock market is not necessarily the best path for all tech companies. It is easy to be swept along by temporarily high valuations when going public. But for many, these valuations have created a new type of problem – and one that takes a long time to fix. They now need to rebuild trust from the stock market and show that they belong on the stock market – after all.

Here are all the companies that are included in SvD:s tech index, in June 2024

Spotify Technology SA (SPOT)
Evolution AB (EVO)
Fortnox AB (FNOX)
Embracer Group AB (EMBRAC.B)
Kinnevik AB (KINV.B)
Hemnet Group AB (HEM)
Kindred Group Plc (KIND)
Sinch AB (SINCH)
Vitec Software Group AB (VIT.B)
Paradox Interactive AB (PDX)
Better Collective A/S (BETCO)
Betsson AB (BETS.B)
Modern Times Group MTG AB (MTG.B)
Truecaller AB (TRUE.B)
Byggfakta Group (BFG)
Boozt AB (BOOZT)
VNV Global AB (VNV)
Creades AB (CRED.A)
RVRC Holding AB (RVRC)
Stillfront Group AB (SF)
Lime Technologies AB (LIME)
Gaming Innovation Group, Inc. (GIGSEK)
Storytel AB (STORY.B)
Coinshares International Ltd. (CS)
Viaplay Group AB (VPLAY.B)
BHG Group AB (BHG)
Kambi Group Plc (KAMBI)
Cint Group AB (CINT)
VEF AB (VEFFF)
Acast AB (ACAST)*

* Disclosure: I’m on the board of Acast.

This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024. 

Apple compromises on its winning strategy

June 11, 2024
by Björn Jeffery
SvD Näringsliv





Apple compromises on privacy in its AI debut

Published in Svenska Dagbladet, 2024-06-11. Translated from Swedish.

Apple’s AI debut revealed a crack in the facade of the tech giant. The desire to keep pace with the AI frenzy appears to be pushing the company to abandon the privacy-first strategy that made it so successful.

It was the worst-kept secret in the tech world. On Monday evening Apple made its entrance into artificial intelligence — though perhaps not as grandly as hoped, given that virtually every announcement had leaked days in advance. Bloomberg had published a piece the previous week listing almost everything Apple would present at its annual developer conference, WWDC.

Even without good journalistic sources the news was fairly predictable. How could one of the world’s largest companies stand without new AI products, in a moment like this? It could not. But it did things in its own way — in a way only Apple can.

Apple has mastered the art of packaging existing ideas as if it had just invented them. Most of the presentation showcased features that competitors have had for years. The Insight feature on Apple TV+, which shows which actors appear on screen in a TV series? Essentially identical to Amazon’s X-Ray. The ability to redesign your home screen? A feature Android has had for a long time.

But Apple speaks about its novelties as if they exist in a vacuum. It is an odd phenomenon that says something about the strong market position the company holds — it can afford to ignore the rest of the world in many cases. But there are questions where that attitude is harder to maintain, and AI — the single topic that has consumed all the oxygen in the tech world for the past eighteen months — is exactly one of them.

Apple is fine with not launching new product categories first, as long as it believes it will be better when the time comes. Look at the iPod or the iPhone — neither was first to market, but both quickly became best in class.

In keeping with that approach, Apple did not launch generative AI — it launched “personal intelligence.” In substance it was largely the same thing, but the services were woven into Apple’s products and operating systems. The company also appropriated the acronym by calling its version “Apple Intelligence.”

For many years Apple has positioned itself as the only tech company that genuinely cares about your privacy. Your data stays yours and is not shared with others. That Apple would lean into this framing for its AI push was therefore predictable. The “personal” element is that the system knows you and your data — but the data goes nowhere else. Apple’s vertical integration across hardware and software makes that promise harder for competitors to replicate.

So far, all fairly normal and predictable. But then the facade cracked.

Near the end of the presentation came what everyone had been waiting for — the much-discussed partnership with OpenAI. ChatGPT will be integrated directly into Apple’s operating system. Ask Siri a question and it will try to answer using its own capabilities, or with the help of services in what Apple called a “private cloud” — outside your device and on Apple’s servers. And beyond that, if Siri believes ChatGPT can give a better answer, you can, with a single tap of approval, choose to get that answer instead.

Apple’s long-standing argument about privacy and security — that your data stays on your device — can thus be bypassed with a simple button press. That is uncontroversial for most users, but not for Apple.

The solution points to the strategic dead end Apple has chosen. Your iPhone is not — at least not yet — powerful enough to offer the same quality of AI services as ChatGPT and similar tools. If users want this kind of functionality, more computing power is needed. Apple therefore faces a difficult choice: compromise on quality or compromise on privacy? The answer here is neither — it passes the question to the user instead.

In that choice one can glimpse an insight that many Apple executives probably do not want to acknowledge. Perhaps privacy around one’s data is not such a sensitive issue for users after all — at least not when the alternative is a service that can simplify both personal and professional life.


The ‘happy amateur’ could become legendary

June 3, 2024
by Björn Jeffery
SvD Näringsliv





GameStop surges again as Keith Gill makes his Reddit comeback

Published in Svenska Dagbladet, 2024-06-03. Translated from Swedish.

Keith Gill had been silent on social media for more than three years. Then, on Sunday morning, he posted a screenshot on Reddit showing a position of five million GameStop shares — worth around 1.2 billion kronor — plus options worth another 691 million kronor. The GameStop era is apparently not over.

It is difficult to know what to call what Keith Gill did on Sunday. Technically it is not market manipulation, because he is not spreading false information about the company. What he is doing is using his own celebrity — built on a genuine investment thesis that turned into one of the most spectacular trading events in history — to move markets.

In mid-May he posted a series of cryptic images on X, including one of a person leaning forward in a gaming chair. That alone was enough to send GameStop’s stock up more than 70 percent before the New York Stock Exchange had even opened.

Then came Sunday’s Reddit post: a screenshot of a brokerage account showing five million GameStop shares worth roughly 1.2 billion kronor, plus options worth a further 691 million kronor. The stock surged again.

When Gill testified before Congress in 2021, he said: “The idea that I used social media to promote GameStop stock to unwitting investors is absurd.” That statement is now very hard to defend. It is difficult to argue he did not know how the market would react — the entire social media build-up looked, in hindsight, like a carefully orchestrated prelude.

What makes the situation genuinely complicated is that a significant part of the market actively wants to be manipulated in this way. GameStop trades like a lottery ticket, and everyone who buys it knows it trades like a lottery ticket. There is something almost philosophical about a market where the participants are fully aware they are speculating on the speculations of others.

Should Gill pull this off, he could go down in history for more reasons than having been the central figure of the meme-stock era. Nearly two billion kronor in notional value before the market had even opened — not bad for a financial adviser with an investment thesis posted on the internet.


Nvidia’s big problem: things are going too well

May 23, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 23rd, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

As the world invests in AI, the money flows heavily into Nvidia’s pockets. The world’s hottest company is now approaching a point where expectations become very hard to live up to — and the drop if they fall short is enormous.

Jensen Huang has the best problem a public company CEO can have. Since the start of the year, the share price has risen more than 98 percent — a performance few companies of that size can claim, and this after an already extraordinary run of several hundred percent the year before.

When the quarterly report came on Wednesday evening, Huang had to prove that the surge was deserved — and that it was merely the start of Nvidia’s journey. It proved to be no problem at all. Nvidia beat the high expectations and set new revenue records. Revenue tied to data centres rose by 427 percent compared with the previous year, while total sales grew 262 percent. The share crossed 1,000 dollars in after-hours trading for the first time ever, and Nvidia announced a 10-for-1 stock split.

It is unusual for something as technical and complex as a chip company to attract this level of attention. Other companies name-drop Nvidia’s products when describing their own businesses. Customers boast publicly about having managed to get hold of the chips at all. Jensen Huang should pinch himself. This does not normally happen.

Nvidia has become virtually synonymous with AI development. Talking about their products is a way of signalling that you take AI seriously and have the resources to invest. Like the verb “to Google,” Nvidia could have become the AI equivalent — if only its name were not so unfortunate (it derives from the Latin “invidia,” meaning envy). In an era when the market is searching for efficiency gains and new revenues via AI, Nvidia functions as a kind of alibi you can invoke. Nobody buys these expensive chips without intending to build AI services — and that makes you a company that is keeping pace.

This makes Nvidia’s revenues a kind of barometer for the entire AI development. Over 26 billion dollars — around 278 billion kronor — in revenue during the first quarter suggests the boom has no end in sight. When Alphabet reported its quarterly figures a month ago, CFO Ruth Porat said something telling: “The significant growth in capital expenditure (capex) over recent quarters reflects our confidence in the opportunities AI presents.” Alphabet is making enormous investments to build AI services — and the “capital expenditures” Porat refers to include Nvidia in large measure. Other companies’ investments are, in other words, Nvidia’s revenues. When the market looks ahead to a potential technology paradigm shift, this is a formidable strategic position to occupy.

Nvidia was last to report among what are usually called the “Magnificent Seven” — the seven major tech companies that have been the engine of the entire market. Apple and Tesla have been disappointments this year, but the remaining five — Alphabet, Meta, Amazon, and Microsoft — have all continued their climb. The other six are relatively independent of each other, competing in certain areas. Nvidia, however, supplies them all. Its customer list is formidable, including several of the world’s largest companies.

The challenge going forward resembles the one Huang faced on Wednesday evening. How much better can a company go when it is already going this well? And how far behind are competitors’ products, really? “The next industrial revolution has begun,” Huang said, sounding both triumphant and self-assured. With a share price that has risen more than 2,500 percent over the past five years, that is understandable. But with each quarter, expectations become a backpack that grows heavier to carry. It is not enough for Nvidia to deliver what it has promised — it must exceed expectations in the biggest tech frenzy in years.

Should the world’s appetite for investment cool — or if competitors catch up — the barometer could quickly swing to storm. In that scenario, Nvidia’s dramatic rise could become a fall from a height that is very hard to manage.

American vultures are after your TV sports

May 20, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 20th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

As the streaming market slows, unholy alliances are forming and everyone is returning to tried-and-tested plays. And the safest bet of all is sports. That is why the American entertainment giants are now fighting over the rights.

Nothing has shaped Swedish pay television more over the past decade than British football. The channels behind it have changed names, merged, and been separated — MTG became Nent and eventually Viaplay; Canal Plus was acquired by TV4 and became C More, then folded into TV4 Play. But they all had one thing in common: they bet that the Premier League would be the key to winning paying television subscribers.

In many respects, they were right. Viewers were considerably more loyal to their favourite club than to any particular TV service. Add in special events like the Champions League, and you have the backdrop for the inflated prices for sports rights in the Nordics over the past fifteen years.

But even when you won the bidding war for sports rights, you could still end up losing. Look at Viaplay, which has effectively erased its entire stock market value over the past year. And while it tries to rescue itself, vultures are circling. Large, American, well-funded vultures.

The media world was shaken when Disney+ in Sweden recently acquired the rights to the UEFA Europa League and Conference League. Viaplay had previously held them but lost them at renewal. Viaplay has also been forced to sell some Premier League matches to Swedish Amazon Prime Video to reduce its payment commitments. American tech giants are effectively profiting at Viaplay’s expense.

But this newly found appetite for sports rights is not happening only in Sweden. Globally, streaming services are opening up to this category. This week, Netflix announced that — for the first time ever — it will invest in live sport, having signed a deal with the NFL to broadcast selected games on Christmas Day. Last August, Apple TV+ signed a ten-year deal with Major League Soccer worth around 27 billion kronor. Amazon, like Netflix, has had an NFL deal for several years.

The reason for this broadening is a slowing streaming market that demands a wider offering. Customers no longer want to pay for all services simultaneously and are being more selective. Building a proposition that works for “the whole family” is therefore a strategy that virtually every streaming service is now pursuing.

The pressured market is also producing unexpected alliances. Arch-rivals Disney+ and Max (formerly HBO Max and Discovery+, now launching in Sweden) are already offering a bundled package in the US. Together with Hulu, partially owned by Disney, the three services can be purchased together at a discount — a structure that would have been entirely unthinkable two years ago. Back then, HBO Max and Disney+ were rivals; now they are trying to acquire customers together. It would be like SvD and Dagens Nyheter launching a joint subscription offer.

The winners in this development are the customers. Where you once had to buy many separate subscriptions from the streaming giants, the offers are now better and more competitive. New bundles are appearing. The structure is starting to resemble old cable television, where you bought large packages and got a little of everything. The trade-off is lower content quality than before — and in some cases for more money, as services like Viaplay have raised their prices sharply.

The big losers are the owners of sports rights and drama producers. Even though interest in sport is high, it is unlikely that prices will be driven back to the heights they once reached — at least not in the Nordics. When Amazon and Disney+ buy rights in Sweden, it is certainly at a steep discount. Sport matters — but the era of record prices is over. The same applies to drama. After a few golden years, it is the expensive productions that disappear first. Do not expect investments on the scale of Ronja Rövardotter for a couple of years.

Max is launching in Sweden imminently — the merger of Discovery+ and HBO Max. A broader, more popular service designed to have something for the whole family. That position is not unique to them. But their strategy is telling for what the pressured streaming market looks like in 2024: merged services, broad content — and a little sport to round it all off.

Three challenges for an identity-crisis Roblox

May 12, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 12th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Despite Roblox’s enormous success with its players, its journey on the stock market has been tough. The share has fallen 55 percent since its IPO in March 2021. If it cannot get profitability under control, the risk of game over increases.

Plain speaking is rarely a tech CEO’s strong suit. “We are play architects,” explains David Baszucki, CEO and co-founder of gaming company Roblox. The company’s vision is so vague it barely translates: “Reimagining the way people come together.”

The most interesting question is why it is so difficult for Roblox to describe what it actually does — which is games for children. We will come back to that shortly.

CEO David Baszucki has had a tough week. On Thursday, Roblox reported its quarterly figures and they were not well received. The reaction can be traced to a single sentence he mentioned during the investor call: “We will lower our 2024 estimate somewhat.” That line — a hint that the company will not meet its financial targets this year — sent the share dropping like a stone. More than a fifth of Roblox’s market capitalisation vanished the moment the New York Stock Exchange opened.

In total, Roblox has fallen more than 55 percent since its IPO in March 2021. But it is worth remembering that this relatively obscure company is still very large. Even after Thursday’s heavy fall, it is only marginally smaller than H&M by market capitalisation.

The first reason Baszucki is reluctant to call the company a gaming company is simple: that category tends to be very profitable. Roblox lost around 3 billion kronor — just in the first quarter of this year. It is easier to talk about “social meeting places” and the now somewhat forgotten concept of “the metaverse” to justify Roblox’s cost structure and investment levels. There is something to it — in Roblox, players move across many different games and activities with the same character, and it becomes a way of socialising. Mark Zuckerberg at Meta, who renamed the entire company to signal this new direction, is investing hundreds of billions of kronor in the metaverse. By comparison, Roblox’s losses are quite modest. But Meta has something Roblox does not: a highly profitable core business to cover those losses.

The second problem is that Roblox is a platform company. It does not build the games and experiences itself — it lets other developers build on its infrastructure. Generally, this is a very good and profitable model. Compare it with Apple and Google, whose app stores are also platforms that others develop for. But in Roblox’s case, it is a structural problem. For all mobile users, Roblox sits on top of another platform — specifically Apple’s and Google’s. This is where the margins disappear. Mobile phones and tablets are common when children play Roblox, meaning revenues coming through those devices must be shared with the app store. Roblox immediately loses between 15 and 30 percent of revenues there. After that, it must pay the game developers — another roughly 30 percent of what is left. What remains must cover infrastructure costs, security, salaries, and everything else that comes with running a modern tech company. It is easy to understand why the economics are hard to make work.

The third and final problem is growth. As a platform, Roblox must keep two parties satisfied simultaneously — players and game makers. The latter are primarily after revenue, which they receive relatively little of for the reasons above. As long as the player base keeps growing, game developers can perhaps justify their investment even when the economics are weaker than on other platforms. But if players get bored and move on, growth would stop quickly — and developer appetite would shrink immediately. It is a delicate balance that Baszucki must maintain.

Although Roblox is good at selling virtual goods, the majority of its players never pay for anything — as is the case with virtually all mobile games. Roblox is therefore investing in an expanded advertising system to generate revenues from that segment too. Last week, it gave all advertisers access to video ads on the platform for the first time.

Roblox’s challenge is to catch up with itself. The identity crisis its CEO expresses is really about the stock market’s expectations of what a gaming company should deliver — not what Roblox thinks of itself. The company was founded back in 2004 and has had plenty of time to calibrate its offering. But on the stock exchange, it is still a newcomer — and it has had a difficult time.

If it cannot get profitability under control, the risk of game over increases — even if it remains children’s favourite.

Apple’s record buyback — a sign of an idea drought

May 3, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on May 3rd, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Apple is offering shareholders the world’s largest share buyback. That is an easier message to deliver than acknowledging that product development has started to feel a little stiff.

Tim Cook rarely says more than he has to. Preferably less. Apple’s CEO typically lets the numbers speak for themselves. When you have no stellar numbers to show — you manufacture them.

When Apple reported its quarter on Thursday evening, it was not sales or profit that took centre stage. Both came in undramatically, just above analysts’ modest expectations. Instead, the board — with Cook at the helm — announced that they intend to buy back shares worth 110 billion dollars: just under 1,200 billion kronor. According to CNBC, it is the largest share buyback in stock market history. They also raised the dividend.

That is how Tim Cook operates. It is elegant, and it creates substantial financial value. But exciting? It is not.

Earlier this year, Apple shut down “Project Titan” — the development of a self-driving electric car that had been the worst-kept secret in the company. The project had been running for around ten years but was judged unlikely to be good enough to justify a full-scale launch. Project Titan had the potential to expand Apple into an entirely new product category. Self-driving cars are extraordinarily difficult to pull off — as one can see not least at Tesla. It was an enormously ambitious idea, with the potential to transform a giant market, and required colossal investment just to get started. But there were no self-driving cars. The money can now be used to buy back shares instead.

Another enormous bet has been the spatial computer Vision Pro, whose development costs are estimated to have cost Apple around 215 billion kronor over more than fifteen years. Vision Pro launched in February this year — but those hoping Cook would give any indication of how it had been received waited in vain. He offered only a vague comment about how nice it was to hear from people who had tried it.

Otherwise, there has been conspicuous silence — both from Apple and from the wider world — about this new product category. It will likely take a couple of substantially cheaper iterations before the scale reaches anything worth mentioning in a quarterly call.

Beyond the buyback and dividend, two numbers stood out. China sales came in above expectations but fell compared with the previous year. Difficulty in China was anticipated — domestic Huawei, operating under heavy US sanctions, reported strong growth and an enormous jump in profit just days earlier. Huawei is a telecoms company with more products and business areas than just smartphones, but its strong results point to a broader trend: intensifying Chinese nationalism and an increasingly frosty geopolitical relationship between the US and China. Apple has historically been masterful at navigating this complex situation — being deeply dependent on China for both sales and manufacturing. But the political climate has rarely been as complicated as it is now, and maintaining the balance to stay in good standing with both the US and China requires constant calibration.

Note Tim Cook’s recent visit to Indonesia, where he discussed production with President Joko Widodo and was reported to have said that “the investment opportunities in Indonesia are endless.”

The second notable number was strong services sales — including the App Store and iCloud among others. Several analyst questions focused on the services that Apple does not yet offer: those involving AI. “We believe we have advantages that differentiate us from competitors here,” said Cook, referring to Apple’s integrated model with proprietary chips, hardware, and software. The conditions for something unique are there. But the actual AI services have yet to materialise.

When pressed on timing by an analyst, Cook said he did not want to get ahead of what they would be talking about “in the coming weeks” — a clear nod to Apple’s developer conference in early June, where the company is expected to reveal more about its AI ambitions. That would come well after other major players such as Microsoft and Google.

Apple has generally had no problem being last into a category. They were not first with smartphones, nor with smartwatches. But they have come to dominate both once they committed. Following the market and doing existing things better has been Apple’s success story. The innovation has been in the execution rather than the idea.

It is impossible, however, not to wonder whether Apple has started to get stuck in old ways of doing things. Big ideas require big investments. But buying back your own shares for billions of dollars suggests that such ideas may currently be in short supply.

Musk is a master at selling the future

April 24, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 24th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After weeks of nothing but setbacks, Tesla reported weak quarterly figures. The hope is that shareholders will look past the problems for now — and keep looking towards the future.

Of all the world’s CEOs, not just anyone gets to meet with India’s Prime Minister Narendra Modi. And not just anyone cancels such a meeting at a few days’ notice because they have more pressing things to attend to at home.

But then, Elon Musk is not quite like everyone else. The late cancellation of the Modi meeting says something about the past few weeks for both him and Tesla.

In mid-April, the company laid off ten percent of its workforce — around 14,000 employees — to, in Musk’s words, “prepare the company for the next wave of growth.” They then cut prices on the Full Self-Driving software and on the Model S, Y, and X. One of several reductions in recent months as the inventory of unsold vehicles has grown.

Tesla then had to recall every Cybertruck — the company’s newest model — after the accelerator pedal was found capable of getting stuck in the pressed position. Tesla can usually resolve such recalls with over-the-air software updates, but this particular problem had to be fixed manually. With a drill.

Musk also had to go back to shareholders to seek approval to reinstate his pay package, which a Delaware judge had struck down as improper. The total in question is over 605 billion kronor, which Tesla’s shareholders are now due to vote on in June. The situation could be contentious, given that the compensation dates back to 2018 and the share price has fallen around 40 percent since the start of this year.

On Tuesday evening, Tesla reported its quarterly results — and the week did not get much better. Revenue from car sales fell by a full 13 percent compared with the previous year, and total profit dropped 55 percent. Despite low expectations among analysts, Tesla’s figures still came in below consensus.

Does that sound dismal? For an ordinary car company, it would be. But as noted, neither Elon Musk nor Tesla are quite like everyone else. Despite the poor numbers, the share surged in after-hours trading.

The optimism can likely be traced to two forward-looking sentences in the quarterly report. The first: “We have updated our future vehicle lineup to accelerate the launch of new models.” New cars are coming faster than previously announced, in other words.

Shortly after: “These new vehicles, including more affordable models […] will be able to be produced on the same manufacturing lines as our current vehicles.” The key word is “affordable” — the market and shareholders have long anticipated a cheaper car. Earlier in April, Reuters reported that this product had been shelved in favour of building self-driving robotaxis instead. Musk denied the story and wrote on X that they had “lied.”

The other forward-looking initiative is the robotaxi itself — a product that has featured in Tesla’s plans since 2016. Musk has promised to unveil it in August this year.

The Full Self-Driving software available in the cars has been updated to a new AI-based system. For Tesla enthusiasts, all eyes are on this development. This is where Tesla could become — and for some, already is — something fundamentally different from an ordinary car company.

Keeping to timelines, however, is not Tesla’s strongest suit. And deploying self-driving robotaxis is not purely a question of whether the technology works and can be produced in time — it is a matter of permits and regulation. Waymo, owned by Google, has been at it since 2009 and is so far only available in two American cities. General Motors’ equivalent initiative, Cruise, was put on ice entirely following an accident. It is a promising technology, but it has no easy path to mass deployment in the near term.

Elon Musk is a master at selling the future before it has arrived. On an increasingly pressured electric vehicle market, he shifts the focus away from today’s problems towards what is to come. He has a long tail of enthusiasts who follow him. But with figures like those reported on Tuesday, the future cannot come soon enough for Tesla.

Reality finally catches up with Lars Wingefors

April 22, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 22nd, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

As the Embracer group is dismantled on the stock market, it marks the definitive end of an era of low interest rates and high expectations. That the share surged on the news shows it should have happened sooner.

Lars Wingefors had hoped to get some rest over Easter. He said as much to SvD in March this year, after announcing that subsidiary Gearbox Entertainment would be sold.

Rest, it seems, was not forthcoming. On Monday, Embracer Group announced that the company will be split into three separate parts, each to be listed independently. Embracer in its current form will cease to exist once the transformation is complete.

To understand today’s news, one can look at the underlying promise that Embracer has carried since its inception. It can be simplified to the idea that “we are better together.” By acquiring a long list of gaming companies — covering everything from board games to mobile games — the combined group would be greater than the sum of its parts.

Or perhaps not better. But at least more valuable.

Because unlike conventional consolidation strategies, there were very limited synergies between the different segments within Embracer. Each ran its own race, and Embracer became a thin superstructure designed to hold everything together in the eyes of the market and shareholders. And more than anything else, the company was an acquisition machine that kept adding new businesses to the portfolio.

The strategy rested on two components: low interest rates and multiple arbitrage. When money was cheap, you could borrow enormous amounts of capital to buy new gaming companies. Those acquisitions were then added to Embracer’s consolidated finances — immediately rewarded with the premium valuation of a highly rated stock.

Both of those components have now disappeared. Interest rates have risen, making Embracer’s debt difficult to manage. They have had to sell several companies to service their borrowings. And the era in which they were rewarded with high multiples on the stock market is over. Over three years, the share price has fallen by around 77 percent.

Wingefors summed up the former era when responding to analyst questions: “We were living through the boom years of 2019, 2020, 2021. It was a different world. That world is now over.”

The market appears to have reached that conclusion before Embracer did. The share surged when the news broke, suggesting that confidence in the strategy — in Wingefors’s new world — had been severely limited.

Embracer’s official explanation is that the three separate entities will offer the stock market clarity. The board games business Asmodee and the working-title divisions “Coffee Stain & Friends” (mobile and PC games) and IP-based “Middle-earth Enterprises & Friends” have different profiles — financially and operationally. That is, of course, true. But the same was true when the company first tried to justify why all the businesses belonged together inside Embracer. Gaming is a broad category to consolidate. It is a bit like working in the category of “food” — yes, people eat it. But there is a difference between a street food stall and a slaughterhouse. And there is a difference between board games and mobile games too.

This confusion showed up not least in the criticism the company received for its complex reporting. Presenting adjusted EBITDA figures works best when the market fully understands what has been adjusted for. That has not always been clear at Embracer.

What has been clear is the group’s high level of debt. The sales of Sabre and Gearbox were intended to pay down a portion of it. As part of the restructuring, the board games division Asmodee will receive just over 10 billion kronor in new loans and financing in order to refinance existing debt.

Embracer captured the spirit of its time perfectly. But it was more a financial innovation than anything discernible in the actual businesses. Now that the zero-interest era has passed, the more than 125,000 individual shareholders and around 300 institutional investors have been left with a clean-up job — to bring clarity and order back to the underlying operations.

The solution is to dismantle the very structure that was sold to the market for so many years. Because even though Embracer packaged itself as a gaming company, it was really something quite different: a financial arbitrage play built on cheap debt. And that era — as Wingefors correctly notes — is now over.

Netflix forgives pirates — and raises prices

April 19, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on April 19th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Netflix beat all expectations when it presented its quarterly results. The company is a profit machine — but it increasingly resembles a perfectly ordinary media company. How do you justify the valuation then?

It has been described as one of the largest Swedish drama investments ever. The new adaptation of “Ronja Rövardotter” recently premiered on Netflix. But it was not the Americans who made the big investment in Astrid Lindgren.

The first two lines of the opening credit remind you of who did: “Netflix presents — a Viaplay Group series.” After Viaplay collapsed, Netflix was able to pick up the finished series and claim half the glory. The timing was perfect — for this kind of major production, there will not be many coming from either Netflix or anyone else in the near future. Acquiring a finished work from a rival is therefore ideal.

Netflix’s focus is now on profitability, after many years of what seemed like near-limitless growth. The shift is visible in its financial reporting. Previously, the company talked almost exclusively about subscriber growth. Now it is trying to operate more like an ordinary company — revenues and profitability.

And from next year, Netflix will stop reporting the total number of subscribers per quarter altogether. The figure has started to become misleading, they believe.

In the early days there was no profitability to speak of. But that looks very different now. On Thursday evening, the company reported its results for the first quarter of the year — and Netflix beat all expectations. Profit increased by a full 51 percent compared with the previous year. The company also beat market expectations on both revenues and new subscribers.

In keeping with becoming more like an ordinary company, one of the key drivers of success is something as simple as pricing. How do companies normally increase revenues? They raise prices. Which is exactly what Netflix has done. But to capture more price-sensitive customers, they have also added advertising to the cheapest subscription tier. Forty percent of all new customers now choose that option. The ads create a new revenue stream — still small for now, but growing.

Another much-discussed change has been getting people to stop sharing subscriptions. If you are logged in from many different locations simultaneously, Netflix will now issue a warning and offer the option to purchase a separate account — even allowing you to migrate your own profile so the system remembers what you have watched. They forgive your past piracy — but now it is time to start paying.

Content has also contributed positively. The latest season of the reality series “Love is Blind” was watched 20 million times, while the drama series “Griselda” reached over 66 million viewers. A notable new addition for Netflix is live sports — including a boxing match between Mike Tyson and Jake Paul — and in January they announced a deal with WWE, the American wrestling league.

The shift in content strategy is tied directly to the focus on profitability. The company’s new film chief, Dan Lin, has a mandate to produce cheaper and simpler films than before. A select few prestige projects are still being greenlit to keep the awards conversation alive, but the general ambition — and budget — is substantially lower. Lin began his new role by laying off ten percent of his staff, then reorganising those who remained. The message was clear: this is a new era.

Quality, however, is a relative concept. Expensive productions are not necessarily more popular than cheap ones. Netflix has had considerable success with stand-up specials, for example — Ricky Gervais and Dave Chappelle were both among the most watched content during the quarter. They certainly charge well for their time, but from a production standpoint, stand-up is remarkably cost-efficient.

Despite these strong results, Netflix’s share price fell in after-hours trading. When every metric is pointing upwards, what more can the market want? Part of the problem is that Netflix’s stock has already risen enormously compared to a year ago — up 89 percent — and the company is now approaching the peak valuation it reached at the end of 2021.

The challenge for Netflix is to sustain that valuation — but for different reasons than the last time. Then, it was still low interest rates and cheap money driving growth. Now, Netflix’s CFO Spencer Neumann talks about steadily rising profit margins. That sounds rather like an ordinary media company. So why should it be valued on the stock market like a tech company? That is the question Netflix needs to answer.