Magic Leap Valuation in Free Fall As Investors Mark Down Stakes
Magic Leap investors are downgrading their worth of their shares in the mixed reality company by as much as 93%, a scenario that makes a takeover more likely prospect.
At the peak of its hype, Magic Leap was estimated to be worth more than $6 billion by both investors and market watchers. The startup raised up to $2.6 billion in investor capital. Google alone invested $500 million in the mixed reality company. As recently as June 2020, there was another infusion of $350 million investment from an unknown source, an injection of cash that saved Magic Leap from total collapse.
In April this year, Magic Leap finally conceded that the end user market for Augmented Reality glasses is still almost nonexistent and laid off about 1,000 staff, mainly in its creation and marketing departments. Magic Leap boss Rony Abovitz also stepped down in May paving the way for the new boss, former Microsoft Executive Peggy Johnson who is to align the company with its new purely B2B business. Johnson was supposed to right the sail towards enterprise solutions after Magic Leap spectacularly failed to get consumers interested in its spatial computing products in spite of billions of dollars in investments.
⬇️ The steepest markdown in private tech this year? ⬇️
A weighted average of more than 10 investors puts it at ~$450M valuation. Some marked their shares to 0.
It was valued at $6.4B in a financing last year.https://t.co/ij9s6R55fz
— Cory Weinberg (@coryweinberg) September 2, 2020
According to reports by the tech discourse site The Information, more than 10 of Magic Leap’s institutional investors now value the AR company at an average of about $450 million from the soaring $6.7 billion of April 2019. According to the report, some investors have even downgraded the value of their shares to zero.
Magic Leap’s loss in value from a high of $6.7 billion to $450 million in a space of just over 12 months is the largest over the past year according to The Information.
Could Microsoft Acquire Magic Leap?
The steep depreciation in value over the past year now makes it more than likely that Magic Leap will get a buyer. In any case, the Augmented Reality company will not even be able to build up a lucrative B2B business (its new focus) without an injection of fresh investor money. The mixed reality company is incurring high running costs because in spite of the staff hemorrhage in April this year, the company still retains hundreds of employees. The expenses incurred in supporting these operations is offset by very meager income.
Some of the big-name tech players with interest in mixed reality might be lining up to acquire or acqui-hire Magic Leap. One of the top candidates is undoubtedly, Microsoft where many of the laid off Magic Leap staff headed to over the past few months. The mixed reality market is already dominated by Microsoft’s HoloLens and the Redmond-based tech giant might be looking to yank Magic Leap away from a potential competitor for the B2B mixed reality hardware market segment. Microsoft might also be interested in some of Magic Leap’s patents as well as MR specialists; it might be interested in acqui-hiring the company. It is also noteworthy that Magic Leap boss Peggy Johnson is a former Microsoft executive. The current Microsoft boss Satya Nadella personally guided Johnson into the tech giant where she oversaw the acquisition of LinkedIn in 2016 for about $26 billion and Github for about $7.5 billion in 2018. With Magic Leap now shrunk to just $450 million, the acquisition should be swift.
The Magic Leap story has some strong parallels to that of Theranos in the way in which both startups were hyped to soaring heights with both eventually collapsing under the weight of expectations as they were simply unable to develop a product that would live up to the hype.