Intel’s Newest Startup Investments
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the world’s largest semiconductor chip maker with $50 billion in revenue just last year, it is obviously that aspect of Intel (NASDAQ: INTC) that we as investors focus on the most. But that is not the only aspect of the company that is worth your attention. After returning money to shareholders through large share repurchases and a generous 4% dividend yield, reinvesting money back into the company through research and development and making major company acquisitions, Intel is still left with billions of dollars just lying around. That is where Intel Capital comes into play.
As the investment and M&A arm of the company, Intel Capital looks for attractive new investment opportunities in emerging technologies and company startups all over the world. At their 13th annual Intel Capital Global Summit last week, Intel showcased many of investments in their current portfolio of companies, as well as highlighting their newest investments made during the last year. I would like to take a little time to focus on four of those new investments; four that I believe are particularly interesting.
First up on the list is Hungama, India’s largest digital entertainment company. Hungama offers a diverse range of products and services, ranging from video and music streaming, to entertainment news, video games and digital advertising. Hungama's primary claim to fame is their Netflix (NASDAQ: NFLX) like unlimited streaming service, Hungama.com. In addition to the obvious movie and TV show selection, the service also offers music streaming as well, all under the same unlimited monthly subscription plan. In an attempt to super-charge its own growth, Netflix has been aggressively expanding its streaming-only service abroad over the past two years. While Netflix would certainly love to expand to a huge emerging market like India, it might be a bit difficult with a viable local service already entrenched in the space.
Hungama currently has over 20 million users in an emerging market country with about 1.25 billion people. While that 20 million user number is not broken down by service type (that is 20 million users among all of Hungama's services), if we try to compare it to Netflix’s 26 million worldwide subscribers, you can see Hungama is already doing pretty well for itself. With its market-leading position in India, you can continue to expect some great growth potential from this company going forward.
Next is PagPop, a Brazilian startup company. PagPop is a payment acceptance service company very similar to eBay’s (NASDAQ: EBAY) PayPal or startup company Square. PagPop allows small businesses or individuals to accept credit card payments anywhere using a credit card swipe device that simply plugs into a business owner’s iOS or Android smartphone or tablet. While credit cards are pretty much universally accepted in the United States, Brazil still has a long way to go before it reaches that level of acceptance. Only about one-fifth of Brazil’s population have credit card accounts and store acceptance is only now starting to become more mainstreamed. Payment acceptance services will certainly be a growth space in Brazil for years to come (particularly with Brazil’s hosting of the 2014 World Cup and the 2016 Summer Olympics just around the corner). eBay itself made attempts at the Brazilian market in the past. Unable to crack the Brazilian egg, eBay ultimately decided to partner with MercadoLibre (often referred to as the eBay of Latin America, with its own online auction site and its PayPal-like payment service). With the growth in this area, it would not surprise me to see the Brazilian PagPop one day end up as an acquisition target for eBay or MercadoLibre (of which eBay is the single largest investor).
Keeping with the international theme on my list thus far, Intel has also invested a few bucks in a Zynga-esque (NASDAQ: ZNGA) South Korean social gaming startup. Now, given the absolutely awful share performance of Zynga since it IPO’d late last year (down 74%), you might be inclined to skip this paragraph and jump right to my final company below. But wait, hear me out. Zynga’s problems have been its own problems. There is definitely money to be made in the social/casual gaming space. Anyway, the South Korean startup in question is LIFO Interactive, a developer of games on the Facebook platform. Its most well-known game is Train City, a city building simulator that became quite popular with over 8 million users at its height. Later this year, LIFO plans to release Train City and other games for IOS, Android and Windows Phone 8. Despite Zynga’s share declines, social/casual games could very well be the future of gaming. With Electronics Arts making the very wise acquisition of PopCap games last year and Zynga wildly overpaying for the one-hit wonder OMGPOP earlier this year, this is a space to keep your eyes on.
And last, but not least, is a company that is probably the most unique and innovative of the bunch; the American startup Jelli. Much like Pandora Media (NYSE: P), Jelli is an internet radio company, but with an interactive component to it. With few barrier to entry, if you are a company in the streaming radio space, you want to have something unique to set yourself apart from all the other players. Pandora shareholders found that out the hard way, when shares fell 17% in a single day after the mere rumor of Apple entering the streaming radio game. And Jelli definitely has something unique about it. Jelli is a completely user controlled radio service. Rather than Pandora’s predictive algorithms, Jelli allows users to control a radio playlist through online voting and video game-like multiplayer elements. Instead of just a simple binary ‘Yay’ or ‘Nay’ vote (or ‘Rocks’ and ‘Sucks’ in Jelli’s world), users also employ power-ups to influence the voting (power-ups that are earned by listening everyday).
Using Jelli’s website or their iOS and Android smartphone apps, users compete with Rocket power-ups to try to propel a song to the top of a playlist or Bomb power-ups in an attempt to blast a song to the bottom of the playlist. But what makes Jelli even more interesting as a company and a service is that it does this not only with online radio stations, but also with traditional FM radio stations. Owners of traditional FM radio stations can integrate Jelli into their radio programs, adding a level of listener engagement and participation not normally found on terrestrial radio. So while companies like Pandora and Sirius XM Radio are looking at replacing FM radio, Jelli is finding new and exciting ways to reinvigorate the existing (but boring) FM radio stations across the country.
And there you have it, my four most interesting takeaways from last week’s Intel Capital Global Summit. While these investments only represent an extremely tiny part of Intel overall, investment in startups of these sorts are still an important thing for investors to keep track on. Some day in the future, one of these companies could provide Intel with a significant payday. Will that payday come next week, next month or next year? Most likely not. But years from now, you could very well see one of these startup companies being acquired or going public.
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