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Why Did a Chinese Peroxide Company Pay $1B for a Talking Cat?
- dannylandau 9y agoIn short, pretty bizarre financial engineering going on with Chinese industrial companies buying western gaming start-ups for enormous sums in order to buttress their (chinese) own bottom line and keep the shares going up on the Chinese stock market. This is a type of pyramid scheme that is bound to come crashing down at some point, and bankrupt every single one of these companies.
- forkLding 9y agoNot entirely, if you make more net income and profits at the end of the day and can take the debt burden, can you die as a company? At the end of the day, lots of companies acquire for a range of reasons, some companies acquire other companies so that they can move to an area which is tax-free. I think its too early to tell, especially in the world of business which doesn't follow rigid rules.
- sushid 9y agoWhy couldn't these companies issue more shares in secondary offerings at 100x their PE ratio, hoard all the cash, and wait for the crash to do a buyback? Seems like a good way to hedge against a downturn. Of course, per usual, retail investors will lose out as usual, but the companies could end up just fine.
- alnitak 9y agoHow did you get to know all those things you're talking about? Where does one even start decrypting finance jargon and "possibilities"?
- metaphorm 9y agostart with https://academy.investopedia.com/ https://academy.investopedia.com/? helpful for jargon anyway.
- semi-extrinsic 9y agoObligatory: http://abstrusegoose.com/389 http://abstrusegoose.com/389
- frgtpsswrdlame 9y agoIf you're serious about getting to know it, I would torrent some level 1 CFA study material and skim it in bits and pieces. Really though, I would avoid it. This jargon can rot your brain.
- Chris2048 9y agoDoesn't CFA contain lots of law/ethics etc?
- frgtpsswrdlame 9y ago15% I think but you can skip that.
- sushid 9y agoHonestly, most of the "jargon" I know is mostly by reading the news. I guess I know a bit more than the typical layperson but that's because I do a little bit of personal investing outside of Robinhood and most of my friends not in tech are in finance.
- lmm 9y agoRead Matt Levine's column on Bloomberg. All of them, and the ones from when he worked for Dealbreaker as well. He tells the stories in a clear way that makes sense, cutting through a lot of nonsense, and so you understand the key points even without getting the jargon, and then you gradually pick up the jargon too.
- eru 9y agoMatt Levine's column is great. The Economist can also bring similar-ish knowledge, but its focus is broader.
- zhte415 9y agoRead macro-man.blogspot.com if you really fancy some fancy terms. In seriousness, after reading for a couple of months, and looking the odd thing up, and not worrying about the jargon, just acquire it, you'll have a seriously good understanding of markets, what they influence, and what influences them.
- mpeg 9y agoPlay Capitalism 2 / Lab and you're half way there
- simonh 9y agoIt doesn't work like that in China though. No company management over there is going to let a large amount of capital sit in a bank unused.
- supremesaboteur 9y agoAre you asking a company to short it's own stock ?
- eru 9y agoIsn't that what an IPO is? Or any kind of share offering?
- callmeed 9y agoExactly why I wont touch Alibaba stock. Too much risk that something like this could be happening.
- ThrustVectoring 9y agoIt reads to me as pretty much entirely an end-run around Chinese capital controls. Chinese investors can't just go and buy US assets, but they can buy Chinese companies that have engineered a purchase of US assets. This is the fundamental driving force for the price difference. Expect a lot of these companies to take a bath if/when capital controls get eased.
- prklmn 9y agoThis article gives some great insight. Basically lots of these companies are in debt up their eyeballs so they can afford to make moves like this to bring real cash in. As anyone could imagine, it's not all that rosy https://www.bloomberg.com/news/articles/2017-04-24/china-s-hidden-debt-stirs-investor-angst-as-local-defaults-rise https://www.bloomberg.com/news/articles/2017-04-24/china-s-h...
- aub3bhat 9y ago30 Rock did it first http://i.onionstatic.com/avclub/5224/22/16x9/1200.jpg http://i.onionstatic.com/avclub/5224/22/16x9/1200.jpg
- ChuckMcM 9y agoIt makes me think of a recent write up on modern day money laundering. One way to do so is to have an app with in game purchases, your mules buy burner phones and start buying in-game stuff using their phone account. Money goes into the wireless store, comes out of the App store. "Honey are you launding drug proftis?", "No dear, I'm just addicted to HoneyBear Racers!"
- sushid 9y agoBut money laundering usually involves illicitly acquired cash and converting that into legit money you can invest/store/etc. Seems like localbitcoin to Monero to anything else makes more sense. No?
- ChuckMcM 9y agoStrictly speaking, money laundering is any activity that makes it impossible to follow a monetary trail. Whether that is in game tokens, some sort of block chain technology, or gallon jugs of Tide detergent. And yes, it can involve illicitly acquired cash, but it can also be used to conceal the purchase of assets or the exercise of political influence.
- toomanybeersies 9y ago> gallon jugs of Tide detergent Huh, I never knew about the underground trade fueled by tide detergent. Well there goes a solid chunk of today's reading time. Old HN post on the subject for others interested: https://news.ycombinator.com/item?id=5023204 https://news.ycombinator.com/item?id=5023204
- nnm 9y agoper wikipedia Money laundering is the process of transforming the profits of crime and corruption into ostensibly 'legitimate' assets.
- Apocryphon 9y agoIt's 2017 and we're still looking up the reference book definition of laundering. Office Space was onto something.
- vadym909 9y agoThe sad thing is - Chinese investors/CEOs then need to get the money out of China because they know it will crash eventually. So they invest in hot real estate markets like Canada, US and Australia causing house prices to go to stratospheric levels and make it un-affordable for the locals.
- appleiigs 9y agoThe locals sold at a price they wanted or they wouldn't have sold. The locals who have not sold are now much wealthier.
- sushid 9y agoMaybe I'm going off on a tangent but I hate these "Economics 101 dictates that a fair market price..." arguments. Yes, we're all aware of how the supply and demand curve works but you're not really addressing the grandparent comment's concern.
- appleiigs 9y agoI'm saying the concern is not a concern. The wealth is spilling over to owners of real estate and tech companies like Origin7 from the bloomberg article. In other words, if the chinese investors/CEOs over-pay for assets like a talking cat, that is their problem (and to repeat - a benefit to the sellers).
- icantdrive55 9y agoYea--it's getting old, and all seems cool when your young and gleefully employed, or living off daddy quietly. The realeste issue wouldn't bother me so much if we were allowed equal property rights in these countries.
- TheCoreh 9y ago> The locals who have not sold are now much wealthier. And now have to pay much higher property taxes, which they might not be able to afford with their current income. For sure, they should be able to sell the property and buy a comparable one cheaper elsewhere (Thus netting some profit) however they're basically being priced out of the property they own, with no real choice. (Issue #1) Unless they can find a similar paying job wherever they move to (which might not be the case), they now need to face a much longer commute to work every single day, wasting hours that could previously be spent on leisure, with family, or doing work on the side to earn extra money. (Issue #2) The amount of profit they net from the sale of the property might be useful to compensate for this effect, if they're able to invest it properly, and depending on the specifics and market conditions. (Renting the property will probably result in a comparable outcome to investing the profits from the sale, which might or might not be enough to break even considered the increased commute time)
- rb808 9y agoI can remember 1999 & 2007 there was money everywhere and no one quite knew where it was coming from. The money pouring out of China feels really similar. It makes me nervous.
- hackunomatter 9y agoJust see SF's white-hot realestate market. I can only wonder what the hell is going on: so many houses are going for up to 50% above asking!
- appleiigs 9y agoMaybe I'm reading a bit too much in it, but the top comments seem to have a bit of discriminatory tone: China = pyramid scheme or money laundering. When 1997, 2007, SF real-estate, unicorns with no earnings, all happen(ed/ing) in the US, in addition to Bernie Madoff. The original article topic is industrial companies buying tech and the arbitraging of valuations.
- msie 9y agoYes, I see it too. On the other hand, the Saudi-Softbank deal is viewed as a way to diversify and not to launder money.
- CodeWriter23 9y agoI think maybe you are reading too much into it. Adding "value" to a company's bottom line by purchasing assets COMPLETELY outside of the core competency of the company tilts the scales toward cooking the books and away from creating actual value.
- sjg007 9y agoWhy? Berkshire Hathaway did this in the past. Holding companies can be well diversified.
- rb808 9y ago
- api 9y agoWe talk about smart money and dumb money. Lately I've been calling this stuff "weird money." I've been hearing a lot of weird stories about weird money in the last few years. My favorite involved an investor who could not be located when the company was sold. Phone was disconnected, company did not exist, etc. Not sure how that shook out. Maybe the proceeds get held in escrow for a while and then distributed to the other investors if the owner never shows?
- shostack 9y agoAny other examples you can link to stories on? I love this sort of thing too. The best ones are instances where there is a logical and sometimes very smart reasons behind things that don't make any sense on the surface until the outcome is revealed at the end. I think that's why I'm hooked on the show Billions.
- AJ007 9y agoIt sounds weird, but companies trying to expand to areas they don't have experience in is nothing new. There are other unique incentives in play right now, but they aren't particularly crazy. Imagine your company is about to be on the ugly end of major changes to economic policy in your country. You still have access to credit, so you may consider buying another business. You want to hedge against currency risk, so you buy a company in another country whose currency you think will do ok. Also, you need a purchase that is big enough to matter and you need to do it quickly. If the finances are right, and the business metrics of the acquired company doesn't decline too quickly you may make out pretty well.
- Spooky23 9y agoSome sort of laundering scheme?
- hackunomatter 9y agoSounds like pump-and-dump to me. From what I could gather (albeit I'm not very familiar with financial engineering): the Chinese stock market is hot, and P/E of 100 is not uncommon. In other words: P = 100 x E. Suppose you are a company that sells some conventional goods whose market is tapped out, so no more growth in the "E". You find a game company (who doesn't understand the games market, especially China, where smartphones are like second appendages?) with earnings of, say, X. If you can buy this outfit for something significantly lower than 100 * X, then (using the equation above), you'll be able to boost your own company's "P" by 100 * X by acquiring the company, at a cost much lower than 100 * X.
- mljoe 9y agoIt seems super sketchy. I mean the valuations based on current P/E aren't even terrible except for the fact that gaming especially doesn't seem an enduring business. That E is probably going to go down as people move on to other games.
- bobsam 9y agoCame here to say the same. If you win on lottery you can expect to get offers from criminals for your ticket. This could be the same thing on a larger scale...
- lmm 9y agoAvoidance of capital controls seems like the main reason. The company would like to buy dollars but isn't allowed to, so they buy a company that has a revenue stream in dollars instead.
- farhang 9y agoIf anyone wrote that as a story, any editor would have insisted that the protagonist's name cannot be "Login".
- metaphorm 9y agoHiro Protagonist[0] says hello from Cyberspace [0] - https://en.wikipedia.org/wiki/Snow_Crash#Plot_summary https://en.wikipedia.org/wiki/Snow_Crash#Plot_summary
- projectorlochsa 9y agoSamo Login, which means Just Login (as in "just do it"). Quite amusing name :D It was deliberate, obviously.
- nitam 9y agoSamo is Slovenian version of Sam. "samo" means "only"/"just" but pronounced a bit differently than Samo.
- doubleplusgood 9y agoLogin is a legit surname, though[0]. 0: http://www.onomastikon.ru/proishogdenie-familii-login.htm http://www.onomastikon.ru/proishogdenie-familii-login.htm (source in Russian)
- ionwake 9y agoCan someone be kind enough to tell me how I could get in touch with a possible VC / or company from china who might be interested in investing in an RTS I've spent about 4 years making?
- jerrre 9y agoThey want to buy companies with revenue, not IP, if I understand correctly
- valuearb 9y agoThis is one of the great things about free trade. The US sends trillions of dollars to China to pay for manufacturing services, and the Chinese are forced to spend that money in the US. They can buy services, or US Treasury bills, or private investments, but sooner or latter the money has to come back. And there is so much money involved there are some pretty dumb investments being made.
- aj0strow 9y agoI know a guy in Toronto who used to offer loans from the Caymans to Chinese CEOs secured by 2x stock. If they default, he keeps the stock. So they take out a massive loan then immediately default. He sells at market, anything above half is profit. $100Ms.
- tempestn 9y agoHuh. Both my kids loved Tom the Cat around age 3-4. From my experience, I have to assume the majority of their hundred million dollar revenue comes from kids randomly mashing on ads, or somehow managing to make in-app purchases. (Like most free apps targeted at kids.) Kudos to the developers, but even aside from the ethical issue (which rests more with the ad networks than the app makers imo), seems pretty risky to spend more than 1-2x revenue on this thing, given the risk of changes by Apple/Google that could wreck the revenue model.