Equity Monday: Investors have not given up on web3 gaming

Here's what we got into today: Earnings season is here, and we'll hear from Tesla and Netflix this week. Expect a lot of new data to drop in the coming weeks. If we bundle a number of headlines together, it's clear that running a social media company in the modern era can be a very expensive proposition. Though, what you think about regulation may color how you view the situation. Funding to web3 gaming companies declined in Q3, but it's not all that bad. The U. S. may not see IPOs happening, but the rest of the world is not similarly bereft. Creative Force's Series A was too cool to not mention. Equity will be back Wednesday with a killer episode on all things venture capital in Q3. See you then! For episode transcripts and more, head to Equity’s Simplecast website. Equity drops at 7 a.m. PT every Monday, Wednesday and Friday, so subscribe to us on Apple Podcasts, Overcast, Spotify and all the casts. TechCrunch also has a great show on crypto, a show that interviews founders and more! Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:10Speaker 00

  Hello and welcome back to Equity, the TechCrunch podcast where we unpack the numbers and the nuance behind the headlines. This is Alex. Good morning and welcome to our Monday show where we get caught up from the weekend that was and take a look at the week that is to come. This morning is October 16th, 2023, and on the show today, we have stocks and crypto, including the onset of earnings season, the expense of running a modern social media company, one interesting Japanese IPO, data on Web3 funding for gaming companies, and then a very cool Series A. Let's go.

• 0:47Speaker 00

  Let's start with a look at the global stock market as we do every Monday. Shares were sharply lower in Asia today with Japanese stocks falling the most. Stocks are modestly higher in Europe, though there is continued concern over the Israel Hamas war, and stocks are set to rise a little bit here in the US when markets open. Looking ahead, CNBC reports that 11% of the S&P 500 will drop their earnings this week, which means it's going to be busy, but not really in our world. In tech land, there are only really two companies to pay attention to this week, and that's Tesla and Netflix, both of which will drop numbers this Wednesday. Results are back on, but for tech, we'll have to wait mostly another week or two. Also, on the show this week,

• 1:28Speaker 00

  we have Janey from Crunchbase coming out on Wednesday, talking all things Q3. So if you're looking at earnings and want to know more about what's going on on the private markets, well, on Wednesday morning, we'll have just that just for you. From stocks to crypto, what's going on? Well, apart from the continued trial of former FTX CEO Sam Bankman-Fried, the biggest news item that I caught from crypto land in recent days is data indicating that Coinbase's trading volume in Q3 may have been off by around 50% compared to year ago levels. Now, the American crypto giant has a number of revenue streams, but its trading revenue has been a key profit driver in recent years, so to see that number continue to fall is a concern.

• 2:10Speaker 00

  Is going on? Well, Bitcoin is up 3% in the last 24 hours to just under $28,000 per coin. Price movement is otherwise pretty muted around Web 3, at least as far as I can tell. And NFT numbers may be stabilizing a little bit. They're still down sharply from prior highs, but they're not seeming to erode as much as they once were. So perhaps we've reached the bottom, the nadir, if you will, of NFT volume.

• 2:37Speaker 00

  Next up, my favorite part of the show, what I call big news that matters. And my headline for this morning is this: It's expensive to run a social media company in a regulated world. Now, reading the news this morning, it felt like there was a theme to the headlines and stories that I was aggregating. See if you can spot the through line in the following headlines. From TechCrunch, Australia fines X for failing to provide information about child abuse content. From Bloomberg, TikTok fights back over 345 million euro teen privacy fine in EU. From TNW, TikTok complies with EU demands against Israel Hamas disinformation. And finally, from Al Jazeera, EU launches probe into Elon Musk's X over Israel Hamas war content. And those are just from the last few days.

• 3:23Speaker 00

  The internet can grant any content or product or service as much reach as it can dream of, but to operate a business in the social media space around the world means complying with a host of local regulations that may not be the same as those in the home market of the company in question. And the fines that can result from, I don't know, disharmony, maybe, can become massive. Facebook parent Meta was fined $1.3 billion earlier this year, just to pick one example. Now, you might view the stories we're discussing here as evidence of government overreach, or you might view them as companies trying to get around reasonable regulation and paying the price for it. No matter where you sit on the issue, it is clear that governments in certain parts of the world are not interested in free rein for digital services. But don't worry,

• 4:07Speaker 00

  it could definitely be worse. In authoritarian markets, many services are just simply blocked, which, you know, is less good. Next up, IPOs may be dead in the US, but they're not dead everywhere. And I have to apologize a little bit. I focus on the American equities markets when it comes to IPOs. I do keep an eye on Europe to some degree, but as just one humble nerd, I really can't read everything everywhere. Still, I am a little bit embarrassed that I did not know that Kokusa Electric was about to go public in Japan in what Reuters calls the largest IPO in that country in a half decade. Now, what is this company? Well, it calls itself a "specialized manufacturer of semiconductor manufacturing equipment." And what does that mean?

• 4:51Speaker 00

  Well, it turns out it's a bit technical, but the company works on two parts of semiconductor manufacturer. And yes, I did fall down a rabbit hole this morning, learning lots and lots about how chips are made, but we don't have time for that now. Anyways, you can see why the company's owners, private equity shop KKR, wanted to take it public. With AI demand sending the need for new and faster and higher powered chips to new levels, Kokusa could do well. So take it out while investor interest is high. The company priced near the upper end of its range and was worth about $2.8 billion at its IPO value, according to Reuters, and should begin trading later this month. Next up, do you have a child? Have you discovered that all of your personal time is gone? And if you want to play video games, you have to do it late, late at night when everyone

• 5:36Speaker 00

  else is asleep for 30 minutes before you pass out? Well, haha, if so, you're just like me. But one thing that I have found very interesting is that while I have retained my gamer identity while I've gone into parenthood, I don't actually play any games that currently touch the blockchain. And this is not due to a lack of effort on the world of Bitcoin and its friends. In fact, they've raised a lot of money and taken a lot of shots on goal to try to find a way to bring crypto to gaming. And there have been some successes. We've all heard about Axie Infinity and a couple of other titles, but generally speaking, gaming and crypto are distinct. Now, recently, a DAP radar report said that Web3 gaming projects raised $600 million in the third quarter. And my question was, is that number good? Is that number weak?

• 6:20Speaker 00

  How should we think about it? Well, it's down from $900 million. 173 million, again according to DAP radar, in the second quarter of this year. That's not very bullish, but it's actually very similar to the 654 million that Web3 gaming projects raised in Q4 of last year, so not that bad. In other words, the recent Q3 2023 fundraising figure for Web3 gaming is not great, but it's also not insanely lower than prior totals. So investors are continuing to bet on the intersection of gaming and Web3, which means that eventually, late at night, I may accidentally find myself gaming on the blockchain.

• 6:59Speaker 00

  Let's close out with a very cool startup funding round, yeah? Let's talk about Creative Force, which provides an AI-powered content operations workflow for large e-commerce retailers and brands, according to TechRunch.com, and just secured an $8.9 million Series A round. Now it's worth $56 million on a post-money valuation, and the capital came from Export and Investment Fund of Denmark and Hurst Ventures. Now, given that I just told you that there's some Danish money involved, you won't be shocked to learn that Creative Force is a Danish company. It was founded back in 2019, and we say that it helps retailers and brands create content for marketing campaigns and online merchandising. Now, in terms of technology development itself,

• 7:42Speaker 00

  Creative Force is investing in AI tools for 2D and 3D images and models, product images without needing another photo shoot, and virtual models themselves. The company will also help write first drafts of product descriptions, after which human copywriters can quickly review, edit, and finalize the text. Now, the company initially focused on the fashion and apparel markets. However, since its seed round in 2022, the company saw a 170% year-over-year jump in other verticals, including home improvement, furniture, jewelry, and groceries. And what really hit me about this round wasn't the focus, you know, e-commerce is cool, AI is cool, whatever, but it was the fact that the Series A round itself was actually kind of modest in size.

• 8:24Speaker 00

  It felt more like a pre-pre-boom era figure. Still, it's good to see that not all AI-powered startups are being overvalued in their earliest stages and thus stuck with valuations later on that they can't really defend. And frankly, how often do we talk about Danish companies on the show? It's cool.

• 8:44Speaker 00

  All right, friends, that is our show for this fine Monday morning. If you need more equity before we're back on Wednesday morning, we are Equity Pod over on X and Threads. And if you want more of me, well, I'm Alex over on X. We do have that awesome show coming up with Janae from Crunchbase on Wednesday. Make sure you're tuned in for all things Q3. And if you need more from your friends at TechCrunch, well, we have two sister shows, Chain Reaction and Found, that I cannot recommend highly enough. All right, we're out of here. Talk to you soon. Bye.

• 9:14Speaker 00

  Equity is hosted by myself, editor in chief of TechCrunch Plus, Alex Wilhelm, and TechCrunch senior reporter, Mary Ann Azvedo. We are produced by Teresa Locan Solo with editing by Kel. Bryce Durbin is our illustrator. And a big thank you to the audience development team, and Henry Pickavet, who manages TechCrunch Audio Products. Thank you so much for listening, and we'll talk to you next time.