SINGAPORE (Feb 19): Start-ups in need of funding have lately begun to throw over venture capital beauty parades in favour of the less-demanding and quicker initial coin offering (ICO). But when listed companies do the same, investors should be wary.
Like an IPO, an ICO allows a company to raise money from the public. Instead of offering shares, companies doing an ICO offer some form of cryptocurrency. In a Singapore Exchange filing on Feb 5, Spackman Entertainment Group announced its intention to launch its own Korean entertainment utility tokens, or K Coins, through an ICO. Token holders are being promised future access to products and services from the company, such as merchandise, premium content or events.
“Blockchain technology is an innovative approach to leverage our content and talent management platform. In collaboration with our associated company Spackman Media Group, we are excited to explore an ICO that will give token holders unparalleled access to our artists and content,” says Richard Lee, CEO and executive director of Spackman Entertainment. The company’s business includes movie production and talent management.
Meanwhile, Sakae Holdings, which owns the Sakae Sushi brand, has signed a memorandum of understanding with a payment solutions provider called Mobile Credit Payment to develop the first F&B token. To be called Bitecoin, it aims to facilitate reliable and secure peer-to-peer transactions between consumers and merchants.
The two companies have ambitious hopes for Bitecoin. They say it will reduce time delays and added costs caused by human errors, automate inventory control, streamline fulfilment processes and create a unified system to collect, sort and manage payment processes.
Investors do not appear impressed. Spackman’s share price closed 9% lower at 10 cents after the announcement on Feb 5. Sakae’s shares declined 12.9% to close at 21 cents after its Feb 8 announcement.
Contrast these reactions with the frenzy that greeted other publicly listed companies jumping on the cryptocurrency bandwagon last year. A London-listed company that invests in internet and information technology businesses saw a 394% jump in its share price after it changed its name from On-line to On-line Blockchain in October. Long Island Iced Tea, a company that sells non-alcoholic beverages under that brand, saw its shares rise 289% after it was renamed Long Blockchain.
To be fair, global stock markets as well as cryptocurrency markets were far more buoyant back then. Even so, the cool reaction from investors to Spackman and Sakae’s recently announced blockchain ventures suggest caution that is not unjustified. Neither company is doing particularly well. Their performances seem unlikely to be improved by adopting blockchain technology.
For 3QFY2017 ended Sept 30, Spackman reported a loss of US$770,000 ($1.02 million), on the back of a 35% y-o-y decline in revenue to US$1.8 million. The company had reported earnings of US$1.5 million in the same period of the prior year. Spackman attributed its poor performance to a lower percentage-of-completion for the movie Golden Slumber.
Sakae reported earnings of $270,000 for 3QFY2017 ended Sept 30 — an improvement from the losses it had reported in 3QFY2016. However, revenue for the quarter declined 19% y-o-y to $16.4 million, owing to sluggish economic conditions and weaker market sentiment.
Spackman’s shares have roughly halved over the past 12 months and it now has a market capitalisation of under $50 million. Sakae’s shares are down 40% and the whole company is now valued at less than $30 million. Neither is in a strong position to raise funds from the market, so tapping the crypto mania might seem like a good idea. But investors would probably be better served if the companies focused on things such as resource efficiency or revenue generation.
Indeed, companies should be careful of adopting new technologies just so they can appear innovative. Singapore Airlines recently announced a blockchain-based airline loyalty digital wallet to allow customers to use their KrisFlyer miles for retail transactions.
“This groundbreaking development in which we will be using blockchain technology to digitalise KrisFlyer miles is a demonstration of the investment we are making to significantly enhance the digital side of our business for the benefit of our customers. It is in line with our recently unveiled Digital Innovation Blueprint, under which we aim to be the world’s leading digital airline,” says SIA CEO Goh Choon Phong.
Is the blockchain the best solution for what SIA is proposing? Is the digital wallet even a good idea? The airline could probably accomplish the same thing with a cheaper and less complicated technology. And, SIA would probably win more fans if it made it easier to redeem miles for flights or to use them to offset ticket prices.
SIA’s troubles largely stem from its profitability being squeezed by intense competition over the last decade, which has forced it into penny pinching initiatives that run counter to its unique selling proposition of being a premium carrier with top-notch service. A blockchain wallet is not going to solve that problem.
Undoubtedly, it has been difficult for some companies to raise money or improve their earnings in the current environment. But jumping on the latest fad is almost never the answer in the long term.
