When I first saw the news that a US firm was buying Singapore app developer Hotapps for S$876M, I thought wow, another great startup exit. However, as I dug deeper into the story there was something very strange about the headlines.
The HotApps Press Release – “Wow, another Instant Messaging App That Will Be Worth Billions”
1. Hotapps is Not Even Out In The Market Yet
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I was searching around the instant message app Hotsapp and I discovered its not even in the market yet! In fact, they are still just developing the app. How does something like that command any form of valuation in that range? Being in the startup space for a while, a Seed Round valuation is generally between $1M to $2M+ and that’s usually with a functioning beta already.
2. The US Company FIE is Worthless
The supposedly listed US acquirer FIE does not have any value to speak of, in fact it has net liabilities of US$83k and is loss making.
3. The Singapore Company Which Owns Hotsapp Has Been Loss Making
The Singapore Company Singapore eDevelopment was formerly known as CCM was a construction/developer, very strange for a company like that to venture in IT. Furthermore, it has been loss making for the past few years.
4. The $876M Value Is Created Out of Thin Air
Call it financial engineering or whatever, the value of $876M is moot. They could simply call it $10 bil if they wanted. The reason for this is behind the transaction details. Basically FIE pays U$10M in shares by issuing new FIE shares. Then the balance $690M is through perpetual bonds which do not carry any form of interest.
To put it in layman terms, here’s my analogy
Think of it as I sell you a tissue box for $1000. But you don’t pay me $1000. You pay me $1, and then you owe me the rest of $999. But you don’t have to pay me interest on that $999. Heck there isn’t even a date you have to repay me the money by. So now I can tell the world I sold you that tissue box for $1,000. But really? I just sold you for $1.
So at the end of the day, the value is nothing. The rationale behind it to tap the US Capital Markets doesn’t make much sense either. If anything, such early stage app is probably a venture capital play, having access to capital markets is not very useful. The whole thing just seems like a PR game to show investors some confidence. Looking at their gloomy stock price chart, you can probably see why. However, this news hasn’t done a thing for their stock price as it remains flat at $0.003.