A Better Way to Play IPOs

By Wayne Mulligan, on Friday, February 21, 2014

There are two ways to make money during a “gold rush.”

Mine for gold, or sell picks and shovels.

History has shown that you can make money doing both. But selling picks and shovels provides solid returns with less risk.

The thing is, there’s a modern-day gold rush taking place right now...

... And today we’re going to show you a “picks and shovels” company that could be a great way to play it.

It’s Not All Fun and Games

Up until 18 months ago, electronic gaming companies could do no wrong.

In just 5 years, for example, Zynga (ZNGA), rose from a private valuation of $0.05 per share… all the way to a publicly-traded stock worth $14.69 per share.

That’s nearly a 290x increase in value – 29,000%.

However, the “new penny shine” wore off quickly. Zynga is now sitting at just $5.00 per share. (The one bright spot is that $5.00 is up from its low of $2.33 – the company might actually be regaining its footing.)

Zynga aside, the “gaming story” has yet to be written. In my humble opinion, there’s still gold in them hills...

King of the Hill

Not all gaming companies are having as tough of a time as Zynga.

Take the current gaming leader as an example: King.com.

King is the maker of the hyper-addictive game, Candy Crush Saga.

Candy Crush is a mobile game where users create combinations of candy-colored blocks in order to earn points. It may sound silly, but this is serious business.

Last year King earned an estimated $875,382 per day in sales from users purchasing Candy Crush game enhancements. In total, King generated 2013 sales of $1.9 billion.

This level of financial success led King to file with the SEC to go public.

The company plans to raise $500 million. Analysts estimate it could command a valuation of $5 billion.

When it comes to IPOs, a rising tide tends to lift all ships. So this could be a catalyst for increasing stock prices for many gaming companies – both public and private. In other words, the “gold rush” for gaming could be on again.

Gold Mines vs. Picks and Shovels

Which brings me back to my main point today.

In a gold rush, we can choose to invest in gold mines...

In the case of gaming, companies like Zynga or King, would be the “gold mines.” These companies produce and make money through their games.

But I’m not a fan of this approach. I’d prefer to stick with my picks and shovels companies. Plenty of upside potential, lower risk.

In the case of gaming, “picks and shovels” companies are generally infrastructure providers – in other words they provide technologies the gaming companies use to build their games.

And it just so happens that there’s a gaming “pick and shovel” company raising money on an equity crowdfunding platform right now...

Pick and Shovel Company You Can Invest in Today

The name of the company is Nextpeer.

You can see more details about it on its funding page on the OurCrowd.com platform here» 

Nextpeer provides a technology that allows game developers to quickly enhance their games. Specifically, it allows them to easily add competitive and social elements to the gaming experience.

Imagine playing solitaire and then being able to compete against another solitaire player (whoever finishes first, wins) – that’s what Nextpeer allows game publishers (like Zynga and King) to do quickly and cheaply.

The company has already raised two rounds of financing, has thousands of games using its technology, and commands over 50 million monthly active users.

A similar company called OpenFeint was acquired a couple of years ago for $104 million – at the time, OpenFeint had 75 million monthly active users. Nextpeer is only 33% shy of that monthly user metric.

I’m a fan of the sector, and a fan of Nextpeer’s business model.

If you choose to invest, remember that, as with any early-stage business, this is a high-risk investment. You can’t put all of your eggs in one basket. You need to build a portfolio of these businesses if you don’t want to lose your shirt.

Please note: this is not a solicitation to invest. We have no financial interest or relationship with Nextpeer or OurCrowd. This report simply reflects our opinion.

Happy investing!

Best Regards,
Wayne Mulligan
Wayne Mulligan


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Tags: Equity Crowdfunding Crowdfunding Angel Investing Ourcrowd Early-stage IPO Gaming Zynga

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