Whale Fail: Magic Leap Reportedly Considering Selling Itself

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It may have wowed the world with its “Whale” demo a few years ago, but after raising over $2B and selling an estimated 6,000 headsets in the first six months after launch, Magic Leap may have met its Snake River Canyon. The company is reportedly working with an advisory firm to explore options.

According to Bloomberg, Magic Leap could be worth up to $10B. This is amusing for several reasons, ranging from “Has anyone checked the Dow lately?” to the colossal difference between what Magic Leap promised and what it delivered. To refresh you, what Magic Leap promised looked like this:

What Magic Leap delivered, on the other hand, looked like this:

The rather large gap between Lens the first and second videos likely has something to do with the company’s difficulty remaining in business, along with the $2,300 price tag. It’s not clear how many headsets the company has sold since the first six months they were available, but proof surfaced last year that the company had assigned all of its patents to JP Morgan Chase as collateral. I am not an expert in the ways of corporate finance, but typically when you’ve assigned your patents as collateral on a loan, you have to either turn them over or pay it back. The implication here is that whoever bought Magic Leap would have to pay off the debt to actually own the IP.

Fun fact: If Magic Leap has now managed to sell 20,000 headsets, it paid $130,000 in development costs per headset and sold them for $2,300. That sort of discrepancy might explain why the company is reportedly circling the drain now. It’s also part of why the $10B valuation is so crazy. If Magic Leap couldn’t make its revolutionary technology work properly after pouring $2.3B into the project, why on Earth would any company want to acquire it for $10B just to fail again?

Then again, once I think about it a little more, there actually is some logic to the idea. You just have to remember, Rony Abovitz literally talked people into investing $2.3-$2.6B in this company in the first place. As insane as that sounds — and for the value Magic Leap delivered for $2.6B, I’m honestly not sure printing 2.6B $1 bills and burning them as fuel in the winter would have been a worse way to spend them — it makes perfect sense, from his perspective. If you’d literally talked major figures in Silicon Valley into giving you billions of dollars when you didn’t have a product, it’d be easy to believe you still had some capability to convince them to pay even more.

Is it possible that Magic Leap was on the verge of a tremendous breakthrough that it needs just a little more funds to deliver on? Sure. It’s possible. But $2.6B later, it sure isn’t likely.

Given that Covid-19 has the stock market competing to see which index can crash the fastest, it’s a good bet that whatever Magic Leap ends up selling for, it won’t be $10B.

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