February 22, 2007

How a Bank Lost $200 million Online

posted by MR WAVETHEORY at 2/22/2007 12:19:00 AM
I am still surprised at how much money NetBank lost in 2006. $202 million! How did these guys do it? Stuff the money in their pockets and make a run for the exit? (earnings press release)

The problem looks like lending which is just another way of saying the credit market is turning (for the worse)

NetBank has been shedding business units rapidly. In 2006 it sold, exited, or shut down its non-conforming mortgage operation; its RV, boat, and aircraft financing business; its Financial Technologies Inc. subsidiary and QuickPost service; and NetInsurance. In December it "substantially effected" a shutdown of its auto lending unit.

They must have really gone out on a limb with these RV borrowers and trailer park residents! I'm not busting the chops on people who live in RVs, but any lender should know that people who live in RVs well ... they're financially challenged and might have trouble paying back the loan. Get a whole portfolio of these borrowers like NetBank and it's like lighting a match and tossing it on a barrel of kerosene. Poof! $202 million!

Club Penguin - A Very Successful Habbo Hotel Look Alike?

posted by MR WAVETHEORY at 2/22/2007 12:00:00 AM
I have to say that when I read about Club Penguin at Newsweek and NPR, and later checked out the site, it looked surprisingly similar to HabboHotel in concept and execution. In fact, it looked like they have achieved the success that HabboHotel has achieved in Europe. In case you are not up to speed (and I surely wasn't until I read about them), HabboHotel and Club Penguin are sites where kids get avatars and chat with friends. In Habbo, you can get a cool character and walk around and talk to friends in HabboHotel. You get your own Hotel room and you can decorate for a fee. In Club Penguin, you get a penguin character and you flop around in your igloo - which you decorate for a monthly fee. I think these are great concepts because they turn the virtual world into a space where you can hang out.

These are interesting venture plays because these casual game companies push the envelope for larger console game developers like EA in the opposite direction. Sites like Club Penguin are simple to navigate and have neat but not all that sophisticated graphics. Imagine that in an EA game! In that sense, these companies are expanding the market for games.

Are there exits for companies like Club Penguin? Probably. Maybe Club Penguin will turn out like Neopets and get acquired for a princely sum ... like $160 million. Are there pitfalls to acquiring these companies? Absolutely. My guess is Neopets peaked in 2005 which is when they got bought by Viacom. The traffic on Neopets has been flat to declining based on a quick eyeball of some traffic charts, so the management team was smart to sell.

Games are a fad, fashion, and hit driven business. No doubt about it! All this just means fortunes can be made and lost much faster!