Looking at the founding team of the Israeli Kaltura – Ron Yekutiel, Michal Tzur, Shai David and Eran Itam, one could assume with almost certainty that the company would be a phenomenal success. A helicopter pilot from the Air Force, a serial entrepreneur who together with Naftali Bennett sold a start-up for hundreds of millions, a doctor in information systems from the prestigious Cornell Weill University, and one of the founders of ICQ – the first major Israeli exit.
Despite such a high-quality team, on Tuesday Kaltora published its performance for the second quarter in which it revealed single-digit growth, deepening losses and an increased burn of cash. As part of a restructuring process, the company announced that it will lay off 80 employees, of which 30 are in Israel. In total, it employed about 760 workers at the end of 2021, of which 450 are in Israel. After the reports were published, the stock fell by 10.5% (but has since risen by 8.4%, as of closing time). Now, it trades at a value of 329 million dollars, or only 2.5 dollars per share. So what are the reasons for the collapse?
The struggle of the stars for losses
Kaltura has the hallmarks of a success story – the Israeli video technology company serves giants such as AT&T, Deloitte, Oracle, Bush and Reuters. It recently moved to offices in the prestigious Amot Atrium tower in Ramat Gan, and was one of the last companies to issue before the stock market closes in 2021. And if that’s not enough, her campaigns star David Duchovny, who played the character of the mysterious agent in the “X-Files” series.
But it is doubtful whether the motivation to go public at any cost and broadcast success on the eve of the market collapse was an act that helped the company in the long run. It is also doubtful if the company does not regret going public at a bad time, which in retrospect exposed it to a hostile takeover and an insulting acquisition offer from a tiny competitor called Panopto. The competitor, backed by the K5 investment fund, offered in July to purchase Kaltora for three dollars per share, which is $383 million, a 27% premium compared to the current offer price.
“The team is high-quality, but one that is simply in the wrong field,” said a former employee at Kaltura. “The video field has been hit in recent years and in fact there are few companies that have really succeeded in it. In any other field they would have flourished.”
The company’s CEO Ron Yekutiel, an Air Force pilot who founded a navigation company in the past before founding Kaltura 16 years ago, manages the company with a high hand to this day. A conversation with former employees reveals a “charismatic CEO who transmits a vision.” The president of the company, Michal Tzur, is also involved in the day-to-day management, but she mainly deals with strategic partnerships.
Eran Itam – one of the founders of ICQ, which was sold to AOL for 400 million dollars – and Shay David, left the company already to establish new start-up companies. Two years ago, Yekutiel brought in the former CEO of Panorama, Einav Azaria, to manage the commercial side of the company, albeit a dominant role in its marketing and sales activities to this day.
The dream and its break
“What happened to the company during and after Corona is a tragedy,” said a former employee. “But you have to understand that those who know it well and many of those who worked for it still own shares in it or are buying more shares. We know its potential, and we do not believe that it is indeed worth the value at which it is traded. There is no way that a company that brings in $150 million a year trades at a multiple of 1.5 on the revenues”.
The same tragedy is related to the company’s focus on virtual conferences. Kaltora has developed a video player for organizations – a kind of secure video network that allows huge companies to establish an internal video portal – such as training and informational videos for employees or students, or clips used by salespeople to demonstrate products. Later developed a VOD streaming system for communication activities. The corona was a golden opportunity for it, and as a company that helps organizations broadcast content, it turned to the crowded market of marketing events that are delivered online.
With the outbreak of the corona virus, the company signed many agreements that increased its growth rate in preparation for the IPO and shortly thereafter. However, as happened with most of the companies that rode the corona wave and served those who stayed at home, the recovery from the epidemic brought with it a sharp decrease in growth and an increase in losses.
The corona virus did lead to the growth of the video market for organizations, but it also brought in a lot of competition, such as Hopin, which specializes in virtual conferences, or Vidyard, which caters to salespeople. In addition, because of its choice to serve large enterprises and handle a variety of business verticals, Kaltora was heavy with an abundance of sales and support personnel, while more nimble competitors offered online self-service at a lower cost.
Zoom, which overnight became a huge player in the field, swept the corporate market with it, and Kaltora had a hard time distinguishing itself. “Zoom created a faster horse, we are trying to create a spaceship,” Ron Yekutiel told Globes almost a year before the IPO on Nasdaq that took place last summer, but since then the two companies have experienced a significant decline in growth. Zoom’s stock has fallen by over 70% in the past year and its revenue growth rate has decreased From over 300% during the Corona days to only 12% last quarter.
“will be forced to merge”
Former employees we spoke with testify to a healthy organizational culture and loyalty to the organization, at least in Israel, despite a feeling that the company employs too many workers. “Everyone felt that there was a need to downsize and that the company was inflated, even though there were no significant departures,” said a former employee at Kaltura.
In the last year, a total of 35 employees left the company (in Israel and abroad). The average term of office in Kaltora is two years, compared to 1.2 years in Similerov, 1.3 in Lemonade and 1.8 years in Risquiped. But the signs of the slowdown are also evident in the company’s growth in terms of personnel. According to the LinkedIn social network, growth in the number of employees at the company slowed by 3% after a rapid growth of nearly 50% over the past two years.
According to Sergey Vaschunok, an analyst at Oppenheimer, the fact that Kaltura sells a complex product to huge organizations generates many costs for it that lead to losses, despite the extensive technological base and the added value to customers. “Klatura is a small niche company that generates less than 200 million dollars a year,” Vaschunok told Globes. “As such, it will not be able to continue to implement its far-reaching vision, remain independent for a long time and will probably merge, given the current growth figures and the need to cut its expenses.
“Even if the company does not accept the current purchase offer from Panopto, its managers probably know that it is better for them to continue to manage the operation from the top of a larger and more effective company, a decision similar to the one made by many Israeli CEOs in recent weeks.”
Klatura
Line of Business: Secure video player and library management system for learning videos, marketing videos and virtual conferences.
history: It was established in 2006 in Ramat Gan and New York and has since raised about 350 million dollars from venture capital funds and foreign banks.
data: At the end of 2021, the company employed about 760 workers. Even before the layoffs, 35 employees left it in the last few months, and the number of jobs needed at LinkedIn decreased by about 30%.