Should (Yet) Another SPAC Pique Your Curiosity?

On Oct. 14, investors will be treated to the latest initial public offering that is occurring via a special purpose acquisition company (SPAC). The Curiosity Stream SPAC will be a reverse merger facilitated by the Software Acquisition Group (NASDAQ:SAQN).

"Going Public" is displayed in white text on a digital ticker tape.
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The new company will take the Curiosity Stream name. It will trade on the Nasdaq exchange under the ticker symbol CURI. Curiosity Stream Founder John Hendricks will be the chairman of the new company

Once the merger is finalized, Curiosity Stream will have $511 million in equity with no debt. The company is estimating having $180 million available for future growth.

According to information provided by Curiosity Stream, the $511 million will represent a pro forma valuation of 4.7x 2021P revenue.

An Antidote For Mindless Streaming Fatigue

By most accounts, more people are taking in streaming video on demand than ever before. As staying home has become part of the new normal, Netflix (NASDAQ:NFLX) gained company. In late 2019, Disney (NYSE:DIS) threw its hat in the ring with Disney+.

And 2020 has brought in a host of new services including HBO Max from ATT (NYSE:T) and Peacock from NBCUniversal which is owned by Comcast (NASDAQ:CMCSA). For many of these viewers, I’m sure the summer months and the return of live sports has been a welcome respite from their binge watching. But with colder weather arriving, and the likelihood that home for the holidays may literally mean our home, there will be a renewed interest in streaming content.

Curiosity Stream provides factual content on a range of topics including science, history, travel, cuisine, and nature to name a few. The company sees itself as a desired alternative to the two primary genres of streaming content.

On one hand, there is the original and scripted content offered by Netflix on the one hand and the general entertainment offered by a network like Hulu on the other.

The company also hopes to capture a large percentage of the $120 billion market for non-sports related content that exists.

The Bullish Case For the Curiosity Stream SPAC

Curiosity Stream has an impressive five-year track record. During that time the company has experienced a 50% compound annual growth rate with margins of greater than 60%. For the last three years, the company has doubled its year-over-year revenue.

And the company is projecting to post positive adjusted operating income before depreciation and amortization (AOIBDA) by 2025. The company’s optimism comes from its ability to draw revenue from five scalable lines of revenue that could provide nearly $400 million in revenue by 2025.

There’s a Bearish Case, Too

A benefit of delivering factual content is that it’s far less expensive to produce. In fact, Curiosity Stream estimates it will only spend about $60 million on content in 2021. By 2025 it will see that figure increasing to $150 million. However, $150 million is essentially what Netflix might pay for one season of The Crown.

So that’s good, right? Well, not so fast. Investors wouldn’t bat an eye at Netflix spending many times more than $150 million a year to get original content, particularly since the company claims proprietary rights on its content. That’s not possible with factual content.

What it boils down to is this. If Netflix wants, it may try to go “below the line” and branch out (even more) into factual content. And if it was able to deliver subject matter that interested viewers, would Curiosity Stream lose its unique selling proposition?

The Bottom Line

Given the history of SPAC-driven IPOs this year, I imagine the Curiosity Stream SPAC will soar much higher once it begins trading. Actually, I think the timing is a little bit odd. There’s no real catalyst for users to add another streaming service. And there certainly has not been the buzz about this launch as say, Disney+ or Peacock.

I’m not a big fan of being an early adopter of buying stocks after they conduct an IPO. With that said, I believe the company is leaning into a still emerging market. But they’re a niche player, and a low budget one at that. I’m curious, but not curious enough to buy.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.

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