Can a special purpose acquisition company (SPAC) be buzz-worthy before it announces a merger target? Interestingly, Social Capital Hedosophia Holdings IV (NYSE:IPOD) hasn’t named a target company yet, but traders are already enthused about IPOD stock.
So the answer is yes, there’s plenty of buzz surrounding IPOD stock despite the fact that the shareholders don’t even know what company or sector they’ll be investing in.
It might sound irrational to invest in a shell company without knowing the acquisition target. Yet, a case can be built in favor of giving IPOD stock a chance, assuming you’re not averse to risk.
Indeed, some folks don’t mind infusing a bit of mystery into their investments. In the final analysis, you may find that IPOD stock isn’t for everyone, but the potential for gains is certainly there.
A Closer Look at IPOD Stock
IPOD stock was introduced to the New York Stock Exchange through an initial public offering (IPO) on Oct. 9, 2020. At that time, 40,000,000 units were priced at $10 each.
That’s a typical price for a pre-deal-announcement SPAC stock. And, $400 million is a pretty decent amount of capital to raise.
The FY2020 fourth quarter was a good one for IPOD stock holders. By the end of the year, the share price had exceeded $13.50. Plus, there was more upside to come in January.
The 52-week high for IPOD stock occurred on Jan. 21, when the share price touched $18.31. It was followed by a retracement, likely from profit-taking.
IPOD stock trades above $16 right now, and it looks as if the bulls still are firmly in control of the price action.
Corrections are to be expected in fast-moving stocks, so make sure that you’re ready for some bumps in the road if you’re planning on buying shares of IPOD stock.
Palihapitiya Is Crushing It
Beyond bracing for some volatility, if you’re even thinking about holding IPOD stock, you’ll definitely want to learn about Chamath Palihapitiya.
I’ve heard folks call Palihapitiya the SPAC king, and that’s not an exaggeration. He’s a sensational pitchman with a flair for selling not just companies, but the ideas behind them.
“He’s willing to saddle up on CNBC and tell the story,” said venture capitalist Bill Gurley. “Chamath, he’s figured out the process for crushing it as a SPAC sponsor and I think a lot of the others are just sitting still and don’t know what he knows.”
In case you haven’t figured out where I’m going with this, Palihapitiya is the man behind Social Capital Hedosophia Holdings IV. And obviously, it’s his fourth SPAC in the series.
Palihapitiya has six SPACs in total. It’s hard to blame him for liking SPACs so much. It’s often faster and less complicated to take a company public through a SPAC than it would have been through a traditional IPO.
Crazy Bubble?
On the other hand, not everyone is as enthusiastic about SPACs as Palihapitiya.
One notable SPAC skeptic is Jeremy Levine, who sits on the boards of Shopify (NYSE:SHOP) and Pinterest (NYSE:PINS). Levine even goes so far as to mention the dreaded B-word (bubble):
“The SPAC thing – that is going to be a crazy bubble,” Levine said. “It will look like the 1999 internet bubble where basically all of those companies went to zero … There will be some good ones. Most of them will be true disasters.”
Levine might be right about SPACs in general. But then, in terms of the SPAC hype cycle, right now we might be closer to the internet of 1995 than 2000.
My point is that the SPAC craze could have plenty of room to run, and so might IPOD stock. And if you’re going to run with the SPAC’s, you may as well join forces with none other than the SPAC king himself.
The Bottom Line
Is there a dot-com-style crash coming in the world of SPACs? Maybe eventually, but the SPAC phenomenon only became popular last year.
Therefore, stocks like IPOD could keep on climbing for quite a while longer. And as long as you have faith that Palihapitiya will pick a good merger target, IPOD stock might be worth a moderate-sized investment.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
