Social Capital Hedosophia Holdings Corp. VI (NYSE:IPOF) is the sixth special purpose acquisition company (SPAC) from superstar investor Chamath Palihapitiya. IPOF stock is off to a decent start.
Logically, investors have seen the success of Palihapitiya’s past deals and have solid expectations for this latest one as well. Let’s not get ahead of ourselves though, what is IPOF stock?
Palihapitiya has been offering a series of SPACs to investors. Starting off with IPOA, IPOB, IPOC and so on, sequentially. We now find ourselves up to IPOF.
Each of these SPACs controls a large chunk of investor capital and goes shopping for a deal. Once successful, the SPAC buys a private company and takes it public via merger.
The first two Palihapitiya SPACs, IPOA and IPOB, turned into Virgin Galactic (NYSE:SPCE) and OpenDoor (NASDAQ:OPEN) respectively. Virgin Galactic now trades for around $55 per share and OpenDoor is at $30. With that in mind, IPOF stock seems like a discount here at $15.
What Might IPOF Buy?
As of now, there’s not much in the way of rumors about a potential deal target for this SPAC. That’s unlike, say, Bill Ackman’s Pershing Square Tontine (NYSE:PSTH) where speculation is running rampant.
However, in this case, this is Chamath’s sixth SPAC. He’s already bought up several of the private companies that made the most sense to go public this way.
Notably, he also has his Social Capital Hedosophia Holdings Corp. IV (NYSE:IPOD) out there. IPOD also hasn’t yet announced a deal target. In a way, IPOD and IPOF are directly competing with each other as both are hunting for a suitable merger candidate.
That said, IPOD is specifically focused on an acquisition in the technology space whereas IPOF has a broader mandate.
Still, to be clear, IPOF stock is largely a bet on Palihapitiya’s abilities and brand at this point. He’ll come up with a deal for IPOF sooner or later. Given his fame, you know he’s getting pitched a ton of prospects for his capital.
While details on this SPAC’s next move are still scarce, it will only be a matter of time until he announces some high-profile merger target.
One Potential Roadblock
The only real negative right now is that we have seen the first crack in Chamath’s up-until-now spotless reputation. His IPOC SPAC merged with Clover Health (NASDAQ:CLOV). That deal is finalized and is now trading as CLOV stock.
Clover shares started trading post-merger around $16. That was a nice boost from the $10 SPAC offering price, of course, but hardly a home run like Opendoor or Virgin Galactic.
Making matters worse, shortly after the merger closed, trouble struck. Short-seller Hindenburg Research blasted Clover, claiming that the company had failed to disclose a crucial Department of Justice investigation. Hindenburg specifically suggested that Chamath had failed to do proper diligence on the deal.
Clover responded, saying that it and Palihapitiya indeed knew about the Department of Justice inquiry. However, they felt it wasn’t material and thus it wasn’t disclosed to shareholders.
Clover suggests that these sort of fact-finding requests happen frequently and that the firm isn’t the subject of any more serious enforcement actions. However, the Securities and Exchange Commission (SEC) opened an investigation into Clover following all this, suggesting at least some degree of real risk to shareholders.
In any case, CLOV stock has been tumbling; it’s down to $11 now, just barely above its initial SPAC price. As a potential IPOF stock shareholder, it’s worth watching what happens with Clover closely. If that one ends up being a dud, it would be a mark against Chamath’s broader “King of SPACs” brand.
On the plus side, his Social Capital Hedosophia Holdings Corp. V (NYSE:IPOE) is moving toward closing its pending merger with SoFi.
IPOE stock is doing well, and that deal should help get the media attention for Chamath’s SPACs back in a more positive direction.
IPOF Stock Verdict
It will be fascinating to see how long Palihapitiya can keep up this hot streak. It takes a lot of work to bring even one of these major deals to market successfully.
Now he’s on his sixth such deal in a short period of time. Plus he has his other ventures such as his media presence and his ownership stake in the Golden State Warriors professional basketball team. At some point, you have to think all this frenetic activity will lead to a bad deal or two.
That said, as long as Chamath has the hot hand, it makes some sense to tag along for the ride. Given how well his average SPAC has done, it seems reasonable to take a trade on IPOF stock here. Even the laggard, Clover, is still at $11 while the winners like OpenDoor and Virgin Galactic are up big. That adds up to a favorable set of odds for IPOF stock at $15.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
