Social Capital Hedosophia Holdings IV (NYSE:IPOD) is a special purpose acquisition company (SPAC) that has not yet announced a merger partner. However, IPOD stock is already getting significant investor interest. The shares started trading around $10 in late November. On Jan. 25, they hit a record high of $18.31. Now IPOD stock is shy of $15.
Consistent InvestorPlace readers should be well versed in the world of SPACs. Such a shell entity acquires a privately held business, which it takes public in a reverse-merger. As most SPACs have about two years to complete this important transaction, the SPAC management team’s background and ability to find a suitable partner become important factors that determine the success of an eventual merger. Therefore, today’s article discusses what investors could expect of IPOD stock in the weeks to come.
Management In Focus
IPOD stock is led by Chamath Palihapitiya and Ian Osborne. The blank-check company was formed with the focus of merging with a private technology company. The IPO raised $400 million, offering 40 million shares for $10 a piece. At this time, they still have no merger in place, and there is not much word on the street about which company could be in line.
Although we cannot speculate about the company, we can focus on the management team and their track record in the SPAC field. IPOD stock is the fourth SPAC launched by Chamath. Out of the six companies created, three have already merged. They are:
- Virgin Galactic (NYSE:SPCE), which was initially IPOA stock prior to the merger;
- Opendoor Technologies (NASDAQ:OPEN), which was initially IPOB stock prior to the merger;
- Clover Health Investments (NASDAQ:CLOV), which was initially IPOC stock prior to the merger.
In addition, Social Capital Hedosophia Holdings Corp. V (NYSE:IPOE) has an agreement in place to merge with SoFi, a personal finance company.
There are two standout names that merged with Chamath’s SPAC companies. Firstly, Virgin Galactic, Sir Richard Branson’s space exploration company, has seen a surge in investor demand over the past year. Second is Clover Health, which offers Medicare Advantage plans at low costs.
Virgin Galactic currently has a market cap of over $8.8 billion. The time frame since the merger has been about 18 months, which isn’t that long for the recent significant returns taking into account the market crash of March 2020. Over the past 12 months, SPCE stock is up about 17%. The merger went smoothly, and Chamath has the position of chairman on the Board.
The second name, Clover Health, reached highs of $17.45 in early January from its $10 IPO. However, over the past several week, it has come under scrutiny over not reporting a Department of Justice investigation that was exposed by a short seller’s report. Clover Health’s response to this was interpreted as vague due to their choice of words. How much knowledge Chamath had of this is unknown.
The Bottom Line on IPOD Stock
Recent months have shown that after mergers are announced, these SPAC companies have generally seen very strong initial growth. Considering the relatively new nature of SPACs in the market, some investors regard it as a good sign. On the other hand, others see it as a bubble.
Chamath has a very powerful say on Wall Street, similar to the likes of Elon Musk. But such attention at times puts these executives in the cross hairs of short sellers, like we have seen with the Clover Health report. In the past, short positions have also targeted Tesla (NASDAQ:TSLA). Therefore, investors need to keep in mind potential short-selling as a risk factor for any SPAC company that Chamath sets up.
Another risk surrounds SPACs as a whole. They have been a hot topic in the last year, and 2021 is continuing the trend. So far in the year, there have been close to 190 SPAC IPOS, raising close to $60 billion. If broader markets were to take a long breather in the weeks to come, this growth could also take a hit.
The success of IPOD stock will depend heavily on when a merger is announced and who the company is. The price currently sits at around $14, which is much higher than the initial IPO, but if a merger is announced with a big name, the stock price could see significant growth. As such, I feel it is a risky play for investors, but one that could yield high returns.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
