An initial public offering (IPO) is one of the most commons ways routes to obtain financing via the sale of corporate shares. Yet, 2020 became the year when about 250 companies announced went public via reverse mergers with special purpose acquisition companies (SPACs) that are already listed on an exchange. And in the first quarter of 2021, that number has already reached 300.
In other words, their popularity has been shining among investors.
A SPAC is an investment company that doesn’t have any operations of its own. According to the Securities and Exchange Commission (SEC), SPACs “pool funds in order to finance a merger or acquisition opportunity within a set timeframe. The opportunity usually has yet to be identified.” Put another way, SPACs raise funds to acquire a private business to take it public.
Most SPACs start life around $10. When rumors of an upcoming deal surface, the share price usually shoots up as investors buy the hype. And as the dust settles, market forces and valuation levels come into play.
Not all reverse mergers with SPACs are necessarily successful. In fact, many post-merger companies go below the $10-level and do not create much value for shareholders. Yet there are others that become quite successful. In recent weeks, share prices of many of these new SPACs have come under pressure. Therefore, this article discusses seven SPACs that are still holding strong.
Moreover, recent research by Magnus Blomkvist of Audencia Business School and Milos Vulanovic of EDHEC Business School, France, highlights, “Compared to IPOs, SPACs are opaquer due to their non-existent operational history. An additional layer of opaqueness is added by the lack of reputation of the company due to the ‘one-shot deal’ structure.”
Therefore, potential investors need to do proper due diligence before committing their hard-earned cash into these businesses. Company management teams as well as industry dynamics play important roles for the future of any new deal.
In recent weeks, prices of many SPACs have come under pressures. As a result, they offer better risk/reward ratios. With that in mind, here are seven SPACs that are still doing well.
- AdaptHealth (NASDAQ:AHCO)
- Defiance Next Gen SPAC Derived ETF (NYSEARCA:SPAK)
- DraftKings (NASDAQ:DKNG)
- Opendoor Technologies (NASDAQ:OPEN)
- Quantumscape (NYSE:QS)
- Skillz (NYSE:SKLZ)
- Virgin Galactic (NYSE:SPCE)
Now, let’s dive in and take a closer look at each one.
SPACs Holding Strong: AdaptHealth (AHCO)
52-Week Range: $13.60 – $41.58
Pennsylvania-based AdaptHealth sells and leases home healthcare equipment, such as mobility and oxygen equipment, walkers, bath aids, bed lifts, nutritional supplies and sleep apnea machines. With operations in 35 states, it is a network of full-service medical equipment companies. As one of the largest distributor of home medical equipment in the U.S., it serves over 800,000 patients annually, processing around 7,000 orders daily.
In November 2019, DFB Healthcare Acquisition Corp., a SPAC, announced a reverse-merger with AdaptHealth Holdings. The combined entity started trading under the ticker symbol AHCO. At the time in late 2019, AHCO stock was around $10. Now, it is shy of $35.
Additionally, AdaptHealth announced fourth-quarter and FY2020 results in early March. Net revenue came at $348.4 million, a 133% increase year-over-year (YOY). It was also 23% higher than the third quarter of 2020. Net loss was $31 million, or 47 cents per diluted share. In recent months it has acquired several businesses, enabling it to grow its diabetes operations.
Management increased its previously issued financial guidance for FY2021. Its expects revenue of $2.18 billion to $2.35 billion, up from prior guidance of $2.05 billion to $2.20 billion. Co-CEO Luke McGee cited, “We are benefiting not only from the underlying growth in the diabetes business in general, but also from our investments in our other chronic disease businesses such as obstructive sleep apnea.”
In early February, AHCO shares hit an all-time high. Also, forward price-earnings (P/E) and price-sales (P/S) ratios currently stand at 18.73 and 1.72, respectively. Interested investors could consider initiating a position between $30-$32.
Defiance Next Gen SPAC Derived ETF (SPAK)
52-Week Range: $22.15 – $35.08
Expense Ratio: 0.45%
Our next choice is an exchange-traded fund (ETF), namely the Defiance Next Gen SPAC Derived ETF. It gives access to newly both pre-deal SPACs and post-merger companies for the subsequent 2 years. Since its inception on Sept. 30, 2020, assets under management have gone over $100 million.
SPAK, which has 137 holdings, tracks the Indxx SPAC & NextGen IPO index. The fund is rebalanced quarterly. The top ten names comprise around 43% of net assets. The fund started trading at $25.74. In mid-February, it hit a record-high. And now, it is around $26.
Among the leading names are the fantasy sports and betting platform DraftKings, online digital real estate platform Opendoor Technologies, Bill Ackman’s SPAC Pershing Square Tontine Holdings (NYSE:PSTH), which has not yet announced a partner, Churchill Capital Corp IV (NYSE:CCIV), which is merging with Lucid Motors, analytics company Clarivate (NYSE:CLVT), and Vertiv Holdings (NYSE:VRT), which provides equipment and services for data centers.
Given the volatility in the SPAC space as well as broader markets, potential investors should be ready to embrace choppy days. Investors who would like access to SPACs might put the SPAK ETF on their shopping list.
SPACs Holding Strong: DraftKings (DKNG)
52-Week Range: $11.37 – $74.38
Boston, Massachusetts-based DraftKings is a digital fantasy sports and gaming company that was launched in 2012. In April 2020, DraftKings went public via merging with with Diamond Eagle Acquisition Corp., a SPAC that was already publicly traded and SBTech.
DKNG stock started trading on April 24, 2020 at an opening price of $20.49. In March of this year, it saw a record-high. And now, it is around $61. Overall, though, it is possibly one of the most successful SPACs of the past 12 months.
Furthermore, DraftKings released Q4 and FY2020 financial results in late February. Quarterly revenue was $322 million, up 146% YOY. Meanwhile, net loss for FY2020 was $844 million, compared to the loss of $142.7 million in FY2019. Basic and diluted loss per share in FY2020 was $2.76, versus the loss of 77 cents in FY2019. Cash and equivalents at the end of FY2020 totaled $1.8 billion, increasing $1.74 billion YOY.
CEO Jason Robins cited, “In the fourth quarter of 2020, we saw MUPs increase 44% to 1.5 million and ARPMUP increase 55% to $65. We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business and newly launched states that were not included in our previous guidance.”
DKNG stocks’ P/S and price-book (P/B) ratios are 28.94 and 8.58, respectively. Although these metrics show an overstretched valuation, the Street likes the growth prospects of the company. In recent months, the company has been increasing partnerships, and striking deals with leagues and broadcasting networks. Both sports fans and investors are watching the platform carefully.
Opendoor Technologies (OPEN)
52-Week Range: $10.55 – $39.24
Opendoor Technologies is a real estate platform, generating revenue through home sales and other real estate services. The company focuses on “ibuying,” as it purchases homes directly from owners and sells directly to buyers. It went public in late December through merging with Chamath Palihapitiya’s Social Capital Hedosophia Holdings II.
Moreover, Opendoor announced Q4 and FY2020 results on March 4. Revenue was $248.9 million, a major drop YOY. Non-GAAP adjusted net loss was $41.3 million, compared to the loss of $86.6 million for the prior year period. Net loss per share was 49 cents. Cash and equivalents at the end of FY2020 were $1.5 billion, increasing $820 million YOY.
CEO Eric Wu commented, “More customers are coming to us and choosing Opendoor than ever before, we are seeing healthy margins, and we plan on doubling our footprint to 42 markets. Since creating the category seven years ago, we have generated over $10 billion in home sales, served over 80,000 customers and demonstrated our ability to scale efficiently. While we are pleased with the progress and foundation we’ve built, we are just getting started.”
OPEN stock’s P/S and P/B ratios are 0.87 and 7.38, respectively. In February, the shares saw a record high of $39.24. Now they’re around $21. Analysts debate whether the disruptive nature of Opendoor’s process will be enough to make it profitable in the near future. It is likely that the company will start introducing into mortgage financing, insurance, and home maintenance products and services. Given the recent decline in price, potential investors might consider initiating a position in OPEN stock.
SPACs Holding Strong: Quantumscape (QS)
52-Week Range: $9.74 – $132.73
Shares of electric vehicle (EV) and battery manufacturers have been hot in the past year. Quantumscape, a SPAC battery stock, has managed to ride the wave to success. The business was founded in 2010 out of Stanford University, California and focuses on technology to mass produce solid-state lithium-metal batteries that would provide longer driving range and shorter charging times.
However, it is not certain when the technology will be successful commercially. Nonetheless, management aims to start commercial production in 2024 — with Volkswagen (OTCMKTS:VWAGY) as one of its top investors.
Following a merger with Kensington Capital Acquisition, Quantumscape started trading in late November 2020. In a matter of weeks, QS stock hit a record of $132.73. Since then the company has been on a downtrend, hovering around $45.
In mid-February, the pre-revenue company released Q4 metrics. Basic and diluted net loss per share was $2.41. A year ago, it had been 6 cents.
As the electrification of vehicles continues at full speed, battery technology will become increasingly more important. Therefore, QS stock is an exciting but a speculative bet in this space. Thus, potential investors might regard a further drop toward $40 as a better entry point in the shares.
52-week Range: $9.81 – $46.30
Staying-at-home over the past year has meant a year-long surge in shares of most online entertainment companies. The mobile esports group Skillz has been one of them. Its platform enables developers to build their franchises. It hosts esports tournaments for players worldwide and distributes significant prizes. Skillz went public company in September 2020 through a reverse-merger with Flying Eagle Acquisition.
It released Q4 and full-year 2020 financials on March 10. Quarterly revenue was $68 million, up 95% YOY. However, net loss — which was $9 million in Q4 2019 — further deteriorated to a $44 million loss in Q4 2020. Diluted net loss per share was 14 cents in Q4 2020, compared with a loss of 7 cents in the preceding year.
Overall, though, Skills’ results exceeded expectations. Finally, 2021 revenue guidance of $366 million, which implies a 59% YOY growth, was also better than expected.
SKLZ stock’s P/S and P/B ratios of 23.04 and 29.63 show an expensive valuation level. In January, ARK Next Generation Internet ETF (NYSEARCA:ARKW) announced that it had purchased the shares in its popular fund. On the other hand, in early March, Wolfpack Research released a short-seller report as to why it believes investors should not buy the stock.
The shares have recently come under pressure, falling from a record-high of $46.30 to the current level of $19. Do you agree with the long-term potential of the company in the mobile gaming and esports space? Then, any further decline toward $17.50 would improve the margin of safety for long-term investors.
SPACs Holding Strong: Virgin Galactic (SPCE)
52-week Range: $12.10 – $62.80
Our final discussion focuses on space, Virgin Galactic is part of Sir Richard Branson’s Virgin Group. He had previously founded Virgin Atlantic Airways,which itself is owned in part by Delta Air Lines (NYSE:DAL). Virgin Galactic defines itself as “the world’s first commercial spaceline and vertically integrated aerospace company.”
The company went public on Oct. 28, 2019, via a reverse merger with a SPAC. Virgin Galactic’s SPAC partner was Social Capital Hedosophia (SCH) founded by venture capitalist Chamath Palihapitiya. SPCE stock started trading in late October 2019, at an opening price of $12.34. In early February 2021, the stock hit an all-time high $62.80. Now, the shares are trading around $30.50.
Furthermore, the pre-revenue group released Q4 and FY2020 metrics on Feb. 25. Management announced that it is working on scheduling revenue-generating spaceflights with the Italian Air Force. Net loss was $74 million, compared to a $72.8 million net loss same quarter prior year. Net loss per share was 31 cents. Cash and equivalents as of Dec. 31, 2020 stood at $666 million, up 38.6% YOY.
CEO Michael Colglazier cited, “Looking ahead, we’re focused on completing our test flight program, expanding our fleet of spaceships and motherships, and developing our unique and transformative customer experience.”
Supporters of the company point out that there is considerable demand for private space travel. On the other hand, supply is limited. If you’d like to be part of the fortunes of this first publicly traded space tourism company, you may want to buy the dips in SPCE stock, especially if it moves toward $25.
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.