4 reasons why I bought this SPAC share in particular


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I started buying SPAC stock. I now own two of them: holiness (NASDAQ: HOL) and Nebula Caravel Acquisition Corp. (NASDAQ: NEBC). I love the companies that these stocks now represent (Astra and Rover), but I also love this new way that private companies are going public.

The process of listing a company on the stock exchange through a SPAC, or a special purpose vehicle, is very different from going public. And while there are known risks in buying a stock once it goes public, the risk / reward calculation for buying shares in a SPAC is not so clearly understood. These strangers create a level of fear that discourages many people from investing in SPACs.

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I think this environment is an opportunity to buy. Investors would be well advised to look for special-purpose acquisition companies and make some small investments in exciting rule-breaking that break the rules in this way. Here are four reasons why I buy SPAC stock and why I bought shares in one in particular.

1. I love the swing from nothing to something

Let me start by saying that investing in a blank check company is ridiculous. Here is my attitude when the creation of a SPAC is announced: You bore me and your sub-company does not exist.

However – and this is important – my stance will change completely once the reverse merger that SPAC will undergo is revealed. It went from nothing to something. The stock, which used to be a worthless non-existence, is now merging with an actual company that generates sales and maybe even profits. Now I am excited. Now i’m careful. I could invest now.

So this is an important factor in SPAC investments. The empty shell of a nothing burger can become an Astra or Rover or 23andMe with the push of a button. This is the route through which amazing companies are now going public.

Granted, 23andMe isn’t public yet. Anyone who “buys a piece of it” now actually invests in VG Acquisition Corp. (NYSE: VGAC). OK, but VGAC is no longer a blank check. This check has been completed. It’s the difference between a billionaire who gives you an IOU on an undetermined cause that may exist in the future and a billionaire who writes you an actual check. This second matter has legal and financial validity and is often a cause for alarm.

2. SPAC stocks are undervalued

Part of the IPO process is that the management of the future public company conducts a “roadshow” for the bankers and all other people involved in the field of equity promotion. All of this hype is one reason for this Snowflake (NYSE: SNOW) The IPO rose from $ 80 per share to $ 120 even before the shares began trading in the public markets. And then the first trade was for $ 245 a share. In Silicon Valley, this is known as “leaving a billion dollars on the table” and a lot of the companies don’t like it. If you want to know why everyone and their mom are going public on SPAC now, I would suggest it be Snowflake, Snowflake, and Snowflake. And we haven’t seen the stock release carnage that I expect for this company.

Silicon Valley is mad at Wall Street because bankers keep publicizing amazing companies but undervaluing them. Then the first trade on the IPO day will be much higher than the value that the bankers stated for your company. In Snowflake’s case, the real valuation was three times higher than what the bankers said. Unsurprisingly, many tech companies are now exploring the SPAC route to public markets instead.

There will be hype in the SPAC market as well – it cannot be avoided – but there is one crucial difference. In the IPO market, you exaggerate first and then go public. In the SPAC market – the back door to the public markets – you trade the public markets first and the hype tries to catch up with you. You can actually find SPACs that haven’t been hyped up yet.

If you’re a fan of old-fashioned stock research – what Peter Lynch called “Finding Maggots Under Rocks” – you must love investing in famous or semi-famous companies before many people even notice they are now publicly traded. In the SPAC universe you will find a well-known company that is temporarily represented by an unknown stock market ticker. And early risers get the worms – and maggots. (And sometimes we make money too).

3. SPAC stocks may be undervalued

When a SPAC is first created, its stock price is typically $ 10 per share, and it hovers around that price for a while until a deal is announced. In the case of Nebula Caravel Acquisition Corp. the blank check was published at $ 11 per share. Then, a few weeks later, the company announced its plan to reverse-merge with pet-focused Rover. And the stock exchange yawned.

While I like the dynamics of a pop on day one – my other SPAC, Holicity, surged nearly 50% in value when the reverse merger with space satellite startup Astra was announced – my rational brain loves this anonymous hype. free merger announcements. Rover stocks are currently below the price of the non-existence of blank checks. Which is amazing to me because Rover is a fantastic company.

4. Why I bought Rover stock

If you haven’t heard of Rover, they run a website so you can find someone to look after your dog. For pet owners, it is your next internet station after you find a nice bed and breakfast. And how AirbnbThe pandemic was not kind to this company. Nobody travels so nobody needs a dog sitter. In 2020, Rover’s revenue dropped from $ 95 million to $ 48 million.

Management predicts that revenue will rise to $ 97 million in 2021 and to $ 201 million in 2022. I suspect they are on the right track – when the world reopens, Rover’s revenue will increase. And this company will be highly profitable. That’s because it simply runs the website that connects dog owners with dog sitters. You don’t have to pay people to look after dogs. Rover has to take care of its website, and that’s it. This Ebay The model of matching buyers with sellers is why Rover should be seeing profitability quickly for the next year. The company forecasts an EBITDA of 17% (earnings before interest, taxes, depreciation and amortization) for 2022 and a profit margin of 30% later.

I love companies like this one that can benefit from strong network effects. The pet market in the US offers a $ 95 billion opportunity. Right now, it’s only a $ 9 billion market to pay someone to look after your dog. When Airbnb turned large numbers of ordinary people into bed and breakfasts, and About Rover has created a new class of taxi drivers and offers an easy entry into a nice side appearance. Dog lovers can make $ 1,000 a month without doing a lot of work. I expect this market to grow dramatically as more people use rovers to find dog sitters and to promote their own dog sitter services.

SPACs are here to stay

I own two SPAC stocks and am keeping an eye on several others that are going public on this route. It’s a new market opportunity, and at such early stages it can take people a while to figure out which ratings are appropriate. At the moment, I firmly believe that blank check SPACs are little more than lottery tickets. However, SPAC stocks that have already confirmed deals are a fully valid mini market. And you can find some fantastic deals there.

I have a nagging suspicion that Rover might get cheaper before we go. Certainly there is currently no excitement in the market for Nebula Caravel Acquisition Corp. It even sounds like a black hole that you don’t want to put your money in. But I am extremely optimistic about Rover’s long-term prospects and I am glad to get into this stock in an environment with little information. When it gets cheaper, I’ll buy more.

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