theStreetFika: Scones, Sips, Strategy & Stocks

One of the most unsettling developments in business in 2020 was the trend that having no revenues proved not to be a deterrent for electric vehicle (EV) companies to go public. Although, the practice is unheard of in the the automotive world, Nikola, Fisher and others have done it and achieved multi-billion dollar valuations. The latest rebel is QuantumScape (QS) - a battery start-up that became a public company in November after merging with a SPAC. Although, it won't generate revenues until 2026, its market cap exceeded $50B in the last week of December. When the SPAC deal was announced, the parties decided a $3.3B valuation was appropriate. Except for QS showcasing its lab results, nothing material has changed between the SPAC deal and the last week of December to prompt the astronomical rise in valuation. It would appear that the same speculative fever that has many investors chasing the next Tesla has taken hold of QS investors. But is QS all hype, like Nikola, whose own techn...

NextDoor is Zucked Last week, techcrunch reported that Facebook is working on Neighborhoods -a NextDoor clone- based on Facebook's local groups.  What are the take-aways? If there was ever a time for everyone’s subtlety bigoted grandparents to get on Facebook, now’s it. Joking aside, Neighborhoods aligns very well with Facebook's strategy focusing on groups. NextDoor has been in hot water for inadvertently fostering racism. Facebook’s track record with moderating groups - or lack of - suggests it will not be able to avoid the same. Facebook is well-versed in copying features from other apps - just ask SnapChat and TikTok - to limit their growth. I expect this will do the same for NextDoor and force it into the arms of a SPAC. Quibi: Now Quiti Quibi, the app that staked its future on short videos, is shutting down just six months after it launched. Earlier, there were discussions that the app would be snapped by a SPAC. It turns out that Quibi is not even good enough to attract...

Last week, SoftBank Vision Fund head Rajeev Misra said he is preparing a SPAC. The SPAC will be run by Vision Fund investment advisors and will include money from Vision Fund 2 and outside investors. SoftBank founder Masayoshi Son previously said he planned to raise a second $108 billion for the second Vision Fund. However, Misra has struggled to raise money for the second vision fund after poor performance from Vision Fund 1 and the pandemic have curbed outside interest. This could be yet another indication of how easy it has been to raise money through SPACs. SPACs are the trend du jour of investing . As discussed previously , there are several reasons why they are hot; however, I think investors should do their due diligence before they hop on the SPAC wagon . For me, SPACs are the next investing bubble .  Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

Earlier this week, Nikola's CEO said the company's plans are intact even if GM deal unravels . This is not surprising for me. He and the other Nikola executives are begging for it to be November 30th already. That's when they will be able sell their shares. For me, Nikola is all hype and no substance. Most of its value is in the idea, the concept, and that simply can’t justify the $20 billion valuation it was at not long ago, or even the $7 billion valuation where it is at now. After all, it's a company that does not have a product yet, and won't have one anytime soon if some of the accusations about its technology from short-selling firm Hindenburg Research are true. Per the Hindenburg report, Nikola hyped its technology to attract investors and land partnerships with other auto makers, including General Motors (GM). Following the report, Nikola's founder and former CEO resigned. Even though the stock has bounced from its lows on the news of the resignation, I ...

What’s common between Nikola, Fisker Inc, Canoo Holdings, Lordstown and Hyliion?  They all have a multi-billion valuation despite having never generated a dime in revenues. The fact that they don’t have revenues is not very surprising because they have NOT made any products yet and don’t have any commercial services. As for the multi-billion valuation, it would have come as no surprise had they been early stage private start-ups. The remarkable thing is that they are public companies or will debut on the public markets within the next few months. These businesses are selling a vision rather than a proven track record of turning that dream into reality. This is stuff for the private markets only.  Turning a profit was never required to go public - Palantir, SnowFlake and Slack are a few companies that went public despite having negative profits. However, no product, no commercial services and no sales growth track record are a new fad.  So how did these companies rocket t...

2020 has certainly been the year of blank check acquisition companies - or SPACs.  That's how Nikola- the sexy electric truck shop-, Utz - the iconic snacks company- and Virgin Galactic went public earlier in the year. Plus, it's also how electric vehicle makers Fisker, Canoo, and Lordstown Motors announced they will go public. Plus Plus, famous investor Bill Ackman recently took his SPAC (Pershing Square Tontine) public in the largest-ever blank-check IPO (it raised A whopping $4B). The objective is to buy a mature unicorn. Ackman actually said Pershing might buy a “mature unicorn” 6 times in the filing. However not all private companies are psyched about merging with SPACs to go public. Airbnb reportedly turned down an offer to merge with Bill Ackman's SPAC, saying it prefers going public via traditional. Airbnb isn't alone. Snowflake, Slack, Shopify and BigCommerce are other flashy SPACs that declined the backdoor to going public and opted for the front door through...

In a previous post, " SPAC: The investing trend du jour ", I discussed what's an SPAC and why plenty of private companies are preferring to merge with a blank check firm or SPAC rather than go through the time-consuming and expensive process of raising money through a more traditional IPO. With all the excitement around SPACs, is it a good idea for investors to hop on the SPAC wagon? The case against investing in SPACs SPAC historical track record is not great: Goldman Sachs said in a report earlier this month that the 56 SPACs it looked at since January 2018 outperformed the S&P 500 by 11 percentage points in the first three months after an acquisition but lagged the broader market in the 12 months after the deal. And a recent study by IPO research and investing firm Renaissance Capital found that 89 SPACs that had gone public since 2015 have posted an average loss of 18.5%, compared to an average gain of 37.2% for traditional IPOs. A typical SPAC will offer stock a...

2020 is a year for the record books and its latest mania is SPAC investing. A SPAC, also known as blank check company, is a special purpose acquisition company and it’s the hottest trend in investing. According to Goldman, there have been 51 SPAC offerings in 2020, raising a record $21.5 billion, up 145% from the same period a year ago. A SPAC is essentially a shell company listed on a public exchange that uses the funds it raises from selling shares to acquire a private company or startup within a certain time frame, typically two years. In plain English: A SPAC is a company without a company.  SPACs go public for the sole purpose of one day acquiring a real company.  SPACs collect cash from new investors in the  initial public offering (IPO), even though those investors don't know what they'll end up owning.  The SPAC has 2 years to buy a real company, or the $$ gets returned to the investors.  SPACs have been around for years, but gained popularity recently a...