When this investing era is discussed in history books, there will be a lot of discussion about special purpose acquisition companies, or SPACs. There's a raging debate about whether they are simply an investing fad or a new way for companies to go public.
Many believe that SPACs are a transfer of money from retail investors to sophisticated investors during frothy market conditions. Others see it as a disruption of investment banks' monopoly in taking companies public in which they extracted hefty fees and also were able to allocate shares to their clients at reasonable prices.
The public face of SPACs has been Chamath Palihapitiya who has cultivated a brash public image of someone battling Wall Street. Until about a month ago, SPACs have performed very well which reinforced his arguments. However, they've been a victim of the market action of recent weeks which has seen the biggest sell-offs in high-multiple stocks, while other parts of the market like energy and financials continue chugging higher.
For those that are believers in Palihapitiya's investments, this could prove to be a good buying opportunity given their discounts.
Here is a roundup of Palihapitiya's SPACs recent and overall performance with some commentary on their outlook:
Virgin Galactic (SPCE ) was the first SPAC deal completed by Palihapitiya. Since going public in late 2019, shares are up 219%. From its recent high in February, shares were off 60% before rebounding 20% late last week. The company remains at least a decade away from consistently generating returns, and its task of human flight into space is likely to be expensive. Thus, it makes total sense that its share price would suffer when interest rates sharply increase.
Opendoor Technologies (OPEN ) is up 149% since going public in June 2020. Like SPCE, shares dropped by more than 50% during the liquidation in high-multiple stocks. Opendoor is intriguing as it has a huge potential market given that real estate services is worth over $1 trillion. Yet, it has a high valuation and there are several competitors who are ahead of the company.
Clover Health (CLOV ) is a healthcare tech company that is looking to disrupt the insurance marketplace. The company has to continue growing as it has a loftier valuation than many entrenched companies. Clover is the worst-performing among his SPACs as it's down 15% since its IPO. YTD, shares are down 50%. Every couple of years, a new company looking to disrupt health insurance emerges. During the IPO, it gets a high valuation as investors are enraptured by the huge potential market opportunity but are inevitably disappointed when it turns out to be more difficult and expensive than expected.
Social Capital Hedosophia Holdings Corp V (IPOE ) is merging with SoFi and will begin trading under a new ticker in the coming weeks. Since its IPO, shares are up 80%. Since its February peak, shares are off by 35%. The company is intriguing given its market share in the student loan industry and the potential to add new features and products.