These Were The Best Performing SPACs of the Year
The Rundown - Your weekly SPAC Deep Dive (12/30/21)
SPACs have had another blockbuster year, with 190 deals being closed out, and many more have either signed definitive agreements or sitting on the sidelines patiently scouting for deals. However, post-merger SPAC performance has been horrific with the average De-SPAC returning -17% and the Median having returns of -25%, as compared to the S&P 500 which generated 18%. In a year where investors have been critical about such deals and questioning the long-term viability of SPACs in general, a few deals easily outperformed the broader markets. These were the best performing De-SPACs of the Year -
Racing to the Finish Line ($LCID)
When Lucid Motors announced that it would join the list of EV producers going public through a SPAC, it was written off as just another upstart looking to capitalize on the trend, and that it would be crushed by market leader Tesla. Fast forward ten months and the company has not only proven to be the best performing EV De-SPAC but also takes the crown for the best De-SPAC Debut this year. Unlike peers who were marred by controversies throughout the year (like the Lawsuit-Ridden Nikola and Troubled Workhorse Group), Lucid focused on getting vehicles out to the market and started deliveries of its flagship EV named ‘The Lucid Air’. Lucid also has the advantage of assembling the Air in the Arizona facility, which sets it apart from competitors who may need to rely on contract manufacturers for delivery (the other side of the argument is that Lucid may face a production bottleneck like what Tesla did in the future).
Lucid stock may not witness the same gains that it saw this year, given that it is trading over 30x FY23 revenues and with losses widening to $1 billion a year. Lucid may also face additional challenges scaling its productions, and given that Tesla expects to deliver 40x the total vehicles that Lucid will produce in the year (1 million units for Tesla vs 25,000 for Lucid), the company may face an uphill task capturing market share. Still, the long-term outlook for the company remains positive, with just 5% of the US auto market expected to comprise EV vehicles and the company raising money on a recent convertible note to boost liquidity to keep up with the staggering demand from customers.
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Bunny Hopping ($PLBY)
Playboy Group (Formerly Playboy Enterprises), which was founded by Hugh Hefner, is the perfect example of a SPAC turnaround for a fledgling legacy business that couldn’t keep up with online peers. Founded nearly seven decades ago, Playboy published over 7 million copies of its magazine at its peak but saw sales shrinking to just 800,000 copies in 2015, and as a result, management decided to take the business private to streamline operations. Since debuting through a SPAC merger earlier this year, Playboy has seen rapid growth, with several growth catalysts including killing the legacy business in favor of a DTC model, renegotiating licensing deals, and launching a digital subscription business (which could potentially compete with OnlyFans).
Furthermore, management has also been looking at other strategic avenues, including NFTs and Obscure Licensing Deals, with the former contributing materially to revenues and the latter setting up long-term recurring revenue streams. Since 2019, Playboy has made strategic acquisitions to build out its platform, including buying lingerie brands Yandy & Honey Birdette, sexual wellness brand Lovers, and subscription platform Dream (which will turn into the company’s Digital Subscription platform labeled ‘Centerfold’). Playboy initially made its public debut at a $381 million valuation, but a successful acquisition strategy has enabled the company to expand its gross margins. Additionally rapid revenue growth (Revenues expected at $250+ million, with 50%+ run-rate till FY25) has led to the company crossing a market capitalization of $1 Billion this year.
Skin In the Game ($SKIN)
HydraFacial, which rebranded itself as The Beauty Health Company, debuted earlier this year through a SPAC after creating a niche for its skin treatment system and related line of products over the last two decades. The long-term outlook for the company remains positive as its non-invasive facial treatment lies in the spectrum of skin correction and skincare. By bridging the gap between professional and retail skincare markets, the company has created a highly effective, non-invasive, and affordable treatment, with the results appearing similar to that of professional medical treatment with the experience of a consumer brand. The company’s stock has surged over the last few months as a result of the sales momentum and revised upwards guidance in recent quarters.
While management had recently estimated $200 million in revenues this year, the company now expects to generate between $245-$255 million. Gross margins have also significantly improved compared to the previous year (68.6% vs 54.4%) as a result of strong unit economics and favorable macro conditions. The company also had plenty of liquidity at the end of Q3, with more than $718 million (with a recent convertible note raised) in cash, proving to be valuable for acquisition opportunities in the future. The Beauty Health Company is now well-positioned to take advance of the growing trend in the retail skincare market, with its asset high approach ensuring even higher margins and free cash flow opportunities in the future.
A Quantum Leap ($ARQQ)
With Google, IBM & Rigetti all massively investing in Quantum Computers, it is just a matter of time before we see a wave of security issues related to the current security encryption standards. The current industry standard (PKI Encryption) is expected to be broken over the next decade, posing challenges for both companies and countries looking to protect sensitive data. Arqit Quantum believes that it has the solution to this critical problem, by using symmetric encryption keys that are paired with the algorithm used by the current global standard (AES256), to create a computationally secure (can’t be broken by current or future machines) and trestles system.
Arqit has over 1,400 patents extensively covering its technology, preventing new entrants from reverse engineering its solution. The company’s solution is also highly scalable, with the system automatically billing customers when accessing the company’s Software API keys. Arqit has already served clients across a wide spectrum, including the British Government, British Telecom, Virgin Orbit, BP, Verizon, Iridium, and Sumitomo Corporation. The company eventually plans to target every smart global device from smartphones to cloud machines. The company expects to be profitable and cash-flow positive by as soon as FY22 and FY23 respectively as a result of its asset-light approach and scalable business model. If the company continues to execute operations based on its strategy, shareholders could see a further run-up from here.