Happy Sunday Folks!
When Chamath Palihapitiya announced that he was backing auto-insurance startup Metromile, he compared it with Buffet’s purchase of Geico. Metromile merged with INSU Acquisition Corp II in February 2021 in a deal that valued the insure tech firm at $1.3 billion. Metromile stock was on a downward spiral ever since it closed its merger as the company struggled to pare its losses. Just six months after making its public debut, the company was sold to Insurance firm Lemonade in a $500 million transaction.
Lemonade may have got a bargain, considering MetroMile had $300 million in cash and close to $250 million of premiums in force. This transaction has likely set a precedent for De-SPACs that may have gone public at lofty valuations, yet still have strong fundamentals at its core. With public market valuations on the decline, funding drying up across industries, and companies continuing to burn money at astonishing rates to maintain growth, it's only a matter of time until most of these companies are acquired by larger firms.
The Beachbody CompanyÂ
California-based stay-at-home fitness company Beachbody has been through a wild ride over the last few years. Beachbody has offered an online fitness service since 2015 with a strong library of fitness programming similar to Apple Fitness +. At the inception of the pandemic, Peloton emerged as a winner due to the sales of its $2,000 connected fitness bikes selling through the roof. Beachbody saw this as an opportunity to enter the exercise bike business and used a three-way SPAC merger to quickly acquire the $300 million Myx fitness brand.
Unfortunately, the company’s bet on $1,400 exercise bikes turned sour, with a large inventory of fitness bikes that failed to sell through as consumers returned to gyms and increased competition from low-cost manufacturers ate into its market share. In a bid to turn things around, the company piled millions into marketing, but this resulted in the company burning through cash at a higher rate.
In November, the company reported that quarterly sales fell 17% to $208.1 million, while losses grew to $43.4 million. Management also lowered forecasts for the second time this year, expecting full-year sales to be close to $830 million and losses close to $110 million. Beachbody’s stock has taken a dramatic fall as a result, with valuations plummeting from $2.9 Billion to $500 million.
With both Google and Apple bolstering their consumer fitness offerings in recent years, experts are speculating the acquisition of Market Leader Peloton. However, both companies are reportedly looking to ditch Peloton’s bikes, while primarily focusing on the live classes integrated into their suite of products (Apple Watch for Apple, Fitbit for Google). However, Beachbody is currently trading at just 0.62x FY21 Sales (vs Peloton at 1.75x), while also having 3 million digital subscribers (vs Peloton at 6.2 million), making it a much better value.
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Velodyne LidarÂ
Lidar maker Velodyne Lidar has long been the dominant supplier in the auto industry. However, 2021 has been a challenging year for the company, amidst management turmoil and supply chain issues, with the company’s valuation falling from $1.8 billion to $700 million. Founding CEO David Hall continues to sue the executives that were involved in the SPAC deal with Graf Industrial Corp for Velodyne’s poor financial performance after he was ousted from the company last year.
The ensuing battle continued into the year, as Anand Gopalan resigned as CEO in the second quarter, with Ted Tewksbury replacing him, resulting in higher legal and administrative expenses. While management expects sales to ramp up to $1 Billion by 2025, Automakers believe that most of the demand for Advanced Driver Assistance Systems (ADAS) is expected to come over the next few years.
Like most of its peers, Velodyne has a huge pipeline of customers such as Faraday Future, Baidu and QinetiQ with multi-year agreements in place. In total, the company had 35 multi-year agreements, with 220 projects, that could yield 7.5 million Lidar sensors by 2025, valued at close to $800 million. This could make Velodyne a prime acquisition candidate, from an automaker with the production capabilities to help alleviate its recent challenges.
Curiosity StreamÂ
Video Streaming Service Curiosity Stream has carved out a niche in the market, providing content that covers a range of topics including science, history, technology, robotics and nature. Higher Cash Burn, Strong Competition from Other Streaming Services and general weakness from market leader Netflix has led to a weak outlook around the industry. Users might start seeing streaming fatigue from a range of services including Netflix, Hulu, Prime, HBO Max, Paramount+, ViacomCBS Peacock, Discovery +, Disney+ and Apple TV+, promoting a signal that user churn may increase in the next few quarters.
Despite this, Curiosity stream is competitively priced at $20 offering high-value content, leading to higher retention (72%) vs Netflix (71%), Disney (55%) and Apple TV+ (17%). Another concern that looms over Curiosity Stream, is that it’s burning cash quickly in a bid to increase its library and market its offerings. The company is burning close to $50 million in cash every year, implying that it would need to raise cash in the next 18-24 months. This has spooked Wall Street, with Curiosity Stream losing 80% of its value since February 2021, dropping from $1 billion to $200 million. As growth slows down across the streaming industry, the bigger players will look towards M&A for consolidation.
Disney acquired the assets of Fox for $71.3 billion, while Discovery Announced Plans to acquire WarnerMedia for $43 billion. By comparison, the $200 million that streaming services pay to acquire Curiosity Stream may be quite small, because the service had 20 million users.