SPACs are blowing up

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SPACs are blowing up

Wall Street’s hottest investment slows down

Last year we saw the SPAC market reach all-time highs. 

Cash rich investors were writing blank checks non-stop. In 2020, we saw $82 billions raised for SPACs. All it took was an idea and some momentum. 

Now even the King of SPACs, Chamath Palihapitiya, is seeing his portfolio of SPACs retrace at great speed. Too much supply is slowing down the market. 

I think this is a healthy pullback and the SPAC market isn’t going anywhere. You just need to be careful of where you invest.

But the SEC is hitting the brakes.

Regulators sometimes slow down progress. Other times protect the consumer. 

Right now the SEC is protecting consumers. Mostly because Famous Celebrities like A-rod and Serena Williams are acting as sponsors for new SPACs. This is an official investor alert and a sign that the SPAC party is coming to an end.

A Quick Note on Smart Retail Investors

Last year, before the GameStop saga, I noticed that the SPACs community was the fastest growing group on Reddit. With only 172k members, Redditors were making millions of dollars investing in overpriced SPACs. Chasing blank check companies that haven’t done a deal.

Don’t believe me? Check out this SPAChunt graph.

Retail investors are tracking deals just as well as hedge fund analysts. Maybe even better. These guys are smart and on the hunt. But most of this is still speculation.

WeWork is coming back...as a SPAC

WeWork is coming back from the dead.

The shared office company will be the star in the new remote work environment.

You may remember that the company failed to IPO in 2019 because of management. You can watch the Hulu documentary to learn more about this failed unicorn. 

But that didn’t stop investors from pushing forward.

Now, flush with cash, WeWork will merge with a SPAC called BowX Acquisition later this year. BowX is owned by Vivek Ranadivé, the founder of TIBCO and owner of the Sacramento Kings.

Flex work is the future

WeWork cut more than 60% of its workforce along with high-cost leases.

Occupancy at WeWork dropped to 47% at the end of 2020, from 72% the year before. No surprise as only <10% of Manhattan workers are back in the office right now.

But don’t consider WeWork a technology business. It’s in the leasing business. The company is focused on enhancing the flexibility of office space. Major companies like J.P. Morgan have stated they will need 40% less office footprint when lockdowns are over.

While commercial landlords are getting crushed , WeWork will capitalize on the remote work boom.

If you’re not comfortable with the WeWork story, then hold off until it goes public. The company’s valuation went from $47 billion to $2.9 billion as of May 2020. The company has a lot of legacy problems it needs to overcome before investors are comfortable investing again.

IBM’s comeback game

Big Blue is crushing it

IBM continues to reinvent itself as a market leader. 

Earlier this week during IBM’s earnings call, its gross margins actually improved to 46.3%. The company is seeing strong growth in its cloud and software divisions. And plans a major spin-off to unlock the company's asset value.

If you want to understand more, watch my video about IBM hybrid cloud strategy. This is the secret to the company’s current growth strategy. 

Here's another good article discussing the company's transition strategy.

Keep an eye on the Kyndryl spinoff 

A boring business model with over $60 billion in backlog. I'm talking about IBM's new spin-off called Kyndryl.

You see the market values high-growth differently from low-growth businesses. And in IBM's case they need to spin off one asset to unlock the full value for investors. So the NewCo will focus on IT infrastructure, cloud services, and networking.

While boring with low-margin and low growth, this new division has a robust sales pipeline. The spin-off will not take place until the year-end but it will be wise to keep it on your watchlist. With $19 billion in revenue and $60 billion in backlog, this spinoff is a cash cow.

Quick Update on UIPath’s IPO

The Billion Dollar IPO went Public this week. If you missed the details last, you can watch my video or read my writeup here.

Here are ten more takeaways from the IPO and a detailed analysis by the Generalist. Keep this company on your watch list. This CEO is committed for the long term.

Weekend Reading

Last week Jeff Bezos released his final Amazon Shareholder Letter as CEO. He’s been writing this annual letter since 1997. And I've read every single one. I recommend you do the same.

In this year’s letter, he breaks down the company’s background and current situation. Jeff discusses key stats such as:

  • Hiring 500,000 employees and now directly employ 1.3 million people around the world.
  • More than 1.9 million small and medium-sized businesses sell on Amazon
  • More than 100 million smart home devices are connected to Alexa.

Here are a few interesting shopping takeaways:

  • 28% of purchases on Amazon are completed in less than 3min!
  • 50% of purchases on Amazon are completed in less than 15min!!
  • If going to an offline store to do the same task takes 1 hour then Amazon saves a person 75 hours per year! through these kinds of efficient online purchases. 
  • If you value your time at $10/hr, that’s $750/yr which means that subscribing to prime is free ($120/yr) and still leaves you with $630.

If you want to watch my commentary, check out my livestream discussing the letter in detail.

Previous links

If you missed it before, here are some recent videos I live streamed in April.

Microsoft’s $19 billion bid for Nuance: I explained Microsoft's reason to enter the healthcare industry and why voice tech is the right move. Watch it here

60 minutes with Jerome Powell: Watch this clip to understand the Federal Reserve’s view on the markets and why economic growth is inevitable.

Thinking about investing now?

This week’s newsletter is brought to you by Public.com, the only social investing network on the market. 

And now the fast growing mobile app now offers Public Town Halls.

Retail investors will now have the opportunity to speak with public company CEOs. With the Public app, you can submit questions and follow along live as executives share their responses. 

Pretty cool feature if you want to follow along with your latest investments.

The first Town Hall will begin with Lemonade Co-founder, President, and COO Shai Wininger. Download the app today to ask him questions so he can respond live next on Weds. April 28 at 11 a.m. ET.

P.S. Public.com doesn’t use Payment for Order Flow like Robinhood. Trades go straight to the exchange without a middleman frontrunning you. Oh and account transfer fees are waived ;) Read the account disclosures for more information.

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