I've seen a few of these deSPACs. I guess the challenge is - where's the upside? Net cash of $2.33 versus share price of $2.0. You can make 15% on a gross basis, but you have to deal with the interim cash burn and any costs associated with the liquidation. They are burning roughly $0.30 per 12 month period, so the upside goes away pretty quickly. Feels like you need a much bigger discount.
I realize you did proactively highlight this pushback too, but I think the certainty of the cashburn overwhelms any potential upside from Inv+AR+IP monetization.
I think I would want the business to have at least some prospects for success whereas XL Fleet appears to have almost none and has better capitalized competitors seemingly doing the exact same thing (eg Hyliion).
I don't think the discount to cash is sufficient to make XL compelling; to an activist or to public market investors, although buying a portfolio of cigarette butts would probably generate acceptable returns.
As I've no doubt commented more than once on Chris DM's SA articles, the biotech sector is littered with stocks trading below cash. One of the craziest examples is GLPG, which has cash of €4.9 billion ~ $5.6B vs. a current market cap of $4.4B. Admittedly with the Fed printing money and inflation raging, you can't get much these days for $1.2B, but $1.2B was real money when I was growing up. (And parenthetically, GLPG is up 45% from its lows, and at least ~ 33% since I touted the stock to Chris).
The founder CEO recently stepped aside and GLPG has hired a new CEO that Mr. Market really likes. The game plan is to put that cash to work filling the hole in their pipeline, so you are buying a stake in a publicly traded biotech venture fund run by an experienced and highly regarded GP at a discount to NAV with the XBI (and biotech valuations) 50% off its high.
We should chat, I think there is potentially a lot of synergy in us collaborating somehow.
I did a screen a couple of weeks ago for ridiculous cash/share on IPO's in the last three years. I would guess 75% of the results were biotech. Of course right, I mean the majority of them will probably fail or need more money, and since I'm a total ignoramus in the space I filtered them out. Of the deSpacs the ones that had low redemptions and good PIPES, the DMYS stuff comes to mind. Planet labs has a ton of cash but who knows how long they can last.
As far as recent IPO's that have high cash per share whose cash burn is moderate or even neutral or actual cash flow slightly positive, I did find an adtech company called Viant (DSP), I calculated $4 cash/share trading at around $7. Another was a webinar/marketing company called On24 (ONTF), I calculated around $8 cash/share trading at round $16. Again, neither of these companies look to be incinerating cash, although I haven't done a deep dive into the businesses. HOOD I believe has around $6 cash/share (although they seem to be burning it pretty fast), and maybe the reason why it bounced so hard off of $10.
Also, I wanted to say with the deSpacs, I like to look for something unique, which for me means no EV, no 3d printing, no flying taxi fantasies. I own some IONQ for the simple reason that it's so specialized.
I agree re looking for something unique, and passed on many deSPACs for the same reason. I looked at IONQ following Chris DM's recommendation, but couldn't satisfy myself that their technology is any better than (and may in fact be far inferior to) their many well-funded public (GOOG, HON, IBM, etc.) and private competitors.
re:funding, There's an interesting interview with Alex Karp ( i know, huge grain of salt) where he talks about what he sees as the non-linearity of software development (i know ionq is hardware but bear with me). Basically what he says is that there is not always a linear relationship between funding and successful development of software. He says that is why a small group of underfunded software engineers holed up in some garage in Chicago (i'm paraphrasing) can beat the pants off of a group of engineers somewhere else funded with very deep pockets. Obviously, this is hardware we're talking about and it's different. But if IBM is so deep pocketed why have they stagnated, or even declined, over past decade or so in their field. I do wonder if there is something to be said for non-linearity in general when it comes to cutting edge or new technologies. Perhaps this explains why there is such a fight for talent in the technology space. Talent doesn't always want to work for the establishment?. . . Also, I'd be interested to know about your findings in terms of IONQ's technology vs. peers. It's definitely a flyer for me, I would suspect the thing will trade to where all deSpacs seem to eventually go, mid to low single digits.
I don't disagree re startup vs. incumbent, but there are tons of competitors, startups and incumbents, with well-funded teams of crazy smart people, taking radically different approaches. IONQ could be the TSLA of quantum computing, but the odds are against them, and I lack the expertise and conviction to bet on that outcome.
Forte Biosciences is a California based pharmaceutical company that was working on a topical eczema treatment. The treatment failed phase two clinical trials which was announced in September. This was the only project in the companies pipeline and they have no intention on continuing with it. Stock price went from roughly $30 to $4 and now sits at $1.50. The ceo sold a million (about half) of his shares at around $4, leaving him 10% control of the company.
So that’s the bad news, the good news is I believe it’s far over sold. The market cap now sits at $22mil, but their most recent quarterly balance sheet shows them holding over $45mil in cash and equivalents, with no debt. They were burning about $5mil a quarter while working on their product before it failed trials, and on Feb 2nd filed an 8k terminating their patent license agreement with the national institute of allergy and infectious diseases. This indicates their attempt to cut expenses while they either pivot to a new project or dissolve the company.
Been haranguing Chris to set up a separate channel on STW for "Fallen Angels" (or devils). Great idea. TONS of possibilities. It's where all the opportunity in the SPAC space is right now..
My personal hobby-horse is $SUNL - business hammered due to fear of regulatory change (that doesn't appear to have eventuated), basically no debt, actually makes money - but as you say, there are tons of the things
I've been doing work in this area for a few weeks...will be sharing some detailed thoughts shortly :)
I've seen a few of these deSPACs. I guess the challenge is - where's the upside? Net cash of $2.33 versus share price of $2.0. You can make 15% on a gross basis, but you have to deal with the interim cash burn and any costs associated with the liquidation. They are burning roughly $0.30 per 12 month period, so the upside goes away pretty quickly. Feels like you need a much bigger discount.
I realize you did proactively highlight this pushback too, but I think the certainty of the cashburn overwhelms any potential upside from Inv+AR+IP monetization.
I think I would want the business to have at least some prospects for success whereas XL Fleet appears to have almost none and has better capitalized competitors seemingly doing the exact same thing (eg Hyliion).
I don't think the discount to cash is sufficient to make XL compelling; to an activist or to public market investors, although buying a portfolio of cigarette butts would probably generate acceptable returns.
As I've no doubt commented more than once on Chris DM's SA articles, the biotech sector is littered with stocks trading below cash. One of the craziest examples is GLPG, which has cash of €4.9 billion ~ $5.6B vs. a current market cap of $4.4B. Admittedly with the Fed printing money and inflation raging, you can't get much these days for $1.2B, but $1.2B was real money when I was growing up. (And parenthetically, GLPG is up 45% from its lows, and at least ~ 33% since I touted the stock to Chris).
The founder CEO recently stepped aside and GLPG has hired a new CEO that Mr. Market really likes. The game plan is to put that cash to work filling the hole in their pipeline, so you are buying a stake in a publicly traded biotech venture fund run by an experienced and highly regarded GP at a discount to NAV with the XBI (and biotech valuations) 50% off its high.
We should chat, I think there is potentially a lot of synergy in us collaborating somehow.
I did a screen a couple of weeks ago for ridiculous cash/share on IPO's in the last three years. I would guess 75% of the results were biotech. Of course right, I mean the majority of them will probably fail or need more money, and since I'm a total ignoramus in the space I filtered them out. Of the deSpacs the ones that had low redemptions and good PIPES, the DMYS stuff comes to mind. Planet labs has a ton of cash but who knows how long they can last.
As far as recent IPO's that have high cash per share whose cash burn is moderate or even neutral or actual cash flow slightly positive, I did find an adtech company called Viant (DSP), I calculated $4 cash/share trading at around $7. Another was a webinar/marketing company called On24 (ONTF), I calculated around $8 cash/share trading at round $16. Again, neither of these companies look to be incinerating cash, although I haven't done a deep dive into the businesses. HOOD I believe has around $6 cash/share (although they seem to be burning it pretty fast), and maybe the reason why it bounced so hard off of $10.
Also, I wanted to say with the deSpacs, I like to look for something unique, which for me means no EV, no 3d printing, no flying taxi fantasies. I own some IONQ for the simple reason that it's so specialized.
I agree re looking for something unique, and passed on many deSPACs for the same reason. I looked at IONQ following Chris DM's recommendation, but couldn't satisfy myself that their technology is any better than (and may in fact be far inferior to) their many well-funded public (GOOG, HON, IBM, etc.) and private competitors.
re:funding, There's an interesting interview with Alex Karp ( i know, huge grain of salt) where he talks about what he sees as the non-linearity of software development (i know ionq is hardware but bear with me). Basically what he says is that there is not always a linear relationship between funding and successful development of software. He says that is why a small group of underfunded software engineers holed up in some garage in Chicago (i'm paraphrasing) can beat the pants off of a group of engineers somewhere else funded with very deep pockets. Obviously, this is hardware we're talking about and it's different. But if IBM is so deep pocketed why have they stagnated, or even declined, over past decade or so in their field. I do wonder if there is something to be said for non-linearity in general when it comes to cutting edge or new technologies. Perhaps this explains why there is such a fight for talent in the technology space. Talent doesn't always want to work for the establishment?. . . Also, I'd be interested to know about your findings in terms of IONQ's technology vs. peers. It's definitely a flyer for me, I would suspect the thing will trade to where all deSpacs seem to eventually go, mid to low single digits.
I don't disagree re startup vs. incumbent, but there are tons of competitors, startups and incumbents, with well-funded teams of crazy smart people, taking radically different approaches. IONQ could be the TSLA of quantum computing, but the odds are against them, and I lack the expertise and conviction to bet on that outcome.
Forte Biosciences is a California based pharmaceutical company that was working on a topical eczema treatment. The treatment failed phase two clinical trials which was announced in September. This was the only project in the companies pipeline and they have no intention on continuing with it. Stock price went from roughly $30 to $4 and now sits at $1.50. The ceo sold a million (about half) of his shares at around $4, leaving him 10% control of the company.
So that’s the bad news, the good news is I believe it’s far over sold. The market cap now sits at $22mil, but their most recent quarterly balance sheet shows them holding over $45mil in cash and equivalents, with no debt. They were burning about $5mil a quarter while working on their product before it failed trials, and on Feb 2nd filed an 8k terminating their patent license agreement with the national institute of allergy and infectious diseases. This indicates their attempt to cut expenses while they either pivot to a new project or dissolve the company.
Biggest risk is they acquire some other cash burning shtco. Muddy Waters wrote up XL a while ago, the spac sponsors are super shady.
Been haranguing Chris to set up a separate channel on STW for "Fallen Angels" (or devils). Great idea. TONS of possibilities. It's where all the opportunity in the SPAC space is right now..
My personal hobby-horse is $SUNL - business hammered due to fear of regulatory change (that doesn't appear to have eventuated), basically no debt, actually makes money - but as you say, there are tons of the things