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Where's My Free Money?

Where's My Free Money?
We bought the SPAC stock, dangit. What do you mean, it didn’t go up yet?

This VC Thing Is Easy, Right?
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In an era when almost everybody wants to play at being a space-sector VC and almost nobody knows what VC deals actually entail, SPACs are the perfect salve. Sponsoring team forms special-purpose acquisition company (SPAC), raises large bag of money from grownup shareholders, goes hunting for a hot private company, agrees a deal to merge with said hot company, bangs out a press release, SPAC securities go through the roof, then calm down again as everyone gets bored of the story and moves onto the Next Hot Deal, whereupon the merger quietly completes, another press release hits the wires, the merged securities now with cooler ticker make for the skylight once more, everybody pockets a gain, what’s not to like. Easy! Just like venture capital!
In the space sector you have a whole bunch of companies following this model right now. From Momentus Space (SRAC) to Rocket Lab (VACQ) to Holicity (HOL), all are hoping to follow in the contrails of Virgin Galactic (SPCE now, previously IPOA before the SPAC deal completed. You see? Uncool ticker, cool ticker … stock up.) And most of these names have handed you some of that good free money.
Charts Don't Lie
Here’s a handful of space SPAC deals vs. the Nasdaq on a year-to-date basis, showing the % change in each name. We’ve used the proxy ETF QQQ in place of the Nasdaq index itself.
NASDAQ?  Yawn.
NASDAQ? Yawn.
You see? Free money. Even when Growth Stocks Are So Over Right Now. Yes, yes, SRAC, we know, but, you know, there was that, you know, Russia thing going on. So that’s different. Right?
What About Spire Though? What's Up With That?
Spire Global (NSH) is an unusually coy SPAC deal. The company itself has more commercial traction than most all those other names, with only Rocket Lab (VACQ) having comparable levels of revenue. You can read our detailed assessment of Spire in one of our Seeking Alpha articles, here. If you lack the patience or time to do so, we’ll summarize thus: is good.
The company chalked up $28m of revenue in FY12/20, at 64% gross margin and spent only $10m of capex in the year despite filling part of its day actually making stuff that bounces when you drop it, in pursuit of selling more of those recurring data services that everyone has learned to love. This is a real business growing revenue at 56% in FY12/20 vs. prior year, holding contracts with all manner of demanding government agencies and commercial entities, with real intellectual property and accomplished folks with actual space chops running it. And yet … this.
Seriously ... for real?
Seriously ... for real?
What’s lacking from Spire is a major PR push. We don’t see cute names for each mission, we don’t see round after round of a-may-zing videos on YouTube, and the CEO doesn’t tweet about changing the world one weather forecast at a time. This might limit stock price growth in the short term, but we remain of the view that quality will out. The merger between Spire and the NavSight holding company is due to complete some time in Q2 and as the company starts to deliver earnings reports and conducts normal corporate PR activities, we anticipate its profile rising.
The thing about Spire is, it’s not a spray and pray kind of deal the way that many SPAC stocks are right now. Those fundamental building blocks above - you know, product, customers, management - they are in our view the foundation of a business with the potential to keep growing revenue, earnings and cashflow for the long term. And while we are no blind followers of fundamentals (we posted on this topic yesterday, you can read it here), we think the reality of this company will over time stand out from the hopes, dreams and, yes, promotional activities, of many of the other SPAC deals out there.
So speaking for staff personal accounts, we remain happily long NSH (the uncool pre-merger ticker) and NSH.W (the warrants pertaining to the same uncool ticker) and intend to do so once the stock gets a makeover and becomes SPIR. As for your accounts, well, we can’t speak for them. After all, we barely know you and we aren’t party to your hopes, dreams, fears or greed. But we think it’s well worth you reading up on Spire to decide whether, in the end, there could be a little free money on offer there too.
We will continue to cover Spire in detail in our subscription services. You can go parsimonious ($29/month) in our ‘Elements’ service - of which more here - or profligate ($199/month) in our ‘Fundamentals’ service - of which more here.
Thanks for reading our work. If you liked this note, don’t forget to share it on your social media platforms of choice - the links to do so are on this page - and if you haven’t already, do subscribe to this newsletter to have it delivered to your door immediately on publication.
Cestrian Capital Research, Inc - 7 April 2021.
Disclosure - Cestrian Capital Research, Inc staff personal account(s) hold long position(s) in, inter alia, NSH, NSH.W, VACQ.W, VACQU, HOL, HOL.W, SFTW, SFTW.W, and the daddy-SPAC of them all, SPCE.
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