It was pretty common for de-SPACs to surge on the first day of trading only about a year ago. However, even then, a 120 percent increase wasn't common. Over the last few years, we have been seeing quite the opposite and de-SPACs have tumbled after the merger, including some of the hyped names.
There have been more SPAC merger terminations.
Over the last few months, SPACs have been in the news for mostly the wrong reasons including merger terminations and mass redemptions. There have been instances when over 98 percent of the SPAC stockholders opted for redemptions leaving the target company well short of cash.
Even when the mergers have gone through, most of the stocks have fallen thereafter and many trade at less than 20 percent of the IPO price. No wonder Symbotic’s steep rise after the merger is baffling markets.
SPAC Insider reported that 85.8 percent of SVFC stockholders opted for redemption, which is slightly higher than the YTD average of 84.3 percent. However, thanks to a $200 million forward purchase agreement by SoftBank and a $205 million PIPE, where Walmart also participated, Symbotic should get ample cash to fund its near-term growth.
Symbotic is a supply chain automation company.
Symbotic is a supply chain automation company. Unlike some of the other SPAC mergers, SYM isn't in the pre-revenue stage and has been making revenues. Its parent company Warehouse Technology posted revenues of $96.3 million in the second quarter of fiscal 2022. The revenues increased 315 percent on an annual basis and 25 percent on a sequential basis.
However, like most other SPAC merger targets, Symbotic is also a loss-making company and posted a net loss of $29.9 million in the quarter. SYM expects to post revenues of $440 million in fiscal 2022, which is 73 percent higher than what it posted in the previous fiscal year.
SYM's stock forecast looks positive.
The forecast for SYM looks positive as the company looks to disrupt the supply chain function globally. The company estimates that annually wholesale and retail companies spend $1 trillion on supply chain functions.
Symbotic has an order book of $11 billion and counts Walmart, the world’s largest retail company, as its customer as well as investor. In May, Walmart and Symbotic expanded their agreement to bring the company’s automation platform to all of Walmart’s regional distribution centers. Previously, the two companies had an agreement for only 25 centers.
The merger with SVF Investment Corp 3 valued Symbotic at an equity value of $5.5 billion. After the merger, SYM stock surged above $20, which has taken the proforma market cap to just above $11 billion.
With projected revenues of $440 million in fiscal 2022, Symbotic is now valued at a 2022 price-to-sales multiple of 25x. While supply chain automation is among the most promising investing themes, given the current macro environment, SYM stock looks overvalued. The stock is falling in pre-market on June 9 and might fall more after the initial merger euphoria dies downs.