Forecast for Weedmaps (MAP) Stock After SPAC Merger

There has been a flurry of SPAC (special purpose acquisition company) mergers in June. Marijuana advertising platform Weedmaps joined the list of companies that have listed through a SPAC merger in June. What’s the forecast for Weedmaps (MAPS) stock after the SPAC merger?

Weedmaps went public through a reverse merger with Silver Spike Acquisition Corp. After the merger, the name of the combined company changed to WM Technology. While there have been many SPACs over the last year, marijuana companies weren’t among the prime acquisition candidates. However, the marijuana industry has been buoyant amid renewed hopes of federal marijuana legalization in the U.S.

Weedmaps started trading on the Nasdaq earlier this week and the stock soared on the listing. There was a perception among investors that after the merger, the stock invariably falls.

However, over the last month, there have been many instances when stocks have risen after the merger. SoFi, which went public through a merger with Chamath Palihapitiya’s Social Capital Hedosophia Holdings V, is a prime example. Coming back to Weedmaps, the stock was trading higher in early trading on June 17 and continued its momentum from the previous day.

As part of the merger with Silver Spike, Weedmaps will get cash proceeds of $579 million, which includes $254 million from the trust account of the SPAC and another $325 million as PIPE (private investment in public equity). Weedmaps will use the money for growth.

Since MAPS has just listed, we don’t have any analyst forecast for the stock. Looking at the business, Weedmaps is an online marketplace for marijuana products. It also offers WM Business, a SaaS subscription offering for marijuana retailers and brands.

The company was founded in 2008. Between fiscal 2014 and fiscal 2020, its sales have increased at a CAGR of 35 percent. During that period, the company's gross margins have expanded from 92 percent to 95 percent. The gross margins look handsome.

In 2020, Weedmaps generated revenues of $162 million and an adjusted EBITDA of $43 million. Also, its net income was $39 million in the year. While most of the marijuana companies are negative on the EBITDA level, MAPS is posting net profits.

Weedmaps is among the rare profitable companies that went public through a SPAC merger. Most of the companies that have gone public over the last year are loss-making and fell sharply amid the sell-off in growth names.

The SPAC merger valued MAPS at an equity value of $1.5 billion. After the spike in the stock, its equity value is around $3.2 billion. After adjusting for the cash that it received from the transaction, we get an EV (enterprise value) of around $2.6 billion. Looking at Weedmaps’ 2020 numbers, we get 2020 price-to-sales multiple of 19.7x and a 2020 EV-to-sales multiple of around 16x.

While the multiples might seem high, they should be seen in light of the elevated valuation of marijuana producers. MAPS is a differentiated play on the marijuana industry. While marijuana producers are grappling with perennial losses, MAPS has a high gross margin profitable business, which could justify its high valuations.