Virtuoso Acquisition Corp. (VOSO) stock jumped almost 44 percent on Nov. 18 after SPAC stockholders voted in favor of the business combination with Wejo Group Limited. Before the merger's finalization, VOSO stock was trading in a very narrow price channel around the IPO price of $10. What’s the forecast for Wejo after the merger and is it a good investment or is it just a short squeeze rally?
SPAC stocks tend to rise when the business combination is approved by the stockholders. However, VOSO stock had almost doubled at one point on merger confirmation before it pared some of the gains to settle the day at $14.51. It was trading lower in the pre-market price action on Nov. 11.
Key details of the Wejo and VOSO merger
After the merger, Wejo will trade under the ticker symbol “WEJO” on the Nasdaq. The company has received a total of $225.7 million in cash proceeds from the business combination. This means that several VOSO stockholders opted for redemption. When the business combination was announced, Wejo said that it would get a gross of $330 million as part of the deal.
This included a PIPE (private investment in public equity) of $100 million, which was later scaled up to $128.5 million. The remaining $230 million was expected from the SPAC trust account. However, as we’ve seen over the last few months, there has been a flurry of redemptions, which has also led to a short squeeze rally.
Is a short squeeze happening in VOSO stock?
Looking at the Wejo-VOSO merger, more than half of the SPAC stockholders have opted for a redemption. So, is the rise in VOSO stock before the merger with Wejo another short squeeze rally like we saw with Locust Walk Acquisition Corp. (LWAC)?
To give a brief idea, 97 percent of LWAC stockholders opted for redemption. LWAC stock tripled intraday on Aug. 25 after shareholders approved the merger with eFFECTOR. The stock went on to hit an all-time high of $40.81. Currently, it trades below the SPAC IPO price of $10 and hit a new 52-week low of $8.01 on Nov. 18.
There could be an element of a short squeeze in VOSO stock ahead of the merger with Wejo. According to Fintel, the short borrow fee for VOSO was in the double digits. Usually, short squeezes fade as quickly as the sharp rally. It's important to look at Wejo's business fundamentals.
Wejo stock forecast
Wejo was founded in 2014 in the U.K. and employs over 250 employees. The company is a leader in connected vehicle data and has almost 12 million vehicles on its platform. Wejo has partnered with several OEMs.
It also announced a partnership with Microsoft under which the two companies will try to unlock the value from connected vehicle data. Wejo is also backed by Palantir, which has been a PIPE investor in several SPACs.
Wejo thinks that its TAM (total addressable market) is $61 billion. Of this, around $30 billion TAM is in the Wejo marketplace, while $31 billion is in SaaS. The company only generated revenues of $1.3 million in 2020 but expects it to rise to $764 million by 2025. Palantir is expected to help Wejo scale up its business.
While Wejo forecasts to post a negative EBITDA until 2023, it expects to turn EBITDA positive in 2024. It's forecasting an EBITDA margin of 42 percent in 2025. The deal valued Wejo at an equity value of $1.09 billion.
Based on the projected 2025 revenues, we get a 2025 price-to-sales multiple of just above 2x at the current stock price. Meanwhile, the projections should always be read with a pinch of salt.
Wejo is in an emerging industry. As more vehicles get connected, Wejo would see a spike in revenues. The backing from names like Palantir and Microsoft is another plus for Wejo.
However, the steep rise in VOSO on the news of business combination looks speculative. VOSO stock was trading lower on Nov. 19 and could drift even lower from these levels in the short term. However, it looks like a good long-term stock to buy on the dips and play the connected vehicle story.