Spire Global Stock Offers NanoSatellite Pure Play
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“Free of IPO constraints, SPACs can make ‘absurd’ financial projections – and this hedge fund manager says the fallout is coming.” That was the title of a recent article by Institutional Investor that warns about how the SPAC market often contains “pump and dumps” where investors who participate are buying “incredibly overvalued companies.” We can’t say we’re surprised.
We’ve been warning about SPACs regularly now since our July 2020 piece on How SPACs Reward Everyone Except Retail Investors. Nonetheless, we continue to cover SPACs, at least the ones with revenues, because our readers show a great deal of interest in these companies. You’ll hear many people in finance condemn SPACs while at the same time using their own SPACs to generate wealth before the music stops. Truly, the best of times and the worst of times. Today, we’re going to talk about another space SPAC – Spire Global.
About Spire Global
Spire first came across our radar back in 2016 when they were first starting to deploy low-orbit CubeSats. (CubeSats are a class of nanosatellites, so going forward, we’ll just refer to them as nanosatellites.) Founded in 2012, San Francisco startup Spire Global has taken in just over $222 million in funding from Qualcomm, Mitsui, and the European Investment Bank among others. All that money has been used to deploy a constellation of 141 Lemur nanosatellites that process around five terabytes of data per day. These are some really small satellites doing some really big things.
The vertically integrated offering collects data once and then sells it across multiple applications. The collected data is fused with other datasets and then machine learning algorithms are applied to produce insights for a number of use cases including:
One-fifth (one terabyte) of the data collected is being served to more than 150 customers including names like Chevron, NASA, and the U.S. Air Force.
This “space as a service” model lets Spire sell their data to end customers or even let customers participate at whatever point in the value chain suits them. Because Spire manufactures all their nanosatellites in-house, they’re able to offer customization and flexibility to their clients. The company’s consistent launch schedule and in-house nanosat design and assembly allow customer sensors to go from design to launch-ready in 3 to 6 months.
The Financials
Forward-looking estimates and $3 won’t get you a cup of coffee in Starbucks these days. Spire Global shows us the usual hockey stick revenues growth predictions, the comparables slide which shows their existence of revenues compared to other SPACs with zero revenues, and of course the valuation slide which shows how their fictional numbers are better than everyone else’s fictional numbers. What we’re more interested in are the actual numbers.
Spire Global talks about a “recurring revenue model with exceptional SaaS KPIs,” and that’s something we don’t see in most SPACs. (SaaS = Software as a Service and KPI = Key Performance Indicator.) As we’ve said before, companies that operate using a SaaS business model are assigned a premium by the market because they’re easy to understand, easy to monitor, and generally more resilient when the markets are in turmoil.
One of the most important factors we look at when evaluating disruptive tech stocks is revenue growth. Here’s what that looks like:
- 2018 – $8 million
- 2019 – $18 million
- 2020 – $36 million
Let’s assume that their $235,000 average-run-rate (ARR) per customer is fairly even across the board. If that’s the case, then they’re building a decent little business here. The only problem is that they decided to go public using a SPAC.
Green Eggs and SPAC
If you’re not following His Holiness Elon Musk on Twitter, you should. Some of the banter on his Twitter feed is epic. Just a few days ago, he made a cryptic comment about SPACs.
For those of you who aren’t eternally offended over everything, Dr. Seuss publishes some great kids’ novels, one of which is called Green Eggs and Ham. It’s a novel written using no more than 50 unique words, and the gist of it is that that some unnamed character refuses to eat green eggs and ham over and over until he finally capitulates and eats them, admitting afterwards that he, in fact, likes them.
So, what is Mr. Musk telling us? Hard to say, but we’re betting he’s not the SPAC type, which means we’ll see a SpaceX IPO before a SpaceX SPAC. Putting aside the SpaceX elephant in the room, let’s talk about whether or not we want to put some chips down on Spire Global.
To Buy or Not to Buy
Spire Global is going public using a SPAC called NavSight Holdings (NSH) which is currently trading at around $10.30 a share. Finally, a SPAC that’s trading close to what it should be – the value of the shares should the transaction not go through. Were the transaction to go through, shares should still trade at $10 a share because that’s the price institutional investors were willing to pay. On this premise, every single SPAC out there is fairly valued at $10 a share, and that’s the price that retail investors should start considering them.
In light of the price action we’re seeing in today’s markets, don’t be surprised if some SPACs trade under $10 a share. Why? Well, because we can’t assume that all these deals were fairly priced. When a cannabis SPAC decides to pivot into LiDAR, something they know little about, what assurance can we have that a fair deal was had? Moreover, every SPAC out there wants to do a deal. That’s their goal. Do a deal before the music stops and walk away with their 20%. Does a SPAC manager really have much of an incentive to make sure a deal is fairly priced?
We’re staying on the sidelines right now when it comes to all SPACs. We’re not liking the excessive volatility in the markets right now, especially that surrounding SPACs. The only SPAC we’re holding right now, Desktop Metal, has been on a roller coaster ride. We trimmed at the right time and recovered over half our cost basis, but we absolutely hated the ride. Market timing is a game nobody can consistently win, and it’s not a game we like playing. We’re risk-averse investors who like sleeping well at night without having to take Ambien.
Conclusion
It all comes down to this. SPACs are not providing us with enough information to make informed investment decisions. Until they do, we don’t really know what we’re getting ourselves into. Space is a particularly risky tech theme as well. So, we’re leaning towards avoiding space SPACs until they have some proper regulatory filings for us to look at after the merger goes through.
The transaction is expected to close in Q2-2021 after which time the ticker will change to SPIR.
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I will pass on this one. I do have Black Sky SFTW. I sold my DM at $20 and figure I will pick it up the second go around at $10.
I have 11 SPACS now and just got a final deal on BFT (Paysafe) and am watching GHVI. It has gone down to $13 and I will buy some around $12. Definately a change in enthusiasm for SPACs now but the prices are lower. Proof will be in the performance after the closings. I will keep my new found patience and ride these out. Yesterday I thru in the towel on what I call Cathie stocks. The problem is I found most of them myself and then started to follow her ETF. I never saw such volatility and lost my patience. Apparently there were too many houses that have lost too much cash to her funds and I do believe they don’t have too much love for her. They are all selling all her held stocks. Jimmy Cramer even complained on TV about her not closing her funds. LOL. Love it for entertainment but thant is not a playground I choose to play in. When the dust settles I will probably reingage.
You’ll be glad to hear one of our writers is working on a BlackSky article right now.
Here’s the thing. Trying to jump in and out of tech stocks (trying to time the market) is so dang hard and emotionally frustrating that we try to avoid it at all costs. We did trim DM in the mid-20s and covered over half our cost basis. We also trimmed our gene editing positions after they jumped by triple digits in just days. Everything we hold we’re willing to buy more if prices collapse with a horizon of 5 years or longer. Makes recessions so much more fun and makes it easier to sleep at night 🙂
You got quit the SPAC collection going there! Investing for entertainment? We prefer wines. And that’s not just because we’re all a bunch of borderline alcoholics.
The price looks attractive: $10.66.
Well Stan, you probably know by now what we think of that price given you’re a premium subscriber 😉
The price is attractive. There is a hype video on UTUBE which covers more of their potential market. It is well placed. I already have iridium, orbcomm, maxar, and the blacksky spac. I own twelve SPACS now and am just waiting to see how they perform post merger. IMO there is a lot of fast money in the spac market now so I don’t look for the immediate gains I believe a lot of people are betting on. The only SPAC I am still chasing is IPOE but unfortunately I misunderstood their business when it came out. Good luck.
Spire Global seems like an attractive business for sure – the whole SaaS thing. Price does seem attractive, assuming that institutional investors paid a fair price.
A lot of popular press on anything to do with space stocks. Apparently Cathie is going to load up her Space ETF. I read an article dated 3/28/2021 written by Chris Katje. He touts 9 space stocks. NSH / Spire is mentioned. $10.76 price. NPA / AST mentioned $12.39. HOL / Astra mentioned $12.42. SPFR / Valo 3d at $10.31 Spacs are dead in the water now but I am still grateful for the opportunity it affords me to join the crowd. BFT convert Paysafe this week. I am still eyeing the underlying deals. With Cathie she will yank them up and down so I think (hope) there will be an opportunity to unload but at these prices I am not that concerned. Unity’s IPO is a good example of an IPO I hope to buy some day. Same way with AI. I wanted it paid double what the IPO paid and then it started to tank so I sold it. With the loss I had a 30 wash window to wait out so I will get back in. Oh well be patient the mother of all SPACs will be Space X. Or will he choose an IPO.
Well didn’t that take us all by surprise as ARK’s space ETF wasn’t what anyone seemed to be expecting. We’re just wrapping up a piece on Velo3D right now so stay tuned.
There is no guarantee that $10 for any SPAC is a fair valuation to begin with. We need to be very cautious, which is why we only bought two SPACS and aren’t likely to buy any more – at least not until we see some proper SEC filing documents.
Market timing sucks and will drive you nuts. Try and establish a baseline and then accumulate as the price drops. We did this with C3 and Unity.
No way Musk goes the SPAC route. You see his “green eggs and SPAC” tweet? SPACs do no favors for retail investors, and Mr. Musk seems to know that. He has teased us with mention of a SpaceX IPO which will likely get horribly hyped by the Robinhood lot. We shall see.
Thanks for the comment Jim!