Spire Global Stock Offers NanoSatellite Pure Play

“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

Click for company website

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.

Credit: Spire Global

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:

Credit: Spire Global Investor Deck

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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