- Ultra-rosy revenue projections of some companies that went public via SPAC are falling short.
- The SPAC IPO process allows private companies to go public quicker and cheaper than the traditional IPO route.
- Virgin Galactic missed its 2021 revenue projection of $210 million by 98%, generating just $3 million in revenue.
SPAC investors are starting to get a reality check as some companies that sidestepped the traditional IPO process in favor of the blank-check strategy are beginning to badly miss their original financial projections.
Commercial space flight company Virgin Galactic originally forecasted 2021 revenue of $210 million when it went public in late 2019. But the company ended up generating only $3.3 million in revenue, missing its original target by 98%.
The numbers look even worse for 2022. Virgin Galactic originally projected $398 million in revenue in 2022. But now the company hasn't given any guidance on what revenue could look like this year, and instead said it expects negative free cash flow of up to $85 million in the first quarter of 2022.
The poor performance from Virgin Galactic has led it stock price to fall more than 85% from its record high, and now investors are suing Chamath Palihapitiya and Richard Branson, alleging that the two covered up flaws with its space planes while simultaneously dumping millions of dollars worth of the stock at inflated prices.
The SPAC process saw a boom in 2020 and 2021, as companies took advantage of the blank-check vehicle that is quicker and cheaper than a traditional IPO. But the go-public process via SPACs often receives less vetting and scrutiny by traditional institutional investors. Instead, the companies that went public via SPAC landed in the hands of retail investors.
The SPAC floodgates began to open up in late 2019 when billionaire investor Chamath Palihapitiya brought Richard Branson's Virgin Galactic public. From there, heavyweights like DraftKings and Lucid Group saw big success by reverse merging with blank-check firms to go public.
The SPAC boom has officially deflated. The Defiance Next Gen SPAC ETF is down 51% from its record high, and there have only been 48 new SPAC IPOs so far in 2022. There were more than 600 SPAC IPOs in 2021, according to data from SPACInsider.
It's not only Virgin Galactic badly missing the financial projections it made during the SPAC IPO process. When Lucid Group closed its merger with Churchill Acquisition Corp last summer, the electric vehicle said it would deliver 20,000 vehicles in 2022. But on Tuesday, Lucid said lowered its 2022 delivery target to a range of 12,000 to 14,000, citing supply chain and logistical challenges.
Finally, perhaps the poster child of badly missing its SPAC-era projections is Nikola. Under the leadership of Trevor Milton, the company said it expected to generate about $150 million in revenue in 2021. Instead, the company generated $0 in revenue. Milton has since stepped down from Nikola and has been charged with securities fraud.
The bad miss by some SPAC companies is a far cry from the fanfare that attended the SPAC gold rush of 2020 and 2021, shining a light on the tricky proposition of evaluating companies still in startup or pre-revenue phases.
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