SPAC Activity and Market Trends

It's possible that recent coverage has heavily featured news concerning SPACs. These special purpose acquisition companies, also known as blank-check companies, currently represent a significant portion of market activity.

However, the financial landscape extends beyond SPACs, and other important developments will be addressed shortly. This serves as an acknowledgement of focusing on SPACs in consecutive articles.

Recent SPAC Transactions: Rover and MoneyLion

Yesterday’s analysis examined the emergence of venture capital-backed SPACs, questioning whether VC firms offering funding through SPACs will gain a competitive edge over those specializing in specific startup phases.

Continuing with the SPAC theme, today’s focus is on two specific deals: those involving Rover and MoneyLion.

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This dual analysis aims to limit further SPAC-centric content. Rover was chosen due to its connection to Chewy, a publicly traded company in the pet industry.

Both companies benefited from venture capital funding, allowing for a potential comparison of their post-IPO trading performance. While Chewy concentrates on pet e-commerce, and Rover on pet services, a degree of comparison is still viable.

MoneyLion is included in this discussion because it’s a well-funded fintech startup that TechCrunch has followed closely.

A successful public market entry via a SPAC could establish a precedent for other private fintech companies with substantial capital reserves.

Therefore, while this remains a SPAC-related article, the examination of the financial standing of these two companies—Rover and MoneyLion—offers valuable insight.

The analysis will begin with Rover’s investor presentation, followed by a review of MoneyLion’s materials.

Key Considerations

• SPACs are a dominant force in current financial markets.
• Comparing companies that went public via different routes (traditional IPO vs. SPAC) can reveal valuable trends.
• The success of fintech SPACs like MoneyLion could influence future market activity.

Rover

Rover is set to merge with Nebula Caravel Acquisition Corp., an entity connected with True Wind Capital. This transaction is projected to result in a market capitalization of approximately $1.6 billion for Rover, alongside roughly $300 million in available cash reserves.

The question arises: how appealing is this newly designated unicorn? The investor presentation can be accessed here, allowing for a concurrent review as we analyze the details.

Initially, the company highlights the increased adoption of online services over the past year, spurred by the pandemic, and the concurrent growth in pet ownership. These observations are accurate. We have witnessed an accelerated digital shift impacting both businesses and consumers. Furthermore, recent attempts to adopt pets have revealed a scarcity of animals awaiting adoption.

Considering these favorable conditions, one might question why Rover is opting for a public debut through a SPAC. Given a thriving market and prior venture capital funding, why not pursue a traditional Initial Public Offering (IPO)? The answer lies in the challenges faced by the company in 2020.

Revenue experienced a decline, moving from $95 million in 2019 to $48 million in the following year. Bookings also decreased, falling from 4.2 million to 2.4 million during the same period, which subsequently led to a reduction in gross booking value from $436 million in 2019 to $233 million in 2020. This downturn was primarily due to widespread stay-at-home orders. People were spending more time with their pets, diminishing the need for Rover’s pet care services.

As travel is anticipated to resume, Rover forecasts a return to growth this year. The company projects 3.9 million bookings in 2021 and revenue recovery to $97 million, based on $408 million in gross bookings. Further projections indicate continued upward trends. Rover also anticipates a transition from a $9 million adjusted EBITDA loss in 2021 to profitability in 2022.

The rationale behind Rover’s decision to go public via a SPAC becomes clear; the company envisions a promising future as the world normalizes, travel increases, and the demand for services like dog walking and pet sitting rises. Additionally, the company likely sought to secure funding. This SPAC arrangement provides a substantial cash infusion at a preferred valuation – avoiding the complexities of IPO pricing – which should allow sufficient time to recover from the economic consequences of COVID-19.

The merits of this deal are apparent. While Rover currently operates at a loss, vaccine distribution is progressing. Rover’s strategy of pursuing recovery as a public entity, rather than privately, may prove successful. Time will tell.

MoneyLion

MoneyLion is set to merge with Fusion Acquisition Corp., resulting in a combined valuation of approximately $2.9 billion, inclusive of roughly $500 million in cash upon completion. This represents a significant increase compared to MoneyLion’s previous valuation of $900 million, as reported by Crunchbase. Further details regarding this funding round can be found in TechCrunch’s coverage.

However, our primary focus lies on the company’s operational performance. How is MoneyLion, a provider of consumer banking, lending, and investment solutions, currently performing? Based on information from its investor presentation, the results appear quite positive.

As is typical with public offerings facilitated by SPACs, the investor deck contains a substantial amount of data. Consider the following illustration:

The data presented demonstrates a 90% growth in adjusted revenue – calculated as gross revenue less charge-offs – from 2019 (actual figures) to 2020 (projected totals). Furthermore, the company’s Q4 adjusted revenue run rate experienced a substantial increase of 197% year-over-year. These are demonstrably strong outcomes.

MoneyLion also significantly reduced its financial losses in 2020 compared to the previous year. Net income improved from a loss of $92 million to approximately $24 million. This constitutes a considerable improvement. The company projects continued net losses of $28 million to $23 million for the next few years, but anticipates achieving a net income of $18 million in 2023.

Sustaining this growth trajectory will be crucial, particularly in relation to payment volume – MoneyLion forecasts that payments will contribute 17% of its revenue in 2023, as detailed on page 31 of the investor deck – alongside a rise in loan originations. Total operating expenses at MoneyLion decreased from $127 million in 2019 to $99 million in 2020, contributing to the reduction in net losses. However, future increases in spending on areas like travel and marketing could potentially hinder the company’s progress towards profitability.

Nevertheless, MoneyLion anticipates reaching the revenue scale typically associated with traditional IPOs this year, while maintaining a relatively stable net loss. If this is achieved, and prevailing public market valuations remain favorable, the company’s market capitalization appears justifiable. This is especially true considering Affirm’s price-to-sales multiple exceeding 46x.

In summary, both SPAC transactions discussed today involve companies with promising prospects. Rover appears well-positioned to benefit from increased capital, allowing it time to adapt to the evolving pet care landscape impacted by COVID-19. MoneyLion, meanwhile, secures substantial funding and a heightened valuation.

These outcomes are generally positive. It remains to be seen how these companies perform in the public market.