Bird-Space Merger Approved, Stock Price Drops

Shareholder Approval Triggers Sell-Off in Switchback II Corporation

Switchback II Corporation shares are currently experiencing a decline of over 14% during morning trading. This sharp downturn appears to be a direct response to the news that shareholders have approved the merger with the scooter company, Bird.

The SPAC’s stock initially fell by as much as 20% before partially recovering its value.

Vote Confirmation and Location

The news regarding the shareholder vote was initially reported by dot.LA. It's noteworthy that Bird is headquartered within the greater Los Angeles metropolitan area.

SPAC Debut and Valuation

Reports surfaced in May indicating Bird’s intention to enter the public markets through a special-purpose acquisition company (SPAC). Shortly thereafter, the merger was officially confirmed.

The anticipated valuation for Bird upon commencement of trading was approximately $2.3 billion. While the company’s worth aligns with this figure considering Switchback II’s recent share price decrease, the final valuation could potentially be lower than initially projected.

Initial Skepticism Regarding Bird’s Economics

When the Bird deal was initially unveiled, TechCrunch expressed considerable skepticism concerning the company’s past financial performance. The original business strategy, involving the purchase and rental of scooters, resulted in substantial losses.

Shift in Business Model and Improved Margins

However, Bird has significantly altered its operational model in recent quarters. The company now utilizes a partner network to manage scooter deployment, leading to more favorable outcomes.

For instance, Bird experienced negative gross margins in 2018, 2019, and 2020. The company now forecasts positive gross margins for the current year, based on projections including results through Q2 2021.

Positive Ride Profit and Operational Changes

Other key metrics are also showing improvement. Ride profit, inclusive of depreciation, reached $15.4 million in Q2 2021 – the highest result recorded to date, and one of only four positive quarters in the company’s history.

New Model and Pandemic Impact

Under Bird’s revised business model, scooters are supplied directly to independent operators. These operators assume a significant portion of the operational responsibilities that were previously centralized within the company.

This model shift coincided with the onset of the pandemic. Coupled with enhancements in scooter design aimed at increasing longevity and improving depreciation, these changes have contributed to a positive performance trajectory.

The Significance of Bird’s Public Market Entry

As of this writing, Q3 2021 financial data from Bird remains unavailable in SEC filings. Consequently, assessing the company’s progress since Q2 is challenging.

Despite receiving regulatory approval for its transaction, investor reaction has been negative, evidenced by a decline in the company’s stock price.

It is unusual for a special purpose acquisition company (SPAC) deal to be finalized and then experience a stock price decrease. One possibility is that some investors anticipated the deal’s failure and sold their shares upon its approval.

While it would be simple to criticize Bird’s past performance, which was demonstrably weak, the company’s recent business model adjustments have yielded promising outcomes.

The Q3 results will be crucial in gauging investor enthusiasm following the completion of the merger later this week and Bird’s commencement of trading under its new ticker symbol.

For the time being, we await further developments.

Implications for the Micromobility Sector

Bird’s upcoming public debut carries considerable weight for other startups in the micromobility space, such as Tier, which are currently seeking substantial funding for their scooter operations.

Should Bird demonstrate robust Q3 performance and regain lost market capitalization, it will provide a valuable benchmark for private investors considering opportunities in the public market.

Conversely, if Bird’s Q3 figures are disappointing or its market value continues to decline, it could negatively impact the prospects of other startups aiming for a similar multibillion-dollar exit.

We are nearing the conclusion of Bird’s journey as a privately held company, a period marked by significant capital infusions and a challenging early phase during the COVID-19 pandemic.

However, Bird persevered, improved its financial standing, and is now poised to transition to the public market later this week.

Further updates will be provided once trading commences.