Truth Social Inspires A Trip Down SPAC Memory Lane

As shares of former President Donald Trump’s Trump Media climbed to lofty heights this week following its completed merger with a shell company, the market’s enthusiasm triggered a sense of deja vu.

For market watchers, however, the deal was not reminiscent of Trump’s presidential term so much as the year it ended. That was 2021, the peak of the SPAC boom — a time when scores of deeply unprofitable companies with scant or nonexistent revenue briefly garnered market caps in the multiple billions.

But unlike Truth Social, which had a recent market cap around $7.5 billion, hardly any companies that debuted during the boom have held on to high valuations. Many have filed for bankruptcy, shuttered or are worth a tiny fraction of their former highs.

For those in the mood for some deja vu, we took a sampling of five of the biggest, most famous and splashiest market debuts from the peak SPAC era of late 2019 to early 2022. We look at how they performed initially, as well as how they’re doing lately.

Virgin Galactic

We’ll start with Virgin Galactic, the pioneering space tourism company also sometimes credited with launching the modern SPAC age.

Tustin, California-based Virgin made its NYSE debut in October 2019, at an initial valuation around $1.5 billion. The debut followed a merger with Social Capital Hedosphia, a blank-check company formed by Chamath Palihapitiya, the startup investor who later became known as the SPAC king.

Virgin shares soared quite high — hitting their all-time peak above $60 in early 2021, valuing the company in the tens of billions. Then they fell to Earth. On Wednesday, shares were selling for around $1.40 each.

Lordstown Motors

Electric truck startup Lordstown Motors made its Nasdaq debut via a SPAC merger in October 2020. About four months later, its market capitalization reportedly hit a peak of about $5 billion amid enthusiasm around its plans to produce hundreds of thousands of vehicles in a former GM plant in Lordstown, Ohio.

Things went awry after revelations that the company disclosed inaccurate numbers about vehicle pre-orders, leading to the resignations of its CEO and CFO. Less than three years after its debut, Lordtown filed for bankruptcy and was booted from the exchange.

Opendoor

When it went public via SPAC in August 2021, Opendoor was the most recognized name among a small cohort of real estate “i-buying” startups that pitched a quick process to sell homes.

Things started on an up note. Its Nasdaq offering, consummated through a merger with another of Palihapitiya’s blank-check companies, set an initial valuation around $17 billion.

Opendoor’s stock shot higher in the following months, hitting a peak in February 2021. Over the next couple years, it proceeded to shed more than 90% of its value.

Most recently, Opendoor shares were selling for around $3 each, giving the company a market cap around $2 billion.

Clover Health

Clover Health, a Medicare insurance startup which counted Google, Greenoaks and Sequoia Capital among its early backers, went via another Palihapitiya-led blank-check company in January 2021. It ended its first day on the market with a value around $7 billion.

The warm market welcome didn’t last. A critical report by a prominent short-seller weeks later pushed shares lower. Although Clover made a partial rebound, the momentum didn’t last. Recently, shares have been trading at about 80 cents, giving the company a market cap around $400 million.

Embark Trucks

While it’s not one of the more famous SPAC flameouts, we’ve long been intrigued by the story of Embark Trucks, a developer of autonomous trucking technology, which went from a $5 billion-plus initial public valuation to bust in 16 months.

What’s particularly striking about Embark’s case is that from its inception until its closure, it was a pre-revenue company. Thus, its protracted decline was not due to its missing financial projections.

Rather Embark was ostensibly valued for its innovative capabilities and technologies rather than metrics like price-to-sales or revenue growth. Remarkably, in 2021, people were willing to accept that the expertise was worth $5 billion, and a few quarters later determined it worthless.

Relevance of recent history

So what does this portend for Trump Media and its SPAC fortunes? Well, clearly recent history tells us that bubbly SPAC debuts at high revenue multiples don’t usually turn out well.

Trump Media, of course, could be an exception. Certainly making a multibillion-dollar debut to double-digit gains as a SPAC in this market climate is quite exceptional. It’s also trading at an exceptionally robust valuation for a company that posted just $3.4 million in revenue in the first nine months of 2023.

It remains to be seen, naturally, how long the company can sustain this exceptional run.

Illustration: Dom Guzman