Stock Analysis & Ideas

SPAC IPOs’ Plummet: Here’s What’s Behind the Slump

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SPAC IPOs have declined over 80% year over year. Macro and geopolitical headwinds along with poor post-IPO performance are taking a toll on SPAC IPOs. 

SPAC (Special Purpose Acquisition Companies) IPOs (Initial Public Offerings) that boomed last year have lost their appeal in 2022. According to Bloomberg LawSPAC IPOs dropped more than 80% in the first half of 2022 compared to the prior-year period. The weak macro environment (higher inflation, rising interest rates, and absence of government subsidy) and underperformance post-IPO (several stocks trading well below their IPO price) are to blame.

The IPOX SPAC Index, which tracks the aftermarket performance of SPACs which pursued IPO in the U.S., is down over 21% in one year. Meanwhile, it has declined more than 13% this year alone. 

Against this background, let’s look at the performance of two stocks that pursued SPAC IPO. 

Boxed (NYSE:BOXD)

Boxed went public last year through a merger with Seven Oaks Acquisition Corp. (SPAC). The e-commerce that sells everyday essentials in bulk quantities to businesses and household customers has seen its stock price losing over 90% of its value year-to-date. 

Lack of profit, continued cash burn, and a weak macro and geopolitical environment took a toll on BOXD stock. 

The company is focusing on B2B, Boxed Market, and Boxed Up channels, which are essentially areas generating higher average order value. Moreover, it expects to turn adjusted EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) positive by the end of FY24. 

BTIG analyst Marvin Fong is impressed with BOXD’s strategic plan to “accelerate its path to profitability.” However, he sees execution risks and highlighted that many of BOXD’s initiatives “are still nascent.” Fong recommends a Hold on BOXD stock. 

Is Boxed Stock a Buy?

Overall, BOXD stock sports a Moderate Buy rating consensus on TipRanks with two Buy and two Hold recommendations. Further, due to the massive decline in its price, the analysts’ average BOXD price target of $3.50 implies 161.2% upside potential

Meanwhile, with positive signals from insiders and TipRanks’ investors, BOXD stock has a Neutral Smart Score of 5 out of 10. 

BuzzFeed (NASDAQ:BZFD)

BuzzFeed is a digital media company. It generates most of its audience traffic from top social media platforms like Facebook, YouTube, and TikTok. A decline in time spent (estimated total number of hours spent by users on its owned and operated properties and third-party platforms) and macro headwinds impacting advertising revenue dragged BZFD stock down. 

For context, BZFD stock has lost about 66% of its value this year. It’s worth mentioning that BuzzFeed began trading on NASDAQ in December last year following its business combination with 890 5th Avenue Partner. It has been on a downtrend since then. 

Is BZFD Stock a Buy?

Bank of America Securities analyst Brent Navon recently downgraded BZFD stock to a Sell from Hold. The analyst sees headwinds to the company’s adverting revenues, and blames a shift in time spent on new platforms and macro challenges for the slowdown. 

Navon has a price target of $2 on BZFD stock, representing 11.1% upside potential. Moreover, BZFD stock sports an Underperform Smart Score of 2 out of 10 on TipRanks. However, given the decline, hedge fund managers and insiders are accumulating BZFD stock on this pullback. 

Bottom Line: Macro Headwinds to continue to Hurt SPAC IPOs 

The macro weakness and economic uncertainty could keep investors risk averse in the short term and hurt the SPAC IPOs. Also, significant underperformance of stocks after the IPO could deter investors from scooping up SPAC IPOs.

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