The SPAC party is coming to 5G. New Beginnings Acquisition (NYSEMKT: NBA) recently announced it is merging with Airspan to bring the small company public. Airspan makes 5G network equipment and network management software. With Verizon (VZ -0.10%), T-Mobile (TMUS -2.63%), and AT&T (T -1.65%) all launching their nationwide 5G services last year and 5G rollout continuing in other markets around the globe, there's certainly investment opportunity to be had.
But should you buy Airspan before it goes public via a SPAC merger? Here's a few things to consider.
New aspirations in a new era of mobility
Airspan's suite of products is for the infrastructure of mobile networks, providing hardware like 5G and 4G small cells that create wireless signals, and software for wireless carriers to manage their networks. As such, most consumers will never be aware of the company's existence.
But Airspan hopes to be a critical component of 5G as companies start to build out their next-gen mobility capabilities. Besides the equipment itself, a key aspect of Airspan's strategy is its virtualized radio access network (vRAN) software. A virtualized network helps eliminate the need for specialized equipment by offloading functions of a network to a local data center. As a result, vRAN can make for more efficient data routing, and help a network operator save money on equipment purchases and ongoing power consumption once the network has been deployed. Some of the company's peers in the hardware/virtualized network space include Arista Networks (ANET -4.47%) and Ubiquiti (UI -3.87%).
Airspan was helping Sprint (now part of T-Mobile) build out its 5G network. In fact, most of its $211 million in revenue in 2018 was from Sprint, and about half of its $166 million in revenue in 2019 was from Sprint. The company's preliminary sales estimate for 2020 is $173 million (up 4% year over year), but it expects a 47% jump in 2021 to $254 million as more network carriers, cable companies, and other businesses adopt its 5G tech portfolio. For example, it just signed a new deal with Rakuten (RKUNY -2.57%) Mobile to offer its vRAN on that mobile network. Investors in Airspan include Qualcomm (QCOM -6.62%) (which happens to be one of its suppliers) as well as Softbank Group (SFTBF -1.27%) and DISH Network (DISH -2.84%) -- which is in the early stages of building a fourth wireless network in the U.S. as part of the agreement on the T-Mobile/Sprint tie-up.
Is the stock a buy?
Based on New Beginnings' share price of $10 as of this writing, Airspan will have an enterprise value (market cap minus net cash of $75 million) of $822 million. Shares will trade for just over three times expected 2021 sales. Airspan thinks it will start generating a small profit in 2021 too, with expected EBITDA of $21 million. For the sake of comparison, Arista Networks and Ubiquiti trade for a respective seven and 12 times one-year forward expected sales.
Thus Airspan stock looks like a relative value. But this is a tiny company, and its fortunes will rely on its ability to disrupt and make inroads into the large mobility industry. Many of its peers, like Arista and Ubiquiti, are also highly profitable already. So there are risks here with jumping in early. Plus, remember that equipment sales are cyclical. Though it's a small player with a lot to gain in the years ahead, Airspan's revenue could ebb and flow like that of its peers as network construction takes place in waves.
Personally, I'm applying my standard practice of waiting until after merger and seeing a quarterly earnings report or two before making a decision. Units of the SPAC still trade for about $10 a share -- where they were prior to the deal announcement. Or investors can purchase warrants (tradable under the ticker NBAW, exercisable at a share price of $11.50), but other factors need to be considered before making that gamble.
But given that 5G is still in the early stages of development and rollout, Airspan is worth checking in on as a potentially promising 5G stock.