After smart-home technology company Latch agreed to go public via SPAC merger with TS Innovations Acquisition (TSIA), shares of the latter rose by as much as 70%. Since that time, as the overall SPAC enthusiasm in the market has cooled off a bit, shares have pulled back and are now trading for just a slight premium over where they were before the deal was announced.
Fool.com contributor Matt Frankel, CFP, thinks that while an investment in a relatively early stage company like Latch isn't without risk, this could be a great long-term growth opportunity, especially now with the lower valuation. In this Fool Live video clip, recorded on March 15, Frankel and colleagues Dan Caplinger and Brian Withers discuss Latch's unique business model and why it could be worth a look.
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Matt Frankel: I will jump into my last one, which is TS Innovation Acquisition Corp. Ticker symbol is TSIA on the Nasdaq. They are acquiring a company called Latch, ticker symbol will be LTCH once the deal is done. This is probably my favorite of the PIPE investments. First of all, the SPAC, the TS stands for Tishman Speyer, which if you're not familiar with one of the biggest owners, operators, developers of real estate in the world. There's one little property they manage in New York on Rockefeller Center. I'm not sure if you guys heard of it. But they have properties of that magnitude, like big iconic properties all over the world that are in their portfolio. So big name in real estate. They're not just getting Chamath [Palihapitiya], they're getting a big, big connection.
Latch is a property technology company. They make things like smart locks. Other kind of hardware. They're mostly trying to be a software-as-a-service company. Their primary product is called the Latch OS, which is an entire building operating system. You control all kinds of smartphone functions through one app and they supply the hardware, the software, and it's a big ecosystem. You could manage delivery access to your apartment. You can use your phone as your key. You can change your thermostat from the same app as you use your smart keys and things like that. Building internet infrastructure is another thing that they incorporate.
Some impressive statistics, the company was founded in 2014. They have not churned one customer yet. Everyone has stuck with their subscription. And 154% net dollar retention rate, meaning that their average customers are spending 54% more over time. They estimate this to be a giant market opportunity, about $45 billion in the United States, $90 billion in Europe. I had CEO Luke Schoenfelder on Industry Focus last week. If you didn't watch it, check the replay. But he referred to rent as the world's oldest subscription product. That's how they kind of approach this. One that has not had any significant disruption in a thousand years. So with that, this is probably my favorite of them. You pay a little bit of a premium, shares are about $13 right now. But I love this company. What do you guys think?
Brian Withers: I think it's a cool idea. I haven't been in an apartment recently. I really like the consolidation of all these tech things in one app. You still need a place to submit maintenance tickets, collect rent, and all that kind of stuff. I think with a little bit more software they could expand into those markets and be super disruptive and allow renters to get everything that they need from just one app.
Frankel: I'm glad you brought that up. That's one of the things I forgot to mention. The interaction with management is a big part of the app too.
Dan Caplinger: I'm going to be the last person in existence, I think to adopt smart-home technology. I like my physical keys, I like all this stuff. When I went and stayed in an Airbnb once, the remote lock wouldn't open. I had to wait for two hours and so I'm probably the last adopter here. But I recognize I'm the outlier, as long as these systems work, people are going to love them. As long as they can fix any problems that come up, sounds to me like no churn means that they're not having any problems that can't get solved. This looks like a promising deal to me.
Frankel: It's worth mentioning that it saves the landlords money if they don't have to rekey locks. I know it's you think it's a pain if the lock doesn't work. If they have to rekey locks, that's a big switching-- The cost of turning over an apartment like that is big. So, it can save them money.