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2 SPACs That Look Like Bargains After Post-Earnings Drops

By Matt Frankel – Aug 22, 2021 at 6:32AM

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Many recent SPAC IPOs have been hammered, and these two could be worth a closer look.

To say that the past month or so hasn't been kind to recent SPAC merger stocks would be an understatement. Just to name two in particular, 23andMe (ME) has shed nearly 20% of its value in the past month, while SoFi Technologies (SOFI -1.36%) is down by more than 9% after an earnings disappointment. However, in this Fool Live video clip, recorded on August 16, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser explain why they could be smart long-term buys at the current prices. 

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Jason Moser: What's the stock you've got your eyes on this week?

Matt Frankel: I'm going to go healthcare and watch 23andMe which is a recent SPAC IPO. Remember that went public through Richard Branson's SPAC Virgin Acquisition Corp. Acquisition recently completed, so 23andMe has $770 million of cash on its balance sheet right now. It just announced its earnings. They were underwhelming, to be honest, but didn't include any of the growth that can be fueled by the SPAC money, 23% revenue growth year-over-year, which remember, they sell a consumer product primarily they sell the genetic testing kits and so their businesses rebounding nicely over the pandemic. The real potential in this business going forward is its proprietary genetic information, which now has 11.6 million genotyped individuals in its database. It's got a partnership with GlaxoSmithKline (GSK -1.72%) where it's with any revenue from treatments developed from its information 50-50. One therapeutic is in Phase I clinical trials right now. One is in pre-clinical trials. There's no telling how many possible are coming down the pipeline in the future. If any healthcare investor can tell you, I wish I had Brian Orelli still on the in on this. But any healthcare investor could tell you that one successful drug could be worth more than 23andMe's entire market cap right now in the $3 billion-dollar range. A lot of potential here is still early stage, like we mentioned with Latch (LTCH -3.71%), went public probably earlier than they otherwise would have if the whole SPAC boom hadn't happened.

Moser: Yeah.

Frankel: But it's trading at a big discount they're earnings. That's mine, 23andMe.

Moser: Well, I'm going to be digging a little bit more in the SoFi, another company we talked about on the show here before earnings for SoFi came out recently and were good results management exceeded their own expectations. Members up to 2.6 million. That was up 113% from a year ago. It also represented the eighth consecutive quarter of accelerating growth. That's important because I think this is just the shaping this financial services for an entire new generation. These companies like SoFi, bringing everything under that one umbrella, so to speak, you can do so much for businesses are really just started out in the lending side. The lending segment revenue was up 47%, financial services segment revenue grew 600%. Lending is the primary part of the business today. But you can see with the strength there and the products and the members and the cross-selling that comes from that, the acquisition costs to just go down considerably the longer these relationships last. To me, there's a lot of potential for a business like this. One that is built on a digital backbone, so to speak, and may do a lot of good things with the data that they get. That data we talked about with Square (SQ 1.94%), for example, Square being able to make smart loans to their customers based on all of the data they get from their customers using that hardware and software. SoFi is doing a similar thing, they're taking that data using artificial intelligence, machine learning and really using that data to make the best lending decisions possible. It seems like it's working out for them. Another one that came public probably way earlier than they normally would have thanks to the SPAC boom. You probably see some bumps along the way here for this one. But one that I think you and I both agree has a very promising future.

Matthew Frankel, CFP owns shares of 23andMe Holding Co., Latch, Inc., SoFi Technologies, Inc., and Square. The Motley Fool owns shares of and recommends SoFi Technologies, Inc. and Square. The Motley Fool recommends GlaxoSmithKline and Latch, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

SoFi Technologies Stock Quote
SoFi Technologies
$4.34 (-1.36%) $0.06
Gsk Plc Stock Quote
Gsk Plc
$35.97 (-1.72%) $0.63
Block Stock Quote
$64.60 (1.94%) $1.23
Latch Stock Quote
$0.70 (-3.71%) $0.03
23andMe Stock Quote
$3.08 (%)

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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