Special purpose acquisition companies (SPACs) have been one of the trendiest investment vehicles in the stock market over the past two years. SPACs are public entities created specifically to merge with private companies to take them public. They offer a workaround for the more traditional initial public offering (IPO) route. A measure of their popularity can be seen in the fact that there were just 59 SPAC IPOs in 2019, but that increased to 248 in 2020 and 613 in 2021.
But a broader economic trend over the past year has led to a steady sell-off of high-growth and speculative stocks. Many of these newly formed SPACs (and the companies they merged with) have been caught up in the sell-off, leaving their investors with significant losses. It's likely some of these SPACs will be considered permanent failures.
However, not all SPAC stocks are created equal. Here are five that have what it takes to potentially rebound in a big way in 2022.
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1. SoFi Technologies
Technology is steadily infiltrating the banking industry, pressuring traditional brick-and-mortar lenders that were built in a time before the internet. SoFi Technologies (SOFI 3.69%) is among a new field of digital competitors; its finance super app lets users bank, invest, make payments, and borrow money, all from one place. This helps lower SoFi's customer acquisition costs because a user who joins SoFi doesn't cost any more as they begin using more services on the app.
The company debuted in June 2021 and has a couple of potential catalysts in 2022 to give the stock positive momentum. It's a big student loan lender, which has seen less demand during the pandemic because of a nationwide freeze on student loan repayments, part of COVID-19 relief efforts. SoFi is also waiting on a banking charter that would empower it to operate more like a bank and increase profits.
2. Hims & Hers Health
Telehealth moved into the spotlight during the pandemic, helping telehealth company Hims & Hers Health (HIMS 1.87%) break onto the scene when it went public in January 2021. The company offers telehealth appointments and sells supplements and prescriptions to treat ailments including hair loss and erectile dysfunction. The company's full 2021 revenue guidance has been raised 29% since the company went public a year ago, showing that the business is executing well.
The stock trades well below its price on IPO day, but that could change in 2022. Hims & Hers has formed several partnerships to flesh out its retail presence, including deals to sell its products on Amazon as well as in Walgreens, Target, and Vitamin Shoppe stores. If retail sales from these new partnerships begin to meaningfully impact the company in 2022, we could see guidance raised again this year, and potentially its share price.
3. Skillz
Mobile gaming is an $86 billion dollar industry growing more than 20% per year. Gaming competition platform Skillz (SKLZ -2.09%) helps developers monetize their mobile games by offering a software development kit with tools to enable fair, competitive matches with real money stakes. Players pay in to play, and Skillz takes a percentage of the pot. Its SPAC merger was completed in December 2020.
Skillz aggressively spends on marketing to acquire new users and encourage them to play paid matches, causing investors to sour on the stock. Skillz spent more on marketing than it made in revenue in its most recent quarter. The company needs to grow without spending so much, which could happen in 2022. Skillz has partnered with the NFL to develop NFL-themed mobile games for the Skillz platform. These games are being developed and could launch before next year's NFL season. The NFL brand is very well known, which could draw new users to Skillz and help improve its profitability as it scales back marketing spending.
4. Opendoor Technologies
Real estate is arguably the largest industry globally, yet it's very old-fashioned and generally an unpleasant experience for consumers. Opendoor Technologies (OPEN 3.38%) pioneered iBuying, where companies buy houses with cash offers and then resell them on the market. Its SPAC merger was also completed in December 2020.
Opendoor is trying to prove that iBuying works, bringing real estate into the digital age, much like e-commerce has done to traditional retail. The company hopes that consumers will gravitate toward a digital experience if it's more convenient and faster.
The company's stock has been volatile since Opendoor's largest competitor, Zillow Group, quit iBuying altogether because of the heavy losses it was suffering. As a result, the market remains unsure of the iBuying business model, and Opendoor needs to continue executing in 2022 to give investors faith that it can sustain its business over the long term.
5. Grab Holdings
Southeast Asia, where the population is young and digitally savvy, is an attractive market for internet companies. Grab Holdings (GRAB) is a company whose super app offers its users a variety of services used in daily life, including ride-hailing, food delivery, shipping, digital payments, insurance, and more. Grab's management estimates it has a 72% market share in ride-hailing, 50% share in online food delivery, and 23% share of e-wallet spending in the region it serves. Its SPAC merger was finalized in December 2021, making it the newest of the SPACs featured here.
The company has faced headwinds during the pandemic; lockdowns have been aggressive in Southeast Asia and have disrupted Grab's ridesharing business, which was down 30% year over year in Q3 2021. The company's dominant market share in ride-hailing should mean a rebound in growth as the region opens up normal activities. The pandemic is unpredictable, so nobody can know for sure, but if vaccinations allow for increased travel in Southeast Asia, Grab should bounce back in a big way in 2022.
