It shouldn’t come as a huge surprise that the SPAC frenzy of 2020 and 2021 was unsustainable when looking back at the time. There have been days when more than ten businesses with blank checks went public, and there are still hundreds of SPACs looking for merger targets.
The majority of ex-SPACs were among the worst-hit equities as the market’s desire for speculative investments diminished in 2022 as a result of inflation, recession worries, and other factors. For patient investors, there are still several that seem to be outstanding long-term options, particularly at their present price levels. Here are two in particular that I hold and have the potential to be 10-baggers.
Could this business really reshape the financial sector?
The banking disruptor SoFi (SOFI 3.45%) is down more than 75% from its 52-week high and around 40% off its SPAC value ($10 per share in all three of these examples).
There are, undoubtedly, a few causes for the poor performance. First off, student loan refinancing was SoFi’s first line of business and it still represents a significant portion of the firm. Federal student loans are still being postponed, so it’s understandable that this area of the company has struggled. In addition, banks may see a general increase in loan defaults and a decline in consumer demand due to concerns about inflation and the impending recession.
But SoFi’s business is still expanding fast, and it seems that the firm is attracting clients away from conventional banks and brokers. SoFi’s membership base has increased by 69% year over year to 4.3 million, and its financial services offerings, particularly its SoFi Money (checking/savings) and SoFi Invest (brokerage) platforms, are flourishing. With this type of growth and SoFi’s adjusted profitability, a discount of more than 10% to book value seems very attractive.
Is this the social network that gets the least attention?
Nextdoor (KIND -1.88%) trades for a far lower price than most of its social media competitors with a market worth of about $1.27 billion. This is equivalent to less than a tenth of what Pinterest is now valued at. The stock is now valued at around 65% less than SPAC.
There is no doubt that Nextdoor has to work hard to monetize and become profitable. The firm just reported a negative 68% net margin in the second quarter, and its average revenue per user is a tiny portion of what other significant social media platforms receive from American consumers.
Having said that, Nextdoor could succeed if it can find a way to make money. Unlike the majority of other social networking sites, Nextdoor’s user base is rapidly expanding. Due to lower expenses per visit than other platforms, the platform is demonstrating its worth to advertisers with its approximately 37 million weekly active users, an increase of 26% from a year earlier. The firm might be a huge winner for patient investors if it can maintain its growth and expand to profitability.