The Collapse of the 'Spec Boom'... Listed Companies Sell Off and Go Bankrupt One After Another During the Pandemic

During the COVID-19 pandemic, companies that entered the stock market through mergers with SPACs (Special Purpose Acquisition Companies) are collapsing one after another. Although they succeeded in going public thanks to abundant liquidity, their stock prices have plummeted due to lack of solid earnings, leading to capital depletion, fire sales, and bankruptcies.

On the 26th (local time), the Wall Street Journal (WSJ) reported that an analysis of recent earnings data filed with the U.S. Securities and Exchange Commission (SEC) revealed that many companies that went public via SPACs during the pandemic?such as shared electric bike and scooter startup Bird Global, smart sleep monitoring company Owlet, and electric vehicle startup Faraday Future, once dubbed a Tesla rival?are now suffering liquidity crises due to sharp stock price declines and capital exhaustion.

WSJ estimated that companies that went public through SPACs during the pandemic have collectively lost about $100 billion (approximately 134 trillion KRW) in market value due to recent stock price plunges. Many of these companies face the risk of being delisted from the stock market due to poor stock performance. Their stock prices have fallen by an average of more than 90% compared to their IPO prices, and most are trading below $1 per share.

Bird Global, which was valued at $2 billion (2.68 trillion KRW) at the time of its IPO, closed at $0.1367 per share, becoming a "10-cent penny stock." Its market capitalization shrank to $43.87 million (about 58.7 billion KRW), a quarter of its original value. Bird Global, which went public on the New York Stock Exchange (NYSE) in March 2021 through a SPAC merger during the SPAC boom, maintained a stock price around $7 to $8 until the end of that year but began a steep decline the following year. Since March 17 of last year, its stock price has remained well below $1 for over a year.

Faraday Future, which boldly debuted with the claim of "breaking Google's growth record," is under financial pressure and has yet to deliver its first electric vehicle. Virgin Orbit, a small satellite launch service founded by Richard Branson of the UK Virgin Group, filed for bankruptcy protection due to financial difficulties. Electric vehicle charging company Volta also succumbed to financial pressure and was acquired by Royal Dutch Shell earlier this year. The acquisition price was 86 cents per share, more than 90% lower than its valuation at the time of its 2021 IPO.

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Companies that went public riding the SPAC boom are those with concepts such as space tourism, electric vehicles, and virtual assets but lack substance (profits). They relied solely on expectations without clear revenue models or customer bases, and as inflated valuations were not supported by earnings, it became difficult for them to sustain themselves. Jay Ritter, a finance professor at the University of Florida, analyzed that "the average stock return of companies that went public via SPACs during the height of the pandemic in 2021 was 15%, about half the average return (30%) from 2013 to 2020 before the pandemic."

A SPAC raises funds through a public offering and goes public on the stock market, then merges with a private company within a set period (two years). For private companies, going public via a SPAC offers the advantage of shortening the listing process compared to a traditional IPO. SPACs were a backdoor for non-premium or marginal companies that could not enter the stock market through traditional IPOs, but during the pandemic, SPACs involving global billionaires, financiers, and celebrities attracted attention and successfully went public, creating a market boom.

The SPAC investment frenzy, which overheated as funds with nowhere else to go poured in due to ongoing monetary easing during COVID-19, turned into a bubble. The inflated bubble quickly burst with the onset of inflation-driven interest rate hikes. WSJ warned, "The upcoming Q1 earnings reports to be released in the coming weeks will be a tipping point determining the survival of these companies," adding, "The likelihood of avoiding bankruptcy is decreasing due to cash depletion and continued losses."

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