Good afternoon everyone. I am back from the spring break. The weather was amazing in Napa and Sonoma. My family and I had a glorious time. It was a turbulent week for the stock markets though. Tesla announced a 10+% layoff and JPow said it takes longer than expected for the inflation to reach the Fed’s 2% target. SPY 0.00%↑ closed below 500 at the end of last week.
The stock market performance has been mostly driven by the mega cap stocks. But this morning, it was announced that one of my portfolio companies Matterport is being acquired by the real estate technology company CoStar for $5.5 per share. Matterport’s stock closed at $1.74 at the end of the last week so this is a 200+% premium. I have been a shareholder of Matterport since 2012. I sold half of my holdings when the (SPAC) IPO lockup expired. Like most SPAC stocks, Matterport stock had been struggling and was trading at around $600M market cap / $200M enterprise value for the past few months. The company has $150M+ annual revenue and is close to cash flow breakeven. The valuation was definitely very low and I purchased more shares at $2.15. After the announcement, MTTR 0.00%↑ stock price shot up to $4.8 and the market cap is now ~$1.5B. I feel good about my bottom fishing stock picking skills but I believe the real winner here is the strategic buyer CoStar. CoStar provides commercial real estate information analytics and services around the world. They could totally upsell Matterport to their existing customers and bring more efficiency to the business. Congratulations to both CoStar and Matterport for this merger.
We are likely to see more strategic acquisitions like this in the next couple of years. Micro/Small cap tech companies that have developed valuable tech, are close to cash flow breakeven, have a strong balance sheet but are growing at a modest rate and had a valuation reset are likely to be good takeover targets. My 30-minute of research this afternoon yielded some good candidates like Hashicorp, PagerDuty and PlanetLabs already and I will spend more time refining my list. These companies’ stocks are potentially low-risk high-reward investments if people don’t mind the low liquidity and high volatility.
Welcome back.
Tdoc looks intersting also.