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SPAC transactions come to a halt amid SEC crackdown, cooling retail investor interest

The SEC issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments.

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Traders work on the floor of the New York Stock Exchange (NYSE) on Friday.

Spencer Platt / Staff | Getty Images

SPAC mania has come to a screeching halt.

Just last month, special purpose acquisition companies celebrated a head-turning milestone by breaking their 2020 issuance record in just three-month’s time. After more than 100 new deals in March alone, issuance is nearly at a standstill with just 10 SPACs in April, according to data from SPAC Research.

The drastic slowdown came after the Securities and Exchange Commission issued accounting guidance that would classify SPAC warrants as liabilities instead of equity instruments. If it becomes law, deals in the pipeline as well as existing SPACs would have to go back and recalculate their financials in 10-Ks and 10-Qs for the value of warrants each quarter.

“SPAC transactions have essentially come to a halt,” said Anthony DeCandido, partner at RSM LLP. “This is going to cost these companies a lot of money to evaluate and value those warrants each quarter rather than just at the start of the SPAC. Many of these groups lack the sophistication internally to do this themselves.”

SPACs raise capital in an initial public offering and use the cash to merge with a private company and take it public, usually within two years. Warrants are a deal sweetener that offers early investors more compensation for their cash.

This potential accounting rule change could be a huge blow to the SPAC market as it could take away the incentives for sponsors and operating companies to opt for this alternative IPO vehicle — low level of scrutiny and the ability to move quickly. Meanwhile, restating financials could further dent investor confidence in a market that’s already highly volatile and oftentimes viewed as speculative.

“In the accounting world, that is one of the biggest challenges you can face is if you have completed work and then you have to go back and do it because it just shows poorly to the outside and evokes the level of public trust you really want,” DeCandido said. “It just further scrutinizes what’s already been a very misunderstood exit plan in SPACs.”

To make matters worse, more than 90% of SPACs are audited by just two accounting firms over the past six years, Marcum and WithumSmith+Brow, according to SPAC Research. This could mean a significant backlog ahead as SPACs scramble to adhere to new accounting rules.

Many SPAC stocks are in a freefall amid the regulatory hit. The proprietary CNBC SPAC Post Deal Index, which is comprised of the largest SPACs that have announced a target or those that have already completed a SPAC merger within the last two years, has wiped out 2021 gains and fallen more than 20% year-to-date as of Tuesday’s close.

Signs emerged that retail investors might be having second thoughts about SPACs. Bank of America’s client flows showed that retail SPAC buying slowed down significantly from $120 million weekly net purchase at the beginning of the year to just single digits in April.

“Early data from April suggest that retail may be returning back to their ‘traditional’ roots, favoring more established companies over low-priced, speculative securities,” Bank of America analysts said in a note on Mondays.

Clover Health, which merged with Chamath Palihapitiya’s Social Capital Hedosophia Holdings Corp. III in January dropped more than 10% on Tuesday, pushing its 2021 losses to nearly 50%.

SPAC dMY Tech, which is taking sports betting company Genius Sports public on Wednesday under symbol GENI, plunged more than 11% Tuesday.

— With assistance from CNBC’s Gina Francolla.

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Source: https://www.cnbc.com/2021/04/21/spac-transactions-come-to-a-halt-amid-sec-crackdown-cooling-retail-investor-interest.html

spac-transactions-come-to-a-halt-amid-sec-crackdown,-cooling-retail-investor-interest

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Stitch Fix shares surge as online styling service reports surprise profit

Stitch Fix shares jumped after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

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The Stitch Fix application for download in the Apple App Store on a smartphone arranged in Hastings-on-Hudson, New York, U.S., on Saturday, June 5, 2021. Stitch Fix Inc. is scheduled to release earning on June 7.

Tiffany Hagler-Geard | Bloomberg | Getty Images

Stitch Fix shares jumped 14% in extended trading Tuesday after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Consumers have been splurging on new outfits in recent months, as many head back to school and return to social gatherings. Some have also citied the need for new clothes after either gaining or losing weight during the Covid pandemic.

Here’s how Stitch Fix did compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: 19 cents vs. a loss of 13 cents expected
  • Revenue: $571.2 million vs. $548 million expected

Net income attributable to shareholders was $28 million, or 19 cents per share, in the latest period. A year ago, it posted a net loss of $44.5 million, or 44 cents a share. Analysts had been looking for the company to book a loss of 13 cents per share.

Revenue grew to $571.2 million from $443.4 million a year earlier. That was better than analysts’ expectations for $548 million.

Stitch Fix reported nearly 4.2 million active clients, up 18% from a year earlier. The company said net revenue per active client was $505, surpassing the $500 threshold for the first time ever. Customers have been purchasing more items to keep at home, Stitch Fix said, as they have more brands and price points to choose from.

Stitch Fix defines active clients as people who either ordered a “Fix” subscription or bought an item directly from its website in the preceding 52 weeks from the final day of the quarter.

The company also said it had its lowest ever churn rate at the end of the period, meaning its customers are sticking around.

Last month, Stitch Fix finally opened up its direct-buy option, which is now known as “Freestyle,” to the public. This allows people to shop Stitch Fix for individual items of clothing, without needing to sign up for a subscription.

CEO Elizabeth Spaulding said this should help Stitch Fix grow its addressable market in the year ahead. The company’s next initiative will be to market and raise broader awareness around the offering, she said. Stitch Fix is preparing to roll out a national advertising campaign on the debut.

Early indications are that “Freestyle” is meaningfully accretive to the company’s revenue per active client metric, Spaulding told analysts on a conference call.

“Clients have agency, flexibility and choice while also experiencing a highly personalized shopping experience,” Spaulding said.

For its fiscal first quarter, Stitch Fix said it sees sales in a range of $560 million to $575 million. That’s below analysts’ expectations for $588 million.

For the upcoming fiscal year, Stitch Fix anticipates sales rising 15% or more from the prior year. Analysts polled by Refinitiv had been looking for an 18% increase.

While the entire retail industry is working through supply chain complications, Stitch Fix said it is seeing a small impact, but nothing that will hurt the business in the fall and winter months. The company said it is less reliant on Vietnam, where manufacturing has largely come to a standstill due to ongoing pandemic lockdowns in the region.

As of Tuesday’s market close, Stitch Fix shares have fallen nearly 39% this year. The company has a market cap of $3.8 billion.

Find the full press release from Stitch Fix here.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Source: https://www.cnbc.com/2021/09/21/stitch-fix-sfix-q4-2021-earnings.html

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Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

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