Shares of Better.com are getting hammered into the ground Thursday morning after the digital mortgage company completed its long-delayed SPAC merger and began to trade as a public company for the first time.
When Better first announced plans to go public in 2021 at a $7.7 billion valuation, it was a different time. Mortgage interest rates were lower, the housing market had not slowed so dramatically, and the company was coming off a year in which it claimed to have notched $500 million in profits.
But Better.com’s boom in business, fueled by existing homeowners refinancing their mortgages, turned into a bust and the company began laying off workers in November 2021. It would continue to let go of workers throughout 2022 as it began to bleed cash and suffer from a number of high-profile missteps and bad publicity.
However, the former startup backed by Kleiner Perkins, Moderne Ventures, Goldman Sachs, Alumni Ventures and 1/0 Capital doggedly pursued its SPAC plans to the very end. And, today, it got over the line. However, worth just $1.25 per share today, Better has shed more than nine-tenths of its value in a single, fell swoop.
(Note: The decline of over 90% in stock price is from where Better.com's SPAC partner, Aurora, was trading at close on Wednesday, at more than $17 a share. Shares in the merged company, Better Home and Finance, debuted at $1.98 per share).
All this left us with a few questions. You probably have the same list of queries. Let’s answer them together!
Wait, I thought SPACs were worth $10 per share?
If shares of are off 92% today from a closing price of just over $17 yesterday, what gives? Aren’t blank check companies used in SPAC transactions usually priced at $10 per share?
Yes, though before they complete a transaction they can trade up, or down. A good example of this is Digital World Acquisition Corp, the blank-check company that intends to combine with former American president Donald Trump’s Truth Social effort. Before that deal was announced, the company was worth $10 per share, give or take a few cents. It shot to more than $90 per share in 2021 after that news, and is today worth $14, trading as high as $30.98 in the last year.
As shares of Better.com’s SPAC partner (Aurora Acquisition Corp.) traded higher than $10 per share before the combination was consummated, its percentage declines today are steeper. Regardless, whether or not you prefer to measure down from $10 per share, or the $17.44 per share that Aurora closed at yesterday, Better.com is having a Miserable.com day today.
Is Better.com’s post-SPAC suffering a surprise?
Not at all. Getaround went public via a SPAC earlier this year. It has seen its value collapse from $10 per share to around $0.50 per share today since it combined. The list of post-combination SPAC deals that have simply set fire to all, or nearly all their value after the deal completed is long, and tortuous. Better.com’s bad day is bad, but not a shock.
So why would it go public via a SPAC if SPACs are a train wreck?
The company has reported a net loss in several quarters in a row, although it has managed to somehow narrow that loss through what CEO Vishal Garg described as $1 billion in cost-cutting measures. Better.com posted a net loss of $89.9 million in the first quarter and slashed about 91% of its workforce over an approximately 18-month period. While the startup has narrowed its loss compared to a net loss of $327.7 million in the first quarter of 2022, it clearly still has been struggling.
When asked why the company would still go public during a time when mortgage rates are so high, Garg told TechCrunch in an interview that the company wanted the capital it would receive from SoftBank. He also expressed optimism that the housing market would turn around in 2024, and that Better.com’s technology would be poised to help people get mortgages faster and cheaper.
So, now what?
Now Better.com has more cash on hand and has a business to run as a public entity. This means regular quarterly earnings reports, meaning that we’ll have a regular view into its operations. Let’s see how it can leverage a market in which interest rates are at least halting in their ascent, and one where it could theoretically raise more capital by selling stock. Perhaps things will shake out well for Better. Investors, however, based on its share-price movements today, do not seem too optimistic.
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