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There are a lot of exciting new frontiers hitting the headlines of today's financial media. 7investing lead advisors Steve Symington and Simon Erickson break down the most important things to watch for as investors.
October 11, 2021
There are a lot of exciting new frontiers hitting the headlines of today’s financial media. 7investing lead advisors Steve Symington and Simon Erickson break down the most important things to watch for as investors.
Samantha Bailey 0:13: Welcome to 7Investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.
Simon Erickson 0:21: It is Monday, October 11th and welcome to today’s edition of 7Investing Now. This is our show where we take the long term investing perspective on today’s most recent and interesting financial media stories. I’m 7Investing founder and CEO Simon Erickson and oh my goodness, we have a good show for you here today. We’re gonna be chatting about a lot of exciting things, which include the space economy, which will include special purpose acquisition companies, and which will include cryptocurrencies, but before we get to that, I’d like to introduce my partners in crime on the show here with me.
We have 7Investing in lead advisor Steve Symington, we have 7Investing’s director of marketing Samantha Bailey, and at half past the hour, we’re going to be joined by our partners Spence Randall, from CryptoEQ, to talk about cryptocurrencies. So we got a packed house it’s going to be a fun show. If you have anyone else whose name starts with the letter S would like to be on the show feel free to invite them Steve, let me start you before before we get started, though, how are things up in Montana my friend and how was your weekend?
Steve Symington 1:22: Getting cold fast, but the weekends great, it’s perfect football weather. So that’s what I did this weekend. But Yep, our Grizzlies keep winning.
Simon Erickson 1:30: Fantastic news if you’re a grizzlies fan, Sam down here in Texas, great news. If you’re a Texas A&M Aggies fan, not as good news if you’re a Texas Longhorn though.
Samantha Bailey 1:39 Saturday was the worst possible outcome for me the Aggies beat Alabama, Texas lost to Oklahoma I’m just in a state of depression.
Simon Erickson 1:49 College sports dictating our moods as they always do, but there’s always next week. Steve let’s get this rolling let’s talk about the space economy first and foremost because as investors you and I have spent a lot of time digging into used to be if you were interested in outer space, you were either probably a Star Trek fan, or you worked for NASA with a special security clearance. But we’ve been hearing a lot more about outer space in the financial media this year and last. Why is it so interesting to investors right?
Steve Symington 2:16 Man it’s kind of this exploding industry. And funny enough, the company that I worked for right out of college was founded because of a NASA grant and we were doing feature extraction from far away you know, pictures that were sent to us by NASA huge images of the planets and such. Super cool, but it’s come a long way since you know I graduated college 15 years ago or however long it’s been.
So it’s fun to watch because this is literally a trillion dollar industry and there’s a lot of different places that investors can now make money. You know, when you’re talking about you know, the obvious place – your Virgin Galactic (NYSE: SPCE) with space tourism, you know, we’re looking at companies who are looking for deep space exploration, Satellite Internet, satellite launch. There’s a lot of different ways even cleaning up space junk you know, to prevent them from colliding with certain satellite trajectories and stuff. There’s a lot of different ways to play it. And people are excited, and rightly so. But it’s hard to, I think, easier said than done to pick through and find what’s really the most promising space industry place.
Simon Erickson 3:30 Yeah absolutely Steve, we’ve got a graphic that I really like, I would like to show since you have that first one there on the declining costs of the launch into low Earth orbit, right. So on the y axis, you got the dollars per kilogram of launch costs, this is in today’s dollars, you know, based on not at the time dollars, but in today’s dollars. And you see that’s not exactly a linear scale, right? You’ve got a big jump there between $20,000.05 $100,000 per kilogram.
If you look over there on the left hand side, you know, let’s go back about 50 years, 60 years, and you see kind of the Russian Soyuz missions, right? This is where they were bringing payloads to the International Space Stations, the size of the circles represents the total cost of the mission, sometimes $200 million or more. Now they’re actually offering to bring civilians to the ISS, which is kind of neat. Kind of in the middle there. If you see a lot of those medium launches in the 90s and 2000s. This is kind of NASA really, you know, progressing. It’s Atlas and Delta missions, they’re trying out new types of rockets. They’re trying to push down the cost of space launch.
And then the most interesting Steve, I think the most interesting data points are those two that are at the bottom right, if you see them, there’s the the medium launch of the the Falcon nine, that’s a SpaceX Falcon nine and 2010 and then the Falcon Heavy just a couple of years later, Steve now we’re talking about these are kind of medium and heavy payloads you can do in a rideshare. But at less than $3,000 per kilogram. I mean, that’s an order of magnitude. You see there just in a couple of decades for the space economy. I think that this is opening up lot of opportunities for commercial businesses that might not have had access to outer space previously.
Steve Symington 5:05 Yeah. And part of what’s interesting to me about that chart is how things kind of stagnated for the decades in between, right, and they just kind of kind of just putzed along. And now we’re starting to see some declining costs. And this is what’s going to enable a lot of the other industries and applications, right is these declining costs, you have to get stuff to space in the first place. And that’s kind of where we start is, is with these kind of launch platforms.
And just getting things to space in the first place, in order to capitalize on the opportunities it creates. And then later on, you know, we’ll be seeing some companies, you know, that’s why you see, there’s like the Ark Space ETF and people were kind of scratching their heads, like why’s deer in there? Why is Netflix in there, and they’re saying, well, it’ll, they’ll benefit from satellite connectivity once it kind of becomes more of a thing. But yeah, you got to get things up there in the first place. And that’s the key driver.
Simon Erickson 6:03 And I think that’s a perfect segue to show our second chart, we came with a lot of graphics prepared for everyone watching today’s show on video. For anyone who’s just tuning in on a podcast, we’re now showing you the expectations of the commercial space economy. According to Morgan Stanley, it comparing the year 2016. So about five years ago to what they expect by 2040, on the right hand side of this chart, and Steve, there’s two that really stand out on that right hand chart to me, which is you see the giant if you if you’re following along on video, that giant $412 billion red of the pie chart is representing the internet.
And then you also see a orange slice of the 2040 chart. That’s consumer broadband. So between the two of those, that’s a half a trillion dollars, that’s kind of dedicated to internet and broadband connectivity that didn’t exist at all five years ago in space internet. Thanks very much, Sam, for showing that.
I think that the big, the big takeaway for me is that there’s expectations that there’s going to be basically ubiquitous internet all over the place. And it’s not just going to be for your home or the devices that are connected up to your personal routers and your personal networks. This is things like autonomous vehicles. This is things like the internet of things that you might be out and about mobile, sometimes in different countries or different locations of the world.
But you need to be connected for those things to work. And really, rather than laying a whole lot of fiber cable everywhere, which is incredibly expensive, there’s an opportunity to get the cost down for telecommunications opportunities from space internet. Any thoughts on that, Steve? I know that you’ve looked a lot of space internet in the last couple of years.
Steve Symington 7:40 Yeah, you know, part of the challenge as an investor that a lot of this is going to be ushered in by privately held companies like SpaceX, which just last week, I think news crept out that it’s secured essentially $100 billion valuation based on its latest fundraise and, and so you know, you’ve got some big early first movers that are privately held, and but you also have companies that are publicly traded like Rocket Lab (NASDAQ: RKLB), that are kind of poised to secure a lot of this.
And you’re going to have a lot of companies kind of launching your own constellations to provide the internet. And you know, make no mistake, there is opportunity for a small number of companies to capitalize on demand for speed that only fiber currently can provide. But it’s the those companies are often very specialized, or it’s part of a larger business.
So yeah, that’s that’s kind of the challenges is kind of picking out from the weeds. And we actually have a comment from our very own Dan Kline, who was unavailable to host the show today. But he said, How do you sort a good company from a bad one, when there’s so little actual revenue, and most quote, financials are just projections. And that’s the trick, right? And it’s a combination of looking at, you know, their platform, looking at how differentiated it is, and how likely it is that they’re going to secure some of these key contracts.
Government, you noticed in those pie charts is a pretty big chunk still of the overall pie that’s available for businesses to try and bid on and in when some of these early funds that will help them scale. But you have to look at the overall opportunity and their platforms and maybe, in some cases, their cash positions, what they’ve been able to raise and on what terms that’ll, you know, there’s a lot of SPACs in this space play. And we’re going to talk a little bit about that shortly here.
But looking at the terms with which they they raised the cash that they provided and how much of the business they gave away in the process to go public in some cases and what kind of dilution investors face so there’s a lot of different variables to look at. But you know, thankfully, we have the luxury of doing that full time and doing nothing but research all day, most of the time, so yeah, but for people with the time or inclination, there’s there’s a lot of opportunity to be had.
Simon Erickson 10:09 And Steve, I want to double click, we’ll get back to the SPACs in a minute because I do want to touch on those in the middle of the program here. But I know that like you said, you have a background in this space, pun intended for everyone who’s listening. But you know, 15-20 years ago, this was kind of an industry that was really primarily defense contractors working with NASA, really big budgets, contracts that are going on up there.
Now you’re looking at the world of billionaire entrepreneurs, the Elan Musk, and the Richard Branson’s and the Jeff Bezos is that are building companies and putting their life fortune to work on this. Is this a different opportunity than you saw 15 or 20 years ago? Or is it just one that’s more affordable now for entrepreneurs? And by the government in this going forward?
Steve Symington 10:51 Yeah, I think that’s it’s absolutely a different opportunity in different than a good way for individual investors, right? One, there’s so many options. And investing in general is much more accessible to everybody. But as space becomes more accessible, it’s most certainly a different opportunity. And there were, you know, a very limited number back in 2006, when I’m working on this stuff, you know, we had Gigital Globe and GeoEye, which sort of ended up acquiring one another in weird mergers.
And then there’s been a lot of consolidation in those spaces, because it was a few kind of key leaders in satellite. But there’s really no option to invest in launch platforms, there was no option to invest in things like space tourism, and it was all privately held huge government contracts. And, and so it’s there’s so much more information, and so many more options that, you know, I’m almost giddy as an investor to be able to kind of dig into this.
Simon Erickson 11:48 It really is interesting. And I’m going to spot you up with one more question that I’d like to answer first, as I prepare you for my off script question that I’m going to ask, but it’s what what areas of the space economy are you particularly interested in? And one that I’m really interested in myself is it seems like we’ve seen these larger rockets, right, we’ve seen ride share and just these larger, larger payloads, which may or may not work, if you’re a small business, you kind of have to wait for your bus stop to get to where the bus is eventually going whereas now you can actually have a dedicated launch for an economic price point.
And I think that might be opening up a lot of low Earth orbit, specifically opportunities that aren’t just geosynchronous at the same place all the time that matches the earth spin. Steve, with everything you know about about spaces, we kind of finish up our first segment here, what what particular part of this of this segment are you interested about in the space Academy
Steve Symington 12:40 And I’d say that the kind of Geek in me is most excited about things like space tourism, because it’s just so you know, it captures your imagination, it’s, it’s a little more slow to develop, in part because of the risks, right? But you know, I also love your, your kind of launch platforms, there’s a few really great ways to actually capitalize on that. But right now launch and space tourism, things that will kind of segue into much bigger opportunities down the road, right.
Launch is sort of the enabler of the entire space ecosystem. And there’s only a few publicly traded players that are really worth considering in our minds and 7Investing members kind of know that from some of our recent research and, and in space tourism, obviously, you know, there’s, there’s only one decent way you know, Virgin Galactic, publicly traded that you can actually invest in the space.
And we’ve seen hiccups and extraordinary volatility. So you really have to have a stomach to invest in some of these really, really early stage plays. For volatility, you need to be able to, to handle wide swings in share price as these industries kind of play out. Because Make no mistake, we are in the earliest stages of development for these and this is something that’s gonna play out for a lot of these companies over the course of the next decade, decade and a half. And that’s when we really start to see some meaningful scale and hopefully, cash flows and, and profits that kind of follow that way.
Simon Erickson 14:11 Absolutely. You have to have a stomach for the volatility you also have to have a stomach for the zero gravity. Samantha Bailey we’ll use that as a segue to you what’s the right price that you would get on the Virgin Galactic space tourism flight?
Samantha Bailey 14:24 Is it my own money?
Simon Erickson 14:25 Yes your own money for the flight.
Samantha Bailey 14:28 $50,000
Simon Erickson 14:29 $50,000. Okay. Steve what are you getting on the Virgin Galactic flight? How much you have to get?
Steve Symington 14:34 I would, yeah, I’d started scratching my head about that point. And, and that’s one of those interesting things is over the next several years, there’s charts and their initial public filings where they say that’s the goal, right? Right now it’s a $450,000 ticket. If you want to go on something like Space X’s Orbital three, you know, three day tours, you’ve got to go through a six month training and it’s like $55 million, unless you win it in a sweepstakes which you know, interestingly enough, was the cost of some of the earliest missions just to bring a couple, you know, reasonably large size payloads to space in the first place. But to think that you can bring a person to orbit you know for that is is really interesting, but the goal is as they scale it’ll become more affordable so kind of fun to watch.
Simon Erickson 15:17 Absolutely keep the questions coming in. If you have any questions you’d like to ask us, we’ll take all the comments. But Sam, before we segue into our next section to talk about SPACs like Steve just mentioned, you wanted to say a couple things about 7Investing if anyone’s unfamiliar with our site, what can you tell us tell them about our business?
Samantha Bailey 15:34 What I love most about our business is that we offer something for every type of investor. Now I went to business school, I thought I had a good understanding of financial statements. But even you know, with an MBA, I’ve realized the depth of knowledge on this team, maybe I should go back to business school because you guys have a much better handle on this than I ever did.
But I appreciate the amount of time that goes into these reports. And I’m busy I don’t have time to you know, crawl through these financial statements and I just pick you know, the companies each month that I like best and I have a much more diversified portfolio that is performing much better than it did before I started working here. So that’s what I love most about 7Investing.
Simon Erickson 16:14 I do think we crunched the numbers Sam we said that when you when you spread out the number of hours our entire team was putting in and then you know, took into account $49 a month to sign up. I believe it was less than five cents per hour per advisor for our time. That seems like a pretty good ROI on your money if you asked me
Samantha Bailey 16:30 Pretty good deal.
Simon Erickson 16:32 Okay, and where can we find out more about 7Investing and what is a good way that we can subscribe?
Samantha Bailey 16:36 You can go to 7Investing.com/subscribe, and I’m normally not talking and pulling that up. There we go. You can go to 7Investing.com/subscribe and join and get everyone’s information for less than five cents an hour, which is a good deal.
Simon Erickson 16:50 Thanks very much, Sam. We’ve got some comments coming in here. One from silver trap here. Steve, he says “$50K, 7investing must be paying its employees really well.” Hey Steve Yeah, give me $50,000 for this flight, and I feel like we can do a podcast and get some more.
Steve Symington 17:04 Well, we’ll keep in mind that by the time I think their prices are $50,000 to go to space, I’ll probably be near retirement. So that’ll be something where we’ve got some money, it’s gonna be a while before it’s $50,000. So make no mistake, they’ve got a heck of a backlog to work through. That’s before they even opened up ticket sales. So we’ve got years yet to save up that cash if we so choose.
Simon Erickson 17:28 Very true. Daigo also had a comment to here says that he or she would rather spend that $50,000 to fly around the US and eat at all the best restaurants. How about you Sam? Would you still take the spaceflight, if you could actually go around the US for 50,000?
Samantha Bailey 17:42 I’d probably go around the US.
Simon Erickson 17:46 A lot of nice restaurants for $50,000.
Samantha Bailey 17:48 And I don’t really have $50,000 to spend silver trap. So
Simon Erickson 17:53 My silver trap as we finish up this part of the program saying I picked up Simon’s recommendation in this space. And I’ve been averaging it all the way up. I’m most excited about this company. Okay, thank thank you so much for not revealing the name of the recommendation as we always just provide that only for our subscribers. But I’m really glad to hear that you got in on one of our recommendations that’s in this space.
So Steve, let’s segue. Let’s talk about the second part of today’s program, not space, but SPACs, which is a special purpose acquisition companies. This is a kind of a way of raising money for companies that’s really kind of disrupting the traditional IPO. What is a SPAC and what do we need to know about this?
Steve Symington 18:33 Alright, SPAC is a remove the E from space, it is all caps. This is an acronym, it’s SPAC, special purpose acquisition company. So these are a way that companies have been using to, a slightly simpler way to go public and kind of an alternative to either a direct listing or traditional IPO. And it’s a great way for them to raise capital. And generally they find a privately held company finds a sponsor, SPAC merger vehicle, right? That is essentially a shell company that they can merge with. And in doing so become a publicly traded company, they change their ticker, usually from the SPAC merger vehicle after the merger is complete. And voila, you have a publicly traded company.
So yeah, SPACs are they’ve kind of exploded onto the scene in the last few years, even though they’ve been around for quite a while. What were they created something like 20 years ago, but just the last couple of years, companies have realized this is a potentially attractive way and a relatively simpler, low cost way for them to go public and raise capital so yet really interesting. And there are a bunch of SPACs on the 7Investing scorecard for what it’s worth that that we believe have really interesting promise.
Simon Erickson 19:58 It really is interesting, Steve Like the way that is disrupting in many ways that traditional IPOs, you don’t have an underwriter. Right, the usual way of doing an IPO is you have an underwriter that buys your shares at a certain price. And then they release them for trading at a much, much higher price on the first day of trading, there’s always that IPO pop, we’ve gotten so used to seeing shares pop 70%, 80%, 100% of the very first day of trading, that’s money left on the table if you’re the business that’s raising that money.
And so the SPAC in many ways has been a more efficient way to put capital back into the business, right, you have a financial shell company, they go, they raise a lot of money from investors and also from other companies. And then they inject that directly into the equity of a privately held company, and then bring it to the publicly traded on the financial markets. So
Steve, there’s a lot of interesting SPACs, we can bring this conversation a bunch of different ways.
But we’re going to do this football football style, where I’m going to be Al Michaels and I’m just going to talk about the terminology and kind of make sure that everyone’s aware of what we’re looking at in the fine print. And then you’re going to be the Chris Collinsworth that’s going to get into the nitty gritty of a company and kind of talk about how we size this up. And Steve, we had a lot of options. But we actually went with Lucid Motors (NASDAQ: LCID) ticker on that $LCID. This is a company that recently went through the SPAC transaction process a few months ago. Tell us about Lucid and what this company does.
Steve Symington 21:16 Lucid is very interesting, right? And it’s funny because I saw a note from Bank of America recently that called Lucid the Tesla of startups in the EV space. I’m like, wait isn’t Tesla the Tesla of startups in the EV space? EV is electric vehicles. But Lucid recently completed its SPAC merger I think in July with Churchill Capital. And they raised four and a half billion dollars from the process. And you know, we’re looking at the first deliveries of their lucid air vehicle prices start for that I think around $77,000 numbers check out I like those sevens. But deliveries are starting before the end of this month. And I think they were they’re projecting maybe 20,000 deliveries, or so before the end of this year, assuming they can ramp pretty quickly, according to their initial kind of investor presentations.
But it’s interesting because this this $77,000 vehicle actually came out and exceeded even the range of Tesla’s longest range vehicles 520 miles between charges for the lucid air. It’s a gorgeous vehicle, and they have plans for a pickup and you know, a yet to be named sedan and some other an SUV, I believe that they have out there. So that’s something that people are very excited about. But you know, I think the challenge here is that they’re kind of following the Tesla playbook and launching some vehicles that are very expensive, gorgeous vehicles. And you might argue that even Tesla’s kind of premium vehicles have kind of suffered from maybe lack of innovation visually, like people wonder like, okay, it still looks a lot like the the premium vehicles that Tesla released a decade ago.
So there could be some refresh. And the challenge here is can they ramp sales to the extent that they are projecting while Tesla’s premium vehicle sales have stagnated? Right, because Tesla is now focusing on their model threes and potentially something like a model two, that would be even cheaper, and that’s the plant start expensive, kind of scale down and ramp production the process. So that’s the challenges is can they meet their kind of lofty growth projections and it but it’s a really interesting company with a beautiful product that’s been well reviewed and crazy range. So yeah, that’s kind of kind of the basics of what you need to know about Lucid for now,
Simon Erickson 23:44 Sam, let’s put up another chart for everyone watching it live here on the video screen. He said some lofty projections. Let’s see what that actually means. We’re talking about the forecasts we see out there. So see you mentioned on the far left, right, the average selling price of the air is $77,000. That’s definitely the high end of this market. That’s an expensive vehicle, but you kind of see a hockey stick of growth there. Right from what is that? 20,000 expected deliveries next year? Right? What are we talking 12-13 times that just four years from now? I assume that’s what you’re saying is kind of a lofty forecast or expectations for investments.
Steve Symington 24:20 Yeah, and you know that I think the trick is you look at some of the the most kind of grandiose projections from analysts on wall Street like that then Bank of America note, I noticed just recently and you know, they slapped a $30 price target on it. They said that was based on EV sales of like, enterprise value to sales of about 3x and enterprise value to EBIT of about 37x at 2025 estimates is kind of how they came to that $30 price target. But that’s a premium to Tesla’s early trading multiples and to the average multiples of kind of peers, and the Electric Vehicle space but, you know, looking at a forward five year basis, it’s actually a discount to what Tesla’s traded at recently.
Because you know, you’re looking at what what’s their market cap now for Lucid was something like 36 billion? I said, exactly. Okay. So it seems like, you know, it’s kind of a lofty business, but you also look at Tesla, which is trading at about a 780, almost $800 billion valuation, albeit with some additional optionality, which is something that lucid doesn’t really have, right, because Tesla’s goal is to kind of wean the world off of fossil fuels and, you know, kind of be a leader in the solar and energy storage with their battery technology, and electric vehicle space.
So, you know, there’s a heck of a premium that people are placing on Tesla’s business, but Tesla also has that first mover advantage, and they’ve really begun to ramp their manufacturing in earnest. And, you know, lucid is so much earlier stage, you can’t help but wonder whether this is something where those are some lofty projections for a business that hasn’t even delivered its first vehicle yet.
Simon Erickson 26:13 That’s what I want to double click on here a little bit, Steve, is is we know that this is a big opportunity. I think it’s generally agreed upon that electric vehicles has a large addressable market potential. We all know that Tesla has gone and done very well for itself and its investors. And so it seems like you said the Tesla playbook is can we recreate that at a premium price point.
Now I actually want to go into a little bit into the trenches and look at kind of what we look at with the transaction details of a SPAC like this. And apologies if anyone’s eyes glaze over when they’re looking at this with you. But I do promise it’s important, because as an investor, you want to make sure you know not only about the company itself, but also the valuation and that’s a little different for SPACs. Sam, can we put up the transaction details up – perfect, here we are.
So you’re typically when you see a SPAC that’s going to do a SPAC merger, like Steve just described that lucid did issue something like this and an investor presentation. It shows where they’re raising capital. You see on the left hand side there that lucid raised $4.5 billion from the cash that it put into that SPAC piggy bank, the financial shell company. And then also the the investment from private investors as well private investment and public equity proceeds as well. Well $4.5B is a lot of money, Steve, and an overall valuation of $16.7 billion at the valuation.
The first thing I want to point out to investors to look at is that is that 16.7, the total the total valuation and the raising of funds that you’re putting in for a merger like this, when you see something like that coming out really hot, that is so heavily weighted in future years, you almost have to count on the company performing exceptionally well. Any hiccups on the production schedule, or the deadlines that they’ve announced publicly, or personnel or anything that’s going anyway, not according to plan is going to put a company like this, it’s very frothy valuation, at risk of being very volatile, because there’s a lot of expectations baked in, especially when you have a very high implied market capitalization.
But there’s one other thing that I want to I want to look at here before we kind of talk a little bit more about this company in general. And that’s the sub notes at the very bottom right. You, you might see sub note number five there that’s talking about the 17 point 3 million shares held by the sponsor, that are subject to earn back and then there’s fear of further dilution as well. And there’s 41 million shares from public warrants and 43 million shares from founder warrants. Warrants are dilutive to equity holders, it’s like cutting a pizza that was four pieces previously into five or six pieces, we all have a smaller piece of the overall pie.
And many times when you have a SPAC transaction like this, there are warrants that are earmarking, more shares to be issued at a later date, either to the sponsors themselves, who are the financiers that are doing this transaction, or to the actual existing shareholders themselves, too. And so Steve, when you see something like that, which together this really accounted for about 5% of the overall valuation at today’s much higher market cap. That’s one pretty significant dilution. Two a lot of that is going to the sponsors dilution. And then three, a lot of that is actually going back to the existing shareholders in something called the sponsor promote, and then the earnouts over time. Maybe we don’t want to get too too, too into those trenches right now. But I think my overall takeaway for investors is you got to be aware of how much your share is going to be diluted from future warrants in a SPAC transaction in the future.
Steve Symington 29:46 Right. And one of the things we noticed, you know, we’re kind of digging in just before the show, to kind of familiarize ourselves with the terms of this transaction and you’re like that was one of the first things you’re like No wonder this is buried on page 65 of their investments. entation right and it’s like sub bullet five on that that SPAC you know Transaction Details they don’t you know want to be like here’s all the dilution you guys are gonna face
Simon Erickson 30:10 Sam pays me five cents an hour to find those details.
Steve Symington 30:14 So the the other thing I guess you have to keep in mind is they forced early dilution of the public warrant aspect of that transaction so some of that’s already kind of been accounted for which is alright we ripped off one band aid but there is additional dilution that investors are going to face which will put a lid on some of the near term returns over the next couple of years.
But yeah, it’s a it’s an interesting business but like you said any any hiccups in their growth trajectory, they don’t live up to investors you know what they’ve kind of promised as far as vehicle deliveries, if sales kind of take off especially some of the legacy auto manufacturers kind of step into this space as well in the next couple of years they’re making some heavy investments to ramp their own EV sales.
It’s gonna be one of those things where it could be quite volatile and, but you know, if they do deliver, it could also be potentially lucrative for early investors today, so kind of two sides of that coin, something to keep in mind with every SPAC transaction, you know, take some of their projections with a grain of salt and, and keep that in mind when you’re looking at the valuations that you’re buying in.
Simon Erickson 31:20 Okay, Steve, so which side of the coin Are you on here? $37 billion valuations and of course, a lot of opportunity for electric vehicles you buying Lucid at today’s market cap?
Steve Symington 31:30 Maybe, if anything, a small startup position to force myself to watch it, you know, we’ve also got Rivian coming on the market, and they’ve got an $80 billion valuation with a big fat zero on the revenue line. So you know, so you know, there’s there’s some potential in but I do think there’s some frothy valuations. I’m not going all in just yet, but potentially starting position to watch.
Simon Erickson 31:54 it. But absolutely coming from Ravi Shah here in the comment section saying he’s starting to see some Lucid vehicles on the road in the Bay Area, San Francisco, he’s test vehicles I assume she’s I think that they’ve started some production. Maybe some deliveries were starting either this month or next month. But man again, 37 billion dollars. Excuse me. You’re gonna have to see a real quick ramp up to justify that, I think
Steve Symington 32:16 Yep, yeah, most definitely. Yep.
Simon Erickson 32:18 Okay, Sam. Now before we go to our final topic, we’re going to actually bring in a third guest for this conversation. But let’s chat a little bit more about 7Investing for anyone who’s just joining the program today. We talked about what you’ve learned from 7Investing and how this has benefited you? What are some of the other feedback, we’ve heard from some of our subscribers or people who have tuned into our podcast, anything that stands out that you’re hearing externally out there about 7Investing.
Samantha Bailey 32:42 It’s the one thing I love about working at 7Investing in, you know, in the marketing department, because we really don’t get anything negative sent our way everyone loves our service. And it’s very easy to, you know, handle the communication side of this when, you know, our subscribers love our product.
But I think it’s just hearing how, you know, the recommendations have empowered our subscribers to invest in their futures. You know, we heard about people that were sending their kids to college, buying a new home, you know, these recommendations have helped people, you know, kind of change their lives and better their lives. And I love hearing those stories. It makes everything so worthwhile.
Simon Erickson 33:17 Our testimonials are pretty awesome. You said going to college, we actually have a student special rate, right? What are the details about that?
Samantha Bailey 33:24 So if you are a student, and you have a .edu email address, it’s easy. And you can subscribe on the site. And if you don’t, you can email info@7Investing.com. And that is Steve, and you and Steve could talk about you know the details of your degree and where you’re going to school and we have a special rate for you and only $84 a year. So I don’t even know what the math is at five cents an hour per advisor, but it’s much less if you’re paying student rate.
Simon Erickson 33:49 That’s full access to the entire site, right? That’s just for students. Yep,
Samantha Bailey 33:53 It’s the entire site.
Simon Erickson 33:55 Fantastic. Well, we’re really excited for everybody to join like we said $49 a month we also have this special $84 a year rate for any students that might be in my opinion, one of the best deals on the internet out there. We’re going to bring in another guest actually we hopefully have Spence Randall who’s able to join the program here with us as well Spence thanks for joining us. Spence is with our partner organization Crypto EQ space tell us first a little bit about what your organization does and what you would like to Crypto EQ to become?
Spencer Randall 34:22 Hey thanks for having me on Simon and I just want to back up what Sam saying there that you know all the folks that come to our community from 7Investing echo exactly what she said you know, it’s one thing to hear it from 7Investing itself but it’s another thing to hear it you know, in other communities like ours, people really do see a good value in the membership and the subscription and learning about you know, stocks and equities alongside you guys. So just want to echo Sam’s comments there.
It’s a pleasure to be here. You know, I think what we’re doing in Crypto EQ is similar to 7Investing mission except for cryptocurrency and digital assets. So the way 7Investing approaches equities and takes this long term view its long term perspective. At Crypto EQ, we do fundamental research for things like Bitcoin. So we take deep dives into this really complicated, complex, noisy asset class that is digital assets. And we own that we know that it’s messy. So we go through our core rating framework. We’re in signals, we do a number of things for our users and customers to provide research and market insights for cryptos. So we boil it all down and try to make it as simple as we can. And it’s a pleasure to be here.
Simon Erickson 35:38 We’re really excited to have you to spend we’re really excited to partner with crypto EQ. Two, I’ve read several of your reports. They’re very, very thorough. That’s why I wanted to work with you in the very first place. What are the collision course conversations that we have every month? I think I’ve heard a thing or two about those before, what do we do when we chat about those?
Spencer Randall 35:55 So the collision course is a monthly cadence we’ve got going that Steve’s been on a number of times, Simon anchors it. We’ve had other lead advisors from 7Investing join us as well as, as well, from the Crypto EQ side, we have a number of folks that join in and on those conversations. The collision course is designed to tackle the overlap between this messy asset class and digital assets and the work that you’re doing in equities. And so as crypto has matured, and digital assets have matured, we’ve seen companies like Coinbase go public, we’ve seen a number of other publicly traded companies add a crypto element to what they do, right?
So the PayPal‘s, the Square’s (NYSE: SQ), etc, etc. These publicly traded companies that are stepping into crypto in a big way, we talk about new developments from both sides of the coin, we look at it from the equity side, we look at it from the digital assets side and evaluate what’s happening in the market together. So that’s something that we do on a monthly cadence. We complement the video content that 7Investing produces with a newsletter at Crypto EQ. So if you subscribe to crypto EQ, you can have those takeaways every month, right in your inbox.
Simon Erickson 37:10 Fantastic. Yeah, exactly. Spence, like you say, we factor in both sides of the Bitcoin in those discussions. And we don’t want to reveal everything that we talked about. We keep that behind for our for our paying subscribers, but I do want to give everybody on the show a chance to chat with you live Spence about what questions they have about cryptocurrencies.
And so please feel free to chime in with comments questions for spins, you can ask anything you want to with a cryptocurrency expert here, we were kind of excited about this opportunity. But kind of to keep the conversation Spence, I do have a couple talking points that I wanted to chat about. The first is we’ve been hearing a lot about El Salvador these past couple of months, because they just made Bitcoin legal tender in the country. What does that mean, and why is it important?
Spencer Randall 37:54 Yeah, it’s very, very important fundamental development. We’ve seen these different arcs of adoption. We had the very early technologists, you know, learning about crypto, we had the early investors, we had the early companies that allocated to crypto and held it on their balance sheet. And now we have nations jumping into this asset class in a big way. So this has been an ongoing story. We’ve covered it at the collision course El Salvador made Bitcoin legal tender by law several months ago, in this most recent development is their chivo wallet going live.
So this is an app developed by the El Salvadorian government that is designed to give every citizen of El Salvador a bank account through Bitcoin. So you’ve noticed that as its rolled out, more users have adopted the Chivo wallet and have bank accounts in El Salvador that’s really, really important. Fundamental metric this this is data reported by El Salvador’s government.
So the the early data is showing that in that sense, it’s achieving its goal of banking the unbanked El Salvadorian citizens, now they can can manage their assets in a Bitcoin chivo wallet. So I would say you’re stepping back and looking at it. A really good fundamental success there with Bitcoin, you’re banking the unbanked.
Simon Erickson 39:17 It really is interesting, especially considering El Salvador about a quarter of GDP is from remittance people working elsewhere, sending money back home, of course, those fees can get very, very high very quickly. Bitcoin cryptocurrency is certainly a way to avoid a lot of that Steve, what’s your take on this story? El Salvador adopting it as the first kind of putting the the flag in the ground saying, Hey, we’re here first and did this with is this going to be a domino that falls or other dominoes will fall from the story or the countries will also catch on?
Steve Symington 39:43 I think it’s a fantastic first step. And we’ve also recently seen I think, just last week, we were talking about how Brazil introduced some legislation to potentially follow suit and make Bitcoin one of its official currencies. So I do think we see this happen with, you know, a lot of countries whose currency is either absent, right? They rely on something like the US dollar as their primary currency. Or you know, they’ve struggled with things like hyperinflation and yeah.
I think in it’s particularly encouraging when you see large populations of unbanked people in these countries like El Salvador, Spence mentioned that more people have adopted that wallet, the crypto, the Chivo wallet, then have bank accounts in the country anyway, and this is over the course of just a couple of months. So really, really impressive. Very, very rapid adoption. And I think you’re gonna see a lot of not only countries, but companies kind of embracing crypto as result is as you see, kind of this this sort of first domino fall most certainly.
Simon Erickson 40:55 Absolutely. At the end of the program today, I’m going to ask each of you for one company that’s on your radar that might benefit that is that has got a cryptocurrency exposure. We’ll get to that in a minute. But I do want to actually point out the other side of the Bitcoin on this story, which is China Spence. I have to ask you about China, because China’s central bank has declared all Bitcoin mining and any transactions using Bitcoin, are illegal financial activities. Man, that’s a completely bearish statement. That’s totally offsetting El Salvador’s stance, how important is China for the future adoption of Bitcoin, what’s going on over there?
Spencer Randall 41:30 My one liner would be Bitcoin and digital assets happen with or without China. So that’s my one liner. And we’ve watched China ban aspects of this ecosystem time and time again, since bitcoins inception. And I think, especially with the 7Investing audience being well versed in tech stocks, we’ve seen China take an approach that’s close to, you know, innovative ecosystems like Bitcoin. So we’ve seen them, we’ve seen China develop a number of things internally, it’s almost like a Chinese version of, you know, fill in the blank.
And so with Bitcoin, by design, it’s an open permissionless system. And that just as philosophically at odds with the way the Chinese government approaches leading their country. So, you know, it’s no surprise that they’ve banned different aspects of the ecosystem time and time again, and the Bitcoin network marches on. And actually, a lot of places in the united states like Texas, for example, can now flourish in the mining ecosystem, with all of these miners getting pushed out of mainland China. So those miners will find a home. And a lot of them are finding a home here in places like Texas where renewable energy is plentiful, and the cost of power can be sufficiently low. And they can they can run a profitable mining operation.
Simon Erickson 42:58 Great point Spence, the migration of the miners, and where in the world those actually are, could play a factor in this story. Steve, what’s your take on China? I mean, we’ve talked about this a little bit in recent weeks,
Steve Symington 43:08 Right? My first take is, is to potentially view it as is, I guess the first thing that pops into my head is maybe the fastest way to accelerate adoption of something is to restrict it. And we’ve seen that a few times with things that that China has attempted to kind of spurn. They’ve end up spurring it in the process. But yeah, that that’s, I agree with Spence it’s it’s something that’s going to happen with or without China, and I think they will be forced to kind of reconsider their stance in the process, as the rest of the world kind of embraces its adoption of cryptocurrencies.
Simon Erickson 43:49 Perfect.
Spencer Randall 43:50 And to add a layer here to is a follow up point. Steve gets me thinking. So if you’ve, if you play this out, the Chinese want to have a CBDC right, you know, central digital currency controlled by the Chinese government. So Bitcoin is a threat to that stable coins are a threat to that and open crypto ecosystem is a threat to that. So their answer will be, I’m sure a close CBDC a close centrally backed coin by the Chinese government. So I think they’re setting up for that to flourish in years to come within their their closed ecosystem.
Simon Erickson 44:29 Absolutely, Spence, I’m gonna come right back to you on this question. As we wrap up today’s program, Bank of America just put out a 250 page report, saying that Bitcoin is in the first inning of basically a long term growth story that’s an institution one of America’s largest financial banks, saying that they are very bullish on Bitcoin and they named a whole bunch of companies that they think might benefit from the exposure to cryptocurrencies, Spencer, what is one company on your radar that you think might benefit from exposure to crypto?
Spencer Randall 45:00 So like a company that, you know, is publicly traded, but has not yet made moves in into the crypto industry is that?
Simon Erickson 45:09 Yes, it doesn’t have to be a conviction buy just something you see that’s a company that’s interested in crypto or might be ahead of the curve on crypto, it’s on your radar that we should maybe be taking a closer look at as investors.
Spencer Randall 45:19 I’ll add a theme, not not one specific company, but a theme. So here in you know, if you got your boots on the ground in Texas, what you were seeing, we just had the Texas blockchain summit, led by the Texas blockchain Council, you’re seeing a resurgence of fervor around Bitcoin and things like it. And the momentum is unlike anything I’ve ever seen in person here.
And one of the things that’s driving it a big catalyst is oil and gas companies waking up to the opportunity that exists in Bitcoin mining, specifically, this, this idea that stranded energy or waste energy that you have on site at these different energy sites, you know, as an untapped resource, if you ship out these containers that are designed to mine Bitcoin, and you deploy them to the site, you can harness that energy that otherwise would have been waste, and turn it into Bitcoin. And so a lot of oil and gas companies here are waking up to this or moving into this space. So I think that’s something a theme that’s very strong, that deserves attention would be oil and gas companies and Bitcoin mining and the overlap there. And who’s moving early? So that that’d be my, my hot take.
Simon Erickson 46:32 Okay, good theme Spence but I want specifics. In fact, let me question for you because I know you look at cryptocurrencies, specifically which cryptocurrency has the largest overall market capitalization one decade from now. It’s Bitcoin by a long mile today is it’s still Bitcoin 10 years from now?
Spencer Randall 46:51 I think. I’d say my answer would have to be Bitcoin today. Because Bitcoin is the only asset I see that has closed the door and its competition. Within the use case of store value, I feel like Bitcoin has nothing but open runway, and that, you know, it can only get in its own way. Within the smart contracts use case, I’d say that that is a there’s a tremendous amount of potential there. Ethereum is the market leader. But we need some more time before I could say that Ethereum has closed the door on its competition in that regard. So that I think that Bitcoin and Ethereum are the only assets that could be in that conversation as an answer to that question today. For me, it’s Bitcoin.
Simon Erickson 47:32 Fantastic. Now Sam Bailey don’t think for a second that I was about to let you slide on this question as well. I wanted to ask your thoughts on cryptocurrencies and also a company that is on your radar that you think might be a way to invest in this.
Samantha Bailey 47:43 So remember, I focus more on the equity side on like, the three of you here, just kidding. But I’m going to go with AMD (NASDAQ: AMD) and I know that’s kind of a little bit of an off the wall answer but bear with me, they you know, are the leading designer of GPUs and that is going to be so intensive in the creation of crypto assets that I think that they’re, you know, someone to watch in the space even though they’re not directly associated with crypto. And it is one of my largest positions. So I know I know about that a little bit.
Simon Erickson 48:12 Any thoughts on crypto, Sam, any thoughts on what’s going on with the volatility of Bitcoin and El Salvador and China and everything?
Samantha Bailey 48:18 I’m not just saying this because Spencer’s here. I am a happy paying member of Crypto EQ. And I was not, you know, a crypto bull a year ago, but I’ve become one and I think that this is a area to watch for sure. I love the you know, the marriage between crypto and equities, and I enjoy everything that crypto IQ puts out.
Simon Erickson 48:37 Absolutely. Thanks very much, Sam. Steve, let me come to you. What’s a company that’s on your radar?
Steve Symington 48:41 Right? How about I take the other side of the the chip coin and I go with NVIDIA (NASDAQ: NVDA)? Yeah, I’ll cheat a little bit. We did talk about this a little on our podcast, but that’s a company I’ve owned since 2009. And yeah, NVIDIA that’s like AMD. It’s one of those companies that its needle is being moved by cryptocurrency mining chips and they even had to go to great lengths to design a specific chip for cryptocurrency mining, sans display outputs and they have the hash rates on some of their existing game GPUs to make them less attractive to cryptocurrency miners so that they can actually keep some of their gaming GPUs in the hands of actual gamers.
So hundreds of millions of dollars in sales per quarter for GPU chips and that’s not going to change anytime soon, even if it does ebb and flow with the price of certain cryptocurrencies namely Bitcoin but yeah, that’s that’s something that that won’t change as people continue to mine for cryptocurrency
Simon Erickson 49:46 Fantastic. I like to take both of the majors AMD has got the totally customizable group from Xilinx and then Nvidia like you said Steve, just more and more efficient for mining the chips great, great ideas there. I’m gonna go with Square as my company that I think we should be watching.
We saw Square, make a $297 million acquisition of Tidal several months ago really wants to be the innovator in the intellectual property of non-fungible tokens, NFT’s right? This is something that’s grabbing the world by storm. It’s recreating the music industry. I think that Square is really trying to build out this larger, larger and broader and broader ecosystem. That cash app where not only you can you can trade NF T’s you can buy and sell Bitcoin. It’s really trying to be the acquisition costs of that as low as possible.
I think that Square has shown the ability to do that for several years and this is another advantage that’s going to recognize as cryptocurrency continues to gain adoption. Okay, great. So look keep an eye on oil and gas blockchains in the oil and gas industry on AMD, ticker on that is $AMD, Nvidia is $NVDA and then Square is $SQ. A special thanks to Spence Randall spins. Thanks for joining us on today’s episode of 7Investing Now.
Spencer Randall 50:56 Thank you for having me. I always like these live streams.
Simon Erickson 50:59 And Steve and Sam, it was a real pleasure to have you here as well.
Steve Symington 51:02 Thanks, man.
Samantha Bailey 51:02 Thank you for having me.
Simon Erickson 51:04 And thanks to everybody for tuning in. It’s kind of a fun show. We talked about a lot. We talked about space economy. We talked about blockchains and cryptocurrencies. Then we also talked about SPACs. It was a fast-paced show. I hope that you enjoyed it. and tune in next time as we find more of the most innovative things taking place in the market and our long term investing angle on them. So we’re here to empower you to invest in your future. We are 7Investing. Have a great day and we’ll see you next time.
7investing Operations 51:29
Rocket Lab (NASDAQ: RKLB)
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Lucid Motors (NASDAQ: LCID)
Advanced Micro Devices (NASDAQ: AMD)
NVIDIA (NASDAQ: NVDA)
Square (NYSE: SQ)
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