- Wejo is a British company quoted on NASDAQ and in the connected car space
- Wejo came to market through the SPAC route, not an IPO, in November
- As a result analyst coverage on Wejo has been scant but this is improving
Wejo Group Limited (NASDAQ: WEJO) is up 32% premarket which will come as a relief to the shareholders. Wejo arrived on NASDAQ in November through a SPAC merger with Virtuoso Acquisition. After a small listing pop it’s been pretty much downhill since then.
Wejo is showing one of the possible downsides to the SPAC route to market. There are advantages, yes, but they can in themselves turn out to be short term disadvantages.
The advantage of the SPAC over the IPO is that it’s very much faster, This is as a result of very much less work being needed to p check and prove the company’s numbers and assumptions. In effect it’s not necessary to have an army of combat accountants pre over everything by using that SPAC route.
On the other hand, the disadvantage can be that there’s not been that analysis by the combat accountants. The company – like Wejo – is now listed but there’s a definite paucity of information available about it. Sure, there are information releases but nothing like the seas of data an IPO is accompanied by.
This means that early investors in an immediately post-SPAC deal are left without much data to form an evaluation of the stock price upon. It’s possible to think that this was the cause of Wejo’s recent drift downwards from that SPAC point.
This does, of course, change with time. Analysts start to get interested in the stock, release recommendations and so the wider market begins to understand more about the recently arrived company. It could that that this is what is happening to Wejo.
Wedbush Securities, for example, started off coverage on Dec 21s, calling Wejo “ a data analytics play on the auto industry” and gracing it with an outperform rating. They think that the significant backing that Wejo has from Palantir, GM and Microsoft will aid it in its plans.
Baird has also initiated coverage and makes many of the same points. Significant backing from major players, an interesting marketplace to be operating in leads to a similar outperform rating.
We can assume that as more analysts publish coverage then the market view of Wejo will become more established producing some certainty as to the stock price level.
The fundamental bet here is that Wejo achieves scale. The market – sensors in cars which then relay information back – is one that offers network effects. Building the basic technology is what costs, adding a marginal user has costs of near zero. Such markets tend to – tend – end up with one dominant player as the base economics here encourages that. They also end up being extremely profitable for that one dominant player while everyone else becomes at best, a bit player in the marketplace.
In the long term the Wejo bet is that it will achieve dominance. In the short the Wejo stock price is likely to follow the balance of growing analyst coverage.