Social Capital Hedosophia Holdings Corp. II (NYSE: IPOB) stole a huge part of the spotlight after announcing a $4.8 billion SPAC with Opendoor. The digital real estate disruptor should make this one of the hottest SPACs of 2020. However, as the bulls rush in to snap up IPOB shares is shorting the SPAC a smart idea? Especially when listening to the wise words of Warren Buffett, “Be greedy when everyone is fearful and fearful when everyone is greedy.” Today’s article will breakdown the merger, explain the future impact of Opendoor, and the risks/reward of an IPOB investment.
Table of contents 1. Breakdown of the IPOB Opendoor merger 2. How will Opendoor impact the housing market? 3. Are investors overlooking potential risks with the merger?
What you need to know about the IPOB Opendoor merger
Opendoor, the real-estate technology company, is officially merging with IPOB, a blank check company. The value of the reverse merger comes in at $4 billion. Opendoor receive $1 billion in cash proceeds, which will be used to accelerate company’s growth. An important note is that $600 million of the $1 billion goes to private investment in public equity (PIPE) at $10 a share. Essentially, this means the big investors who were backing the SPAC jumped on the train at $10, which would give them a 75.6% ROI at the moment. If the words SPAC or PIPE investors sound foreign, then YIG strongly suggests reading our simple explanation here.
Will Opendoor revolutionise the housing market?
Opendoor radically reduces the time it takes to buy and sell property. Homeowners looking to sell briefly explain to Opendoor the details of their house, and can receive an offer instantly. If the buyer is satisfied with the valuation, then they can sell their home and receive the cash in days to weeks. However, the innovative offering is currently only available in 21 markets of the United States. The consultation like feedback is free and comes with no lock in contracts, making it very attractive to time-conscious homeowners who are looking to sell. However, Opendoor does have drawbacks. For example, the homeowner will likely receive less cash than if they went through a traditional real estate agent. Mainly because of the significant reduction in time.
Overall, the question of whether Opendoor can shift the property market remains at the heart of the bullish argument. Because if Opendoor can live up to its potential, investors could see a similar run to that of DraftKings (NASDAQ: DKNG), Hyliion (soon to be SHLL), and Fisker (NASDAQ: SPAQ). The 34% surge following today’s announcement would suggest that investors are expecting big things from Opendoor.
IPOB Opendoor merger could be too bullish – should investors be cautious?
Before I begin, I am obliged to remind our viewers that this is not advice but rather investment commentary from extensive research
Bears are anticipating a pullback. Considering IPOB is down 5% in pre-market trading, the shorts are right in predicting the direction of the move. While IPOB could continue to pullback, investors must understand that the catalyst is positive and should pull in quite a few long investors. Thus, the bearish decline might only last a few days. YIG would like to point out that attempting to short over a few days is a dangerous idea. Because the volatility can turn against your account rapidly.
In cases where it might seem too late to jump in, it is always best to look at resistance and support levels. Strong resistance lies around $18. If IPOB trades above $18, than the breakout should cause the bulls to dominate. However, IPOB could experience a sell-off following the string of bullish momentum. If IPOB begins to decrease, investors would want to look out for the $16.50 support. Because a fall below the $16.50 would ignite significant selling pressure. Thus, understanding the support and resistance of IPOB is crucial to gauging the sentiment and avoid jumping in the short or long position off emotions.
Overall, it looks like IPOB could descend for the next few days following yesterday’s catalyst. However, that is not to say that the SPAC could not soar after a new support point is found.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.