2021 has been a bit of a mixed bag regarding the space industry. Some companies have done really well to cope with Covid’s pressures, developing numerous innovation pracrices, yet others have made significant losses. It’s been a rather unorthodox and volatile year, with numerous companies starting up and contributing to a general market oversaturation.
Many new companies went public as SPACs, allowing for an easy entrance. However, a number of them weren’t ready for what was to come, leading to general distaste and problems amongst company employees and investors. Other companies just didn’t make smart moves or tried to do too much. No progress caused the investors’ despair. So what were 2021’s most unfortunate companies? One thing’s for certain – the market didn’t look too kindly on Farmers Edge. Let’s find out more.
Investment Gambles That Haven’t Paid Off
Commiserations to Farmers Edge – this company illustrates an example of an investment that has always been risky from first to last. The company was highly likable in the beginning, yet there were a few problems that largely led to the fall of their stock price.
Since their IPO, the company stated that they had a capitalization of approximately $631m when appearing on the Toronto Stock Exchange. Unfortunately, this dropped to a small fraction of this, namely $110m, in 2021. Their enterprise value also plummeted from $537m and now is worth approximately $30m. So what could have caused such drops?
Throughout the second quarter of 2021, many of those who had invested began to sell off their remaining stock. One of the first to exit out like this was the asset management firm Blackrock. It’s no surprise considering how the CFO left only a year after joining up, plus there was an accelerated outflow of cash from Farmers Edge’s accounts. Current estimates show that the money would be available for about a year of operations.
These negative signals in combination with the wrong investing strategy made most of the investors to go. The company had plans to enlarge the client’ base and use upselling to boost average check. They provided the familiar tactic – free year-long customer access – but it did not cause positive results. What is more, churn rates turned extremely high and there was no boost of the average check and new free customers, as expected. The company does not promote any future changes as well.
Unfortunately, many other companies also experienced the same problems, such as Spire or Momentus. AAC Clyde Space even experienced a whopping 52% decrease in share price. The global pandemic certainly brought uncertainty into the market and contributed largely to space company share prices dropping.
The fact of the matter is that Farmers Edge and other companies like it made decisions that caused investors to decide to leave. Daring user acquisition tactics such as year-long free access haven’t yet shown positive results. Churn rates with such freemium subscribers actually turned out to be very high. New subscriptions have been falling in the past year, taking this company down. Desperate expectations on average check increase have also not worked as well. There is some hope for Farmers Edge, but only if it changes its product.
Can Companies Recover?
Now that we’ve talked about all of the space companies that have gone public, it’s important to recognize that many of them had significant downfalls in 2021. This is largely down to SPAC investments without products that have been validated and business models that have not been rigorously tested, leading to low performance. All of these things have led to a general decrease in IPO price.
But is it all doom and gloom? Companies can make recoveries if they are able to diversify, change key ideas and restructure their total management. It is also important for new investors to thoroughly audit space companies and check for investment quality.
If you want to get involved as an investor yourself, do take into account the quality of the company that you would like to invest in the future. Even though in 2021, a lot of space investments rarely came to see profits in the short-term, there is still hope in the long run if the correct decisions are made in time.
Always be cautious and act with vigilance when making investment strategies. One should remember that it is challenging to differentiate space start-ups from companies that are no more than a bubble to attract investment. We can all learn a lot from the mishaps of Farmers Edge and other companies.