What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing in 2020 and 2021, we've seen an unprecedented number of specs which have inundated the market with new stocks. In the past two years alone, there have been more than 500 companies that have gone public via spac. The idea of spax is to give individual investors access to early stage high growth investment opportunities. Unfortunately, there simply aren't enough high quality private companies to support the unprecedented number of specs.

This has led to some really questionable companies going public, many of which would not have passed the due diligence processes of a traditional ipo. This histogram shows the performance to date of all spac deals closed in 2020 as compiled by spacetrack.net. All the space to the left of the red vertical line have a negative return and are currently trading below their initial price of ten dollars. Fifty-Six percent of these specs have lost money for investors.

However, the distribution is heavily right. Skewed with a few stacks having astronomical returns, the single best performer was draftkings, which has risen almost 300 percent. The few big winners pull up the average significantly, so the average returns of these specs is 20 today, which is pretty good. But if you looked at spec deals which closed in 2021, it's a very different story.

64 percent of this cohort now sit up below the initial price of ten dollars and the average return is negative. Eight percent the spec deals from 2021 have underperformed the 2020's facts by a margin of 28 by 2021. Most of the good companies like draftkings, had already gone public. This has led to a situation where spack sponsors have to dumpster dive and acquire low quality companies just so they can collect their fees in this video we'll be looking at five of the craziest examples of questionable companies that were acquired by spax at absurd valuations over The past two years, the first entry on our list is app harvest which went public via spec in september of 2020, with a roughly one billion dollar valuation.

It has, since declined 45 to 5.55 cents per share at the peak of the stack mania in february. Its share price reached 35, giving it a valuation in excess of three and a half billion dollars. So what were the investors getting for their three and a half billion dollar investment? Is it some sort of innovative software or electric vehicle company? It's actually an agricultural company that produces tomatoes in their kentucky farming facility. In 2021, they had only one active 60-acre farm.

They expect this farm to generate about 8 million dollars of revenue and incur a loss of 70 million dollars before even accounting for depreciation amortization and share based compensation. This means that the company is currently trading at almost 70 times their 2021 revenue guidance at their peak. In february they were trading at more than 400 times revenue. To put this into perspective, many people thought that snowflakes valuation was insane when they ipo that 100 times revenue at its peak app harvest had a valuation more than four times greater than that, despite the fact that they produce tomatoes, not software, they try to justify their Insane valuation by saying their greenhouse is more high tech and can produce a greater production yield than traditional farming.

While this might be true, their greenhouses are extremely expensive to build and operate, leading to their massive cash burn. It's unclear whether or not they'll be economically viable. At scale, one of the reasons that investors bought into the company is because they are extremely bullish, five-year projections in december of 2020. They said they expect to make 21 million dollars of revenue in 2021 and by 2025 this would explode to almost 500 million.

The problem with these types of projections is that there's so much uncertainty about the future and companies often err on the side of optimism to help push up the stock price, as it turns out app harvest later reduced their 2021 revenue estimate by more than 50 to 8 million dollars, as their farm did not perform as expected, given that they overestimated their 2021 revenue by more than double it's hard to have any confidence in their 2025 estimates. At the end of the day, app harvest is a tomato company, not a tech company, just because it went public via spec doesn't change. Anything next on the list is momentous inc, which announced its intention to merge with a spec in november of 2020.. It initially got a lot of hype from investors and more than doubled to 25 dollars per share within the first few months of trading.

They purported to be a high-tech company that produces infrastructure for the growing space economy. One of the biggest bull arguments for the company was their advanced propulsion technology, which they claimed to have successfully tested in space, as it turns out. This claim was false and misleading. This immediately hasn't moved into.

This is direct response to my 17 different attacks. Viewers may remember a stable road acquisition was only last week. They cut the price that they were paying for this momentus, basically in half satellite company, but the sec has charged them uh and uh and come after them in a big way. This uh this morning they allege the companies misled investors about their technology, about national security risks uh in terms of the former ceo um, well dave come on, get there and early stay give the best line.

Investors have been told that it successfully tested its proposal technology in space when, in fact, the company's only in space tests had failed failed to achieve. Basically, they misled investors about the technology and eventually had to settle a lawsuit with the sec and replace their ceo. Surprisingly, the stock price is still above the initial stack price of 10. Despite these issues, next off we have meton edtech x education group, which listed via us back in april of 2020..

This company is notable because it has experienced the worst performance of any stack in all of 2020 and 2021, with its share price down almost 98 percent. To date, its share price of 42 cents gives it a market cap of just 41 million dollars, putting it squarely in the penny stock category. The company operates an online english teaching platform in china. In september of 2021, the chinese government banned all private tutors from giving online classes.

This essentially outlawed met x's entire business model. This is one case in which the company didn't necessarily do anything wrong, such as mislead the investors. They just got unlucky with china's unpredictable regulatory environment, and investors ended up losing everything. Next, we have another chinese spat which has had almost equally terrible performance.

You commune international merged with a blank check company in november of 2020., the share price almost immediately started free falling and it now sits at just 97 cents down more than 90 percent from the initial price founded in 2015. You commune is a flexible office space provider. You can basically think of them, as the wework of china and their financial results were also very similar to wework. In the first half of 2021, they made 78 million dollars of revenue, their cost of goods sold, was 82 million or slightly higher than their revenue.

That means that they had a gross profit of negative four and a half million dollars, while it's normal for high growth companies to lose money in the beginning. Having a negative gross profit is on a whole different level. They were subleasing the office space for below their own cost. You can think of this as equivalent to selling 100 bills for 96.

After subtracting their operating expenses, they made an operating loss of 49 million dollars or more than 60 of their revenue. It turns out it's very difficult to make money renting office, space and subleasing into tenants and based on their financials. It appears that their business model was never viable. You would think that investors would have learned their lesson after wework from 2019, where venture capitalists lost close to 10 billion dollars, but inexplicably investors approved the eu communist back and almost immediately started paying the consequences boom.

We can't get fooled again to round out the list. We have outlet baby care, which has declined more than 60 percent since its fact listing this past july. They create baby monitoring systems such as a crib camera and a smart sock which new parents can use to monitor their baby's health, while their products seem to be pretty good. The main problem was their absurd valuation.

In the first half of 2021, they generated 47 million dollars of revenue, which is 41 above the prior. However, their operating loss also exploded by 248 percent to 8.7 million dollars, as they massively increase their spending on sales and marketing. Any company can grow its revenue if it just increases its marketing budget, but they have yet to prove they can make a sustainably profitable business and, with a 2021 revenue, run rate of about 100 million dollars, it seems difficult to justify their stack valuation of more than One billion dollars, given how niche their baby care products are. The five spec disasters that we've covered in this video should serve as a cautionary tale to anyone who is considering investing in spags spax are much more prone to fraud than traditional ipos and often list at inflated valuations.

What do you think about spax on this list? Are there any other specs that you think we should have included? Let us know in the comments section below as always. Thank you so much for watching and we'll see in the next one wall, street millennial signing out.