Getaround This SPAC Deal

By: subSPAC

This week, digital car-sharing platform Getaround made the headlines as the latest De-SPAC casualty to crash and burn on its stock market debut.

SUMMARY

• This week, digital car-sharing platform Getaround made the headlines as the latest De-SPAC casualty to crash and burn on its stock market debut.
• After initially announcing plans to go public through a merger with interPrivate II Acquisition Corp in a deal valuing the combined company at $1.2 billion in May 2022, the company saw a decline of 65% on its debut.
• Essentially, at its current valuation, the market thinks that Getaround is worth a little more than the cash generated from its SPAC deal and less than half of the total cash it has raised to date.

FULL INSIGHT

This week, digital car-sharing platform Getaround made the headlines as the latest De-SPAC casualty to crash and burn on its stock market debut. After initially announcing plans to go public through a merger with interPrivate II Acquisition Corp in a deal valuing the combined company at $1.2 billion in May 2022, the company saw a decline of 65% on its debut.

Essentially, at its current valuation, the market thinks that Getaround is worth a little more than the cash generated from its SPAC deal and less than half of the total cash it has raised to date. Considering the fact that Getaround has a questionable business model and track record, investors are right to be skeptical about the company’s future prospects. Can Getaround prove its skeptics wrong and stand out from its Peers? 

Car-Sharing Transition 

For those unfamiliar, Getaround is a digital car-sharing platform founded in 2009 that lets users rent cars and trucks from others on the platform without filing paperwork, waiting in line, or physically exchanging keys. The platform also enables car hosts to scale and manage large fleets in several urban and rural locations.

The premise is simple: Just as Airbnb revolutionized overnight stays, Getaround wants to make a similar impact by creating a market for car-sharing to link parked vehicles with customers needing a ride. The company wants to create a seamless experience and accelerate the transition from the current analog car rental experience to one that’s fully digital and ‘keyless.’ 

The company has been aggressively expanding over the past few years, expanding to over 1,000 cities across the US and Europe, with over 1.6 million users renting 66,000 cars from hosts on the platform. Getaround decided to go public during a bear market despite staying private for over twelve years. There are a few key factors that has driven this decision, despite the current unfavorable market conditions.

First, Getaround’s competitor Turo, which has raised money from Daimler, IAC, and American Express Ventures, filed for an IPO in January 2022. Considering the intense rivalry between the two startups, Getaround wanted to beat Turo to market. Furthermore, when Getaround announced its deal, it had close to $27 million in cash on its balance sheet. Considering the current venture market landscape and the immediate need for cash it is likely that the deal was a necessity to stay alive rather than a luxury. 

Burning Cash 

Getaround was celebrated by VCs as the next big thing to shake up the car-sharing industry, raising $568 million from investors including SoftBank, Reinvent Capital (the investment arm of Reid Hoffman and Mark Pincus), PeopleFund, Toyota Motors, and Horizon Technology Finance.

But like most Venture-backed firms debuting through SPACs (just look at what happened to Bird Global, another VC Darling), Getaround is in a rush to raise money to subsidize its costs for the customers and attract new talent through excessive stock-based compensation. Despite raising over half a billion in cash from investors, Getaround has only generated $370 million in revenues till date and continues to rake up losses. 

Management at the firm is now betting that the current cost of living crisis and upcoming recession will be a catalyst for the company since many will look to switch away from making discretionary purchases like automobiles to instead renting them in order to save money, especially since the cost of second-hand cars have soared over the last year.

However, this could prove to be a false assumption, considering the current state of the automobile market. Used car prices have now declined 15% YoY, and new automakers are throwing in promotions and discounts to incentivize buyers to snap up the existing inventory. These factors will likely mean that the company’s anticipated growth after the merger won’t materialize, at least over the next 18 months. 

Financials and Valuation 

Getaround reported a loss of $120.13 million on revenues of $45 million in the first nine months of 2022. If that isn’t already bad enough, the company has actually seen a year-over-year decline in revenues of close to 5%, despite doubling its marketing spend, which has widened the loss from $113 million reported in the first nine months of 2021. The unsustainable cash burn is perplexing because revenue growth has been slow over the past three years at 40% and 10%, respectively.

To its credit, Getaround has significantly expanded its user base through notable acquisitions, including buying City CarShare in 2016 for its fleet and expanding its international focus through the $300 million acquisition of European Car sharing platform Drivy. With the current cash infusion from the SPAC deal, Getaround will have close to $230 million on its balance sheet, but considering that the company is far from breaking even, let alone generating profits at scale, it could have, at best, between 18-24 months of runway before needing to raise funding again. 

In essence, Getaround will face the same issues that e-mobility scooter providers and other car-sharing platforms that went public in recent years. The economics of the business model do not support extravagant spending and high initial customer acquisition costs. Take a company like Uber, which generated over $17.4 billion in revenues last year through its sheer scale and active user base, but still posted a loss of $50 million and is down 36% since its IPO nearly three and a half years ago. And this is just the best-case scenario for Getaround.

Considering the pitfalls of the business model, the worsening economy, and the firm’s capital position, it is likely that the stock will continue to struggle in the future. 

Bottom Line 

Car-sharing platform Getaround has raised hundreds of millions from Venture Firms on the novel idea of reinventing the automobile market. Considering the current economic downturn and the increased cost of living due to inflation, the company could indeed see growth from customers looking to save on discretionary purchases, choosing to rent instead. However, it is unlikely that growth will materialize for the company, especially looking at the current upheaval in the second-hand automobile market. Over the long term, things look bleak for the company as the company continues to burn money for subsidies rides. Even if the company extends its runway by raising additional capital, it will need to improve its unit economics and revamp its business model to eventually break even. 

—

Originally Posted December 12, 2022 – Getaround This SPAC Deal