Enjoy Technology Might Take a Shot At a $1.6 Billion SPAC-Funded IPO
While food delivery services made headlines in 2020 during the 2020 COVID-19 pandemic, Enjoy Technology, Inc. offers a similar service for smartphones and other tech gadgets and devices. Apple Store architect Ron Johnson founded the company, boosting its reputation from the start.
Bloomberg reports Enjoy is now negotiating with Marquee Raine Acquisition Corp. (NASDAQ: MRAC) about going public by merging with the SPAC (special purpose acquisition company). Does this plan have promise, or is it just another uninspired attempt to cash in on the current-year SPAC frenzy? Let’s dig a little deeper.
Why Enjoy Technology Is Eyeing a SPAC
Enjoy Technology describes its technology home delivery service as a “mobile retail store,” likely to highlight the fact it isn’t simply a courier service. Its delivery personnel are also trained as “Enjoy Experts” who not only bring the purchased devices to the buyer’s home but also instruct them on setting up the gadget and activating it.
Delivery is a difficult market to turn a profit in, with practically all major food delivery services still operating at a loss despite massive demand increases during 2020. Potentially making the push to profitability even more of an uphill battle for Enjoy, all of its approximately 1,100 delivery “experts” are full-time employees, trained for at least 160 hours each.
This could be an important factor given food delivery companies continue losing money despite focusing on the use of independent contractors to control costs. Enjoy’s highly trained, full-time experts, with full packages of benefits and probably higher wages, look like a major ongoing expense and potential “loss leader” on the company’s balance sheet.
This labor cost is also certain to grow in proportion to future expansion; the specific business model Enjoy is using to differentiate itself locks it into using trained, motivated, long-term personnel.
On the positive side, Enjoy Technology’s employment structure enables them to offer a more in-depth, comprehensive service than typical delivery companies. The company has gained several major clients, including Apple (NASDAQ: AAPL), AT&T (NYSE: T), and Rogers Communications, Inc. (NYSE: RCI) among others.
L Catterton estimates Enjoy’s service now provides coverage for greater than 50% for the U.S. population and 80% in the United Kingdom. The mobile retail store provider is also expanding into other countries.
While Enjoy does not have much publicly available financial data, PrivCo estimated its value at $500 million to $1 billion in late 2019, a figure including $230 million in funding.
Looking More Closely at the IPO
Marquee Raine Acquisition Corp., the blank-check SPAC Enjoy Technology is likely to merge with, launched its own initial public offering (IPO) in December, 2020. At that time, it raised approximately $374 million, though its value has increased since. Sources state a merger between Marquee Raine and Enjoy will create a company with a value of roughly $1.6 billion once they pool their resources.
While the IPO looks promising on paper, another much-touted delivery IPO, that of British food delivery enterprise Deliveroo (LSE: ROO), belly-flopped after lofty expectations. The company, backed by Amazon, Inc. (NASDAQ: AMZN), dropped 30% after its public offering last week. Headlines about Deliveroo’s IPO were especially dreary after one of the company’s bankers called it “the worst IPO in London’s history.”
Business Insider reports many analysts identified two main problems causing Deliveroo’s big IPO stumble. These include labor issues because of low-paid gig workers (who are now also on strike), a difficulty not likely to confront Enjoy Technology. However, investors are also expecting demand for delivery to decline sharply as COVID-19 vaccines take effect and retail locations reopen for business.
Should You Buy MRAC if Enjoy Decides To Merge?
Enjoy Technology boasts some strengths other delivery companies don’t have. On the bull side of the equation, some of these positive factors include:
- A prominent e-commerce CEO with what is likely highly useful experience.
- A business model based on delivery, but which also includes setup and activation services, providing extra value to customers and differentiating the service.
- A track record of success with several large clients.
- Trained long-term employees who improve customer satisfaction and reduce the labor concerns plaguing Deliveroo and other food delivery services.
There are several bearish indicators too, however:
- Operating in any kind of delivery market generally offers very narrow margins at best, with many companies running at a loss even under favorable conditions.
- Trained employees are costly, adding to expenses and narrowing potential profits even more.
- Investors appear to be wary of the delivery model as COVID-19’s decline makes in-person shopping, dining, etc. much more feasible and attractive going forward.
Overall, Enjoy has some good features and advantages, but is operating in a sector (delivery) where profits are hard-won and frequently absent. Even if the company has more robust operations than Deliveroo, the food delivery service’s flunked IPO shows investor enthusiasm is low when it comes to delivery companies.
With so many IPOs and SPACs studding the economic landscape, some of them in much “hotter” sectors like electric vehicles (EVs) or sports betting, Enjoy Technology looks like a mediocre prospect at best and might be a stock you want to pass on in favor of a more dynamic offering.
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