Webull’s $7bn listing deal shows Spac madness isn’t over

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Wanted: investors in a Chinese-owned online brokerage. No financial statements given. Must be OK with putting money in a potentially volatile stock and not having any voting rights.

The company in question is Webull, a retail share trading platform founded by Wang Anquan, a veteran of Chinese tech giants Alibaba and Xiaomi. The firm gained popularity in 2021 at the height of the meme stock trading frenzy as amateur traders flocked to it for commission-free trading.

It is now set to go public on the Nasdaq after it agreed to merge with a special purpose acquisition company. The deal with SK Growth Opportunities is expected to raise about $100mn, giving the company an implied enterprise valuation of $7.3bn.

It is a punchy number, one that should give SK Growth shareholders pause.

Webull achieved a post-money valuation of about $3.6bn back in 2021, according to PitchBook data. The sharp jump in valuation would come even as the retail trading mania has subsided and higher interest rates have forced many tech companies to raise money at significantly lower valuations.

A financial statement of some sort would be helpful to determine whether this jump in valuation is justified. In its place were some cherry-picked numbers. The company said it had 4.3mn funded accounts as of the end of 2023, a 15 per cent increase from the previous year. It operates in 15 regions globally and holds about $8.2bn in assets under custody. Last year it handled $370bn worth of notional equity volumes and 430mn options contracts were traded on its platform. 

For comparison, Robinhood, which has a market valuation of $14bn, boasts 23.4mn funded accounts and has $102.6bn in assets under custody.

There was no mention of revenue or profit by Webull. But industry data on payment for order flows (PFOF) can shed some light on the former. Commission-free trading platforms like Webull and Robinhood rely in part on PFOF to finance their zero-commission business model. This is when brokers sell customer trades to wholesale market makers.

According to consultancy Alphacution, Webull collected $159.2mn in PFOF from stocks and options last year. That is down from $251.7mn in 2022 and $207mn in 2021. 

Then there is the governance to consider. Existing Webull shareholders will own 98.1 per cent of the new company and control all the voting rights, via a dual class share structure. A low free float — around 10mn shares out of 785.2mn outstanding — could set the stock up for volatile trading.

Investors in SK Growth can withdraw their money before the merger if they do not like the chosen target company. High investor redemptions have derailed a number of Spac merger deals. More than half of SK Growth shares were redeemed in December. Don’t be surprised if more investors follow.