Vivint Smart Home, Why the Disconnect Between the Common Stock and Warrants?

The Warrant Observer group has been trading Vivint Smart Homes (VVNT, VVNTWS, and in some charting software VVNTW) quite a bit lately.

Here are a few questions that have come up about the stock and warrants.

What are the warrant terms?

The Vivint warrants are exercisable at $11.50 for one share of common stock.

Are the warrants exercisable?

As of March 10, 2020, the warrants are not yet exercisable. A registration statement for the shares of common stock underlying the warrants has not yet been approved by the SEC.

Why doe the warrant trade at such a discount? Or why isn’t the warrant trading more in line with the stock? Or, is this another Phunware?

(Don’t hate on Phunware, we made a LOT of money buying Phunware warrants at $0.50 and selling them MUCH, MUCH higher.)

It is because the warrants are not yet exercisable that the warrant is trading around $2.50 and $3.00 as opposed to around $14 where it would be if the warrants were exercisable.

I’ve heard a few comparisons to Phunware (PHUN, PHUNW) and the situation that happened in the Phunware warrants last year. The situation is similar, and is holding the warrants lower, but I don’t believe we’ll see the same outcome.

In a nutshell, Vivint is thinly traded. And, the fear is that when new shares come to market, via earn outs and the warrants, that those shares will drive the common stock lower. Which they will.

But, will the stock hold in the teens, or be driven into the ground, similar to Phunware?

A quick back of the envelope comparison shows that Phunware had $23 million in sales last year, while Vivint had $1.12 billion. And, while Vivint isn’t cheap on a valuation basis, they do have actual earnings.

I recommend listening to the latest Vivint earnings call as well. You’ll find that 90% of the revenue for 2020 is booked, due to the Vivint subscription model. So the company should be able to weather the coronavirus storm.

Vivint and Coronavirus

And, speaking of, I actually view the company as a mixed bag on the coronavirus front. On the negative side a Vivint sales rep, and installation team needs to be in your house to sale and install the system. Who wants people you don’t know in your house these days?

But, the flipside of that is…who wants people you don’t know in your house these days? With the Vivint system you can turn your home into your fortress. No need to physically interact with delivery people, nosy neighbors, or solicitors (except for the Girl Scouts, COVID 19 or no, gotta have the Samoas).

And, since you’ll quite possibly be spending more time at home, who doesn’t want to automate your new stay at home digs? And, why not use that mortgage refi money on the Vivint system?

In the overall scheme of things I see the impact of coronavirus as a slight positive for the company.

Goldman has recently (3/10/20) put a price target on the stock of $25. And I assume those really smart guys and gals at Goldman are accounting for the float increase to come.

But, all of this is moot until the warrants become exercisable or eligible for cashless exercise.

Is the warrant worth owning here around $2.50. I think the answer is yes.

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