Breakingviews: SPAC five-year plans fall short of Soviet accuracy

Five-year plans are usually associated with communist regimes, but special-purpose acquisition companies have adopted the idea wholeheartedly. Numerous companies with little or no revenue are merging with blank-check firms and floating on public markets on the basis of projections of how successful their business might be in 2026. While the Soviet Union could coerce workers and reduce quality to meet production goals, these options aren’t available to startup companies. A case in point is AppHarvest, a hothouse grower of tomatoes and greens.

The company, which has Jeff Ubben and Martha Stewart on its board, completed a SPAC deal to go public less than seven months ago, promising fast growth from more sustainable agriculture. Second-quarter results on Wednesday showed things aren’t going to plan. The company cut its 2021 sales guidance, net of provisions for returns, commissions and the like, by nearly two-thirds. AppHarvest blamed lower-than-expected yields of top-grade tomatoes, higher distribution costs, problems ramping up a facility, and low tomato prices.

Yet the company reaffirmed its 2025 outlook, projecting $350 million to $400 million in net sales. While produce sales might end up $80 million lower than previously expected, it reckons it can make up this gap by selling robots, software and services to other growers. Investors aren’t so sure. AppHarvest’s market capitalization has slumped to under $1 billion, less than a third of what it was earlier this year.

This is the latest in a series of early stumbles. ATI Physical Therapy lowered its 2021 guidance in July, in its first quarterly report as a public company, citing higher therapist pay. Lordstown Motors, which completed a SPAC deal late last year, said in June it may not remain a going concern. And Nikola lowered its revenue forecast in August, just days after its founder and former chief executive was indicted for fraud. All floated after issuing five-year forecasts.

It’s hard for firms to predict what will happen next year, let alone five from now. This is especially the case for startups in promising new fields such as electric vehicles or high-tech greenhouses. Entrepreneurs are by nature an optimistic lot so investors may be better off making their own guesses about what the future holds.