Xanadu Quantum Technologies Inc is a Canadian quantum computing startup that has made some impressive progress since it was founded in 2016. Since then, the company has raised US$245 million and gone on to collaborate with the likes of NVIDIA, Microsoft and Google. It has been an impressive run, and the company might just be getting started.
Last month, Xanadu announced on its website that it planned to go public through a merger with Crane Harbour Acquisition Corp. Crane Harbour is a special purpose acquisition company (SPAC), an entity that exists just to allow another to list on the stock market more easily than would otherwise be possible. SPAC mergers are used when a company wants to avoid the costs involved in a typical IPO, such as investment banking fees. This method of going public is technically not an IPO at all, but rather a business combination.
The question for investors is this: Is the publicly traded entity that will hold Xanadu worth investing in? In the ensuing paragraphs, I will attempt to answer that question.
What Xanadu does
Xanadu is a Photonic Quantum Computing company that partners with other tech companies to find quantum computing applications for their operations. It has built various products including a battery simulation for Volkswagen, Quantum Machine learning for BMW, and more. The company’s list of partners and clients is pretty much a who’s who in the world of big tech. It also has partners in government and academia.
Quantum Computing is seen as a cutting-edge form of computing, a radical shift in how computing is done. Some think that quantum computers are an even bigger sea change than generative AI was in 2022. They can tackle complex problems that traditional computers can’t, such as physical simulation and code breaking. For now, its applications are mostly in industry and academia. Over time, however, quantum computers may become far more commonplace. In that scenario, Xanadu’s market will grow rapidly and the company will have the potential to increase its revenue dramatically.
The IONQ case study
Since Xanadu is a Quantum Computing company, and we’re trying to figure out whether its ‘IPO’ will be a good investment, we should look at how other quantum IPOs have done, to gauge Xanadu’s prospects.
A good one to use as a model is IonQ (NYSE:IONQ). IonQ is probably the best-known quantum computing company in the world. It builds quantum computers for larger companies, academia, and governments. Its products can be accessed through platforms like Amazon Web Services and Google Cloud.
IonQ has done very well since its IPO. It went public at $11 and now trades for $53, following a massive 10% one-day jump the day this article was written. Its total return post-IPO – assuming the shareholder bought on the IPO date and held to today – has been 792%.
So, if IONQ is any indication, Xanadu might do quite well post-IPO.
An uncertain market
Despite the fact that Xanadu has at least one public comparable company that indicates it could do well post IPO, the company also faces risks. One is simply the pricey tech market that it’s going public into. Xanadu is going public on both the TSX and the NASDAQ. NASDAQ-100 stocks trade at 43 times earnings on average now. Valuations that steep tend to be followed by bear markets. So, even if Xanadu performs well as a company, it could get caught up in sector-wide selling in U.S. tech stocks. Also, the company’s financials are not yet publicly available. So the ability to analyze it is limited.
Personally, I do not plan on buying any shares.
