In This Article:
It's not at all unusual for a company to spin off a segment of its business: Such events happen all the time. But what's much more rare is when a company spins off a segment of its business that investors didn't know existed in the first place. That's exactly what happened when Rivian Automotive (NASDAQ: RIVN) announced it would spin off its micromobility unit into a new company: Also Inc.
Surprise!
To say Rivian's spinoff announcement on March 26 surprised a few people would be an understatement. Investors across the globe took a second look at the press release, likely unsure if what they'd read was true. But it is true. Rivian started a stealth program focused on micromobility several years ago due to what it viewed as a rising need for small electric transportation.
"For the world to fully transition to electrified transportation, a range of vehicle types and form factors will be needed," said founder and CEO RJ Scaringe in the press release. "I am extremely excited about the innovations developed by the Also team that will underpin a range of highly compelling micromobility products that will help define new categories."
The original idea was simply to investigate if Rivian could use its software stack and well-developed EV powertrains to make electric bicycles, scooters, and more. After years of effort and advancement, management decided that business had a huge opportunity and deserved to be its own company.
Rivian will retain a substantial minority stake in Also, and is leaving the door open for future partnerships, joint ventures, or collaborations. Also has secured an additional $105 million investment from venture capital fund Eclipse Ventures that will help drive the new company's next phase of growth and expansion.
Why the spinoff?
The spinoff is an interesting move, especially considering investors didn't know the business even existed. But it isn't about unlocking value or separating a mature business from a rapidly expanding young business. Rather, it's apparently about management's desire to focus intensely on gross profitability and launching its R2 -- the fewer distractions, the better.
In fact, Rivian is fresh off of its first-ever quarterly gross profit in Q4. Gross profit is simply total revenue minus the cost of revenue, and Rivian's focus helped drive its cost of revenue 18.6% lower as revenue increased by 31.9%. That resulted in a $170 million gross profit, which was far above Wall Street's consensus expectation of about $49 million, according to RBC Capital Markets analyst Tom Narayan.