Allbirds, the sustainable sneaker company that was once valued at $4 billion announced it was done making shoes to rebrand as "NewBird AI" and pivot into GPU-as-a-Service cloud infrastructure. In other words, an AI company.
The stock surged over 600% in a single day. To add insult to injury the pivot was made possible with a $50 million convertible financing facility from an unnamed institutional investor. A flexible funding arrangement is where a company borrows money now, and that debt can later convert into equity (shares) instead of being repaid in cash.
To recap: when "NewBird AI", the brand new AI company that used to make sustainable sneakers turns a profit from their GPU-as-a-Service cloud infrastructure pivot. The company that gave them $50 million will be able to recoup their investment in the form of shares. What could possibly go wrong?
All throughout history there have been examples of companies that have made pivots and have survived and even thrived. Toyota started as an automatic loom manufacturer. Berkshire Hathaway went from being a textile manufacturer to one of the largest conglomerates in the world. Nintendo got its start selling playing cards. Sometimes it's just a natural progression, like Netflix going from DVD rentals to streaming.
Back in 2017 a struggling beverage company called Long Island Iced Tea Corp. renamed itself Long Blockchain Corp. then announced a pivot into blockchain technology. The stock spiked nearly 400% overnight, despite the company having zero blockchain experience and no actual blockchain business to speak of.
The move also helped the company avoid a Nasdaq delisting risk by triggering renewed interest and temporarily boosting its share price above compliance level. In 2021, three people were charged with insider trading in connection with the "pivot." It seems the company's leading shareholder tipped off associates about the pivot before the announcement. One defendant sold his shares within two hours of the news for over $160,000 in ill-gotten profits. The SEC described the pivot as a sham.
The takeaway here is the market tends to treat announcements of pivots and actual execution of pivots as the same thing, at least briefly if you use the correct buzzword. The successful pivots like the ones mentioned above were slow transformations made through building and refining operations instead of press releases designed to jump on the hype train.