Boston Omaha (NASDAQ: BOMN) isn't like most of the other companies we cover at Millionacres. It isn't a real estate investment trust (REIT). And it isn't a real estate business -- well, not on its own. Boston Omaha is a holding company that owns a few subsidiary businesses, some minority interests in companies, and a portfolio of common stocks. Its largest subsidiary and most of its minority interests are real estate businesses.
While there's no crystal ball that can predict where any company will be in five years -- and it's especially hard to do with a company like Boston Omaha, whose business model is to invest in other businesses -- here are three things that will likely impact the stock's performance and another that could be a potential game changer if things go according to plan.
Boston Omaha's core business will continue to grow
As of fall 2020, Boston Omaha owns subsidiaries in three distinct business lines: billboard advertising (Link Media), Surety Insurance (General Indemnity), and rural broadband services (AireBeam). But for the time being, all three are relatively small operations.
Boston Omaha chose these industries to focus on because (among other things) they have very attractive economics. As an example, the ongoing capital expenditure to operate nondigital billboards is minimal. But the economics get far more attractive as these businesses scale. So I'd expect Boston Omaha to gradually grow these businesses, both organically and through bolt-on acquisitions.
The company could enter new business lines
I've referred to Boston Omaha as an "early-stage conglomerate." While the company only has three types of subsidiary businesses now, that could certainly change going forward. In fact, in Boston Omaha's most recent annual report, management said, "In addition to our activities in outdoor billboards, surety insurance, broadband services and the various industries in which we have made minority investments, we will also consider other industries which offer the potential for predictable and attractive returns on invested capital."
I'd actually be surprised if Boston Omaha didn't add at least one or two more business types to its portfolio over the next five years. At the end of the third quarter 2020, Boston Omaha had approximately $119 million in cash and equivalents on its balance sheet, so it has the ability to make some moves if opportunity knocks.
Stock performance could be a big factor
In addition to its subsidiaries and business investments, Boston Omaha owns a $63.8 million stock portfolio. We don't know exactly what stocks it owns, but since this represents about 12% of the company's entire market cap, it's fair to say that Boston Omaha's performance over the next five years will depend on how well its stock investments do.
The wild card: Boston Omaha's SPAC
Here's the biggest question mark. Boston Omaha recently launched a special-purpose acquisition company (SPAC) called Yellowstone Acquisition. It raised $125 million in its IPO, and its objective is to pursue an acquisition of a nonpublic company in an industry other than Boston Omaha's three main businesses. (If you're curious about how Boston Omaha's SPAC works, check out this article.)
While I'm not saying whether Yellowstone itself is worth an investment, this is a low-risk bet for Boston Omaha that could be a game changer if it goes well. Boston Omaha has invested just over $7.5 million of its own capital into Yellowstone in exchange for 20% of the shares and warrants to buy 7.5 million more. Just to look at one recent example, a similar number of shares and warrants in DraftKings (NYSE: DKNG), which went public via SPAC merger earlier this year, would be worth about $350 million today. That's about the best risk-reward dynamics for any investment strategy I know of.
Not only that, but if Yellowstone is successful, it could be the first of several SPACs Boston Omaha sponsors -- $125 million is actually on the smaller size for a SPAC, so this could be a springboard to bigger, better deals in a best-case scenario.
The bottom line
As mentioned, there's no way to predict what a company like Boston Omaha will look like in five years. But I'd be willing to bet Boston Omaha will continue to make bolt-on additions to its three current business lines, and it will add at least one additional business to its portfolio of subsidiaries. But it's the recent SPAC that has the potential to be the biggest game changer over the next few years. Boston Omaha only has 15 months to find an acquisition target, so that's the part investors should keep an eye on.