Investment Corner: The SpaceX IPO
In case you missed the buzz these past few weeks, Elon Musk’s company “SpaceX” recently had an IPO (Initial Public Offering). That means that shares of the company’s stock became available on the public market for the first time.
In broad terms, IPOs often generate a lot of excitement. Because the company’s stock was, by definition, not publicly listed prior to the IPO, the traditional market forces that usually dictate share prices are not yet in place, so there is often hope that the IPO share price is below the actual value of the shares. Such is the hope of many with SpaceX.
When clients and friends have asked me for my thoughts on the SpaceX IPO, my response has been predictably boring—I have no advice on what the value of the company might be. There simply is not as much information available on SpaceX as there is on a typical publicly traded company. However, many years of IPO history and evidence can provide us some insights.
A 2021 study by NASDAQ looked at the results of IPOs from 2010-2020. The study found that slightly over 50% of companies underperform the market 1 year after their IPO. The number of laggards is greater after 3 years: almost 2/3 of IPOs trailed market returns.
The same study found that top 10% of IPOs averaged a market-adjusted return of over 300%. When an IPO goes well, it can go really well! Unfortunately, the worst ones can cost investors quite a bit of money. Truist Chief Investment Officer Keith Lerner noted that numerous high-profile IPOs had terrible 12-month returns, including Coinbase (-55%), Lyft (-65%), and Rivian (-67%). Facebook and Alibaba are examples of companies whose stock price fell dramatically after seeing an initial IPO pop, although those companies eventually increased substantially in value for investors who held on to their stock.
In light of this history, what are we to make of SpaceX? The SpaceX IPO is the largest valuation for IPO in history. That begs the question: how much room is there for the stock price to run to the upside? Are you confident that the returns will be well above market returns, and therefore are worth taking on additional risk? That said, do you want to bet against Elon Musk, the founder and largest owner of SpaceX? That hasn’t gone well for investors, given the massive growth of Tesla and the strong earnings of his company Starlink (now part of SpaceX).
An investment in SpaceX represents the opposite of the traditional “buy and hold” philosophy, so if you choose to invest in SpaceX at the IPO or soon after, be aware of the risk. You are speculating in a company that does not have an easily measurable value. Just like with other risky assets, any dollars that you invest in this should be money that you can afford to lose if the worst outcome were to happen.
I will be watching this along with the rest of the investment community. There are a couple of other massive IPOs expected in the upcoming months (Anthropic and OpenAI) and this could well be a barometer for how those will turn out. If you do choose to “go in” on SpaceX, I wish you the best of luck.
However you view the SpaceX IPO, invest smartly and invest well!
Larry Sidney is a Zephyr Cove-based Investment Advisor Representative. Information is found at https://palisadeinvestments.com/ or by calling 775-299-4600 x702. This is not a solicitation to buy or sell securities. Clients may hold positions mentioned in this article. Past Performance does not guarantee future results. Consult your financial advisor before purchasing any security.
