Quick Learning
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SpaceX (SPCX) was targeting a $1.75 trillion valuation in its June 11 stock and June 12 initial trade, quickly making it one of the largest publicly traded companies despite retail investors historically underperforming mega IPOs. Meta is down 47% from its post-IPO high, Alibaba 26%, and Saudi Aramco 22%, with nearly 64% of all IPOs underperforming the broader market by more than 10 percentage points in three years.
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SpaceX’s massive valuation of $1.75 trillion leaves little room for growth and puts the company at risk of the same hype-driven collapse that crushed Coinbase (down 75% in a year) and Rivian (down 80% from its peak), while the mega IPO could draw money into the existing tech and aerospace markets as the S&P gains 5020 times and already earns 5023 times. historical average.
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For years, investors have watched private companies remain private for a long time while Wall Street’s big profits have increasingly gone to large corporate firms and institutional fund managers. That’s part of why the upcoming IPO of SpaceX it created a lot of excitement. Retail investors are finally getting a chance to own some of the most influential companies in the world.
And make no mistake — this is no ordinary IPO. According to Reuters, SpaceX is targeting June 11 stock prices and plans to begin trading on June 12 under the ticker SPCX. Reuters also reported that the value could be as high as $1.75 trillion.
That would quickly make SpaceX one of the largest publicly traded companies on Earth. But before investors rush to hit the buy button on opening day, history suggests that patience may be a wise move.
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Large IPOs Often Leave Investors Holding the Fund
The stock market loves a hot IPO story. Few offerings have attracted more interest than SpaceX. Between reusable rockets, government contracts, and the Starlink satellite business, the company is at the center of the modern space economy.
However, happiness and return on investment are not always the same.
According to Nasdaq research, about 64% of IPOs underperformed the broader market during their first three years. Many followed by more than 10 percentage points as the initial hype subsided and ratings normalized.
The data on the largest IPOs is:
|
Company |
A year |
Capital Raised |
6 Months Down From IPO Peak |
|
Meta Platforms (NASDAQ:META) |
2012 |
$16 billion |
47% |
|
Alibaba (NYSE:BABA) |
2014 |
$21.8 billion |
26% |
|
Saudi Aramco |
2019 |
$25.6 billion |
22% |
|
Uber Technologies (NYSE:UBER) |
2019 |
$8.1 billion |
18% |
SpaceX may face a similar problem. At a value of $1.75 trillion, SPCX will be worth more than companies like Alphabet have been for the past few years. Investors who bought on the first day may already be paying the price of the future today.
Granted, SpaceX is not a cash-strapped speculative startup. The company dominates global launch services and revolutionized satellite internet with Starlink. But even amazing businesses can be poor investments if the entry price leaves little room for upside.
Retail Investors May Face a Common IPO Trap
One challenge with high-profile IPOs is that retail investors rarely get the best prices. Institutional investors — hedge funds, pension funds, and big banks — typically acquire shares at the IPO price before trading opens. By the time retail investors can buy shares on the public exchange, the stock may be trading 20%, 30%, or even 50% higher.
We’ve seen this movie before. When Coinbase Global (NASDAQ:COIN) to go public in 2021, the enthusiasm surrounding crypto markets has pushed the stock to a valuation of more than $85 billion. Within a year, shares had fallen more than 75% as trading prices cooled and perceived appetite faded. Rivian Automotive (NASDAQ:RIVN) briefly reached a value greater than Ford (NYSE:F) despite producing an automotive component. The stock later lost more than 80% from its high.
Unsurprisingly, the bigger the IPO hype, the harder it is for investors to get solid returns afterward. Hopes are rising fast. Any slowdown in growth, lower launch cadence, margin pressure at Starlink, or increased competition from rivals like Blue Origin could make the valuation look stretched.
No matter how you look at it, a market cap of $1.75 trillion leaves very little room for error.
24/7 Wall St.
The $1.75 billion valuation meets a brutal historical fact: 64% of IPOs fail. Before chasing the SPCX ticker, see why the ‘selling trap’ often costs investors 50% more than experts. © 24/7 Wall St.
SpaceX IPO Could Depress Entire Market
There is another issue that investors should consider — where the money will come from to fund this IPO. Mega IPOs often take large amounts of money out of existing stocks as funds and institutions rebalance portfolios to make room for the new company. In short, investors can sell other holdings to buy SPCX, creating two potential risks.
First, existing technology and aerospace stocks could see short-term pressure as money swirls around SpaceX. Second, when broader market conditions weaken after an IPO, new public companies often suffer first because early investors rush to lock in profits.
That’s important because the broader market is already trading at higher levels. I S&P 500 it currently trades at about 23 times forward earnings, above its long-term historical average of about 16 to 18 times. Investors who pile into some ultra-premium equities may find that there is little margin of safety when markets cool.
That said, none of this is to say that SpaceX is a bad company. Far from it. Business is likely to remain one of the defining growth issues of the next decade.
Key Takeaway
In any case, smart investors should differentiate the company by its stock price. SpaceX could be a long-term winner. But IPO day enthusiasm has a long history of leading investors to overpay for even the best businesses. Between large valuations, possible first-day price increases, and the tendency for large IPOs to cool off after launch, patience may prove rewarded.
When all is said and done, investors interested in SPCX may be better served by watching the first few parts unfold before rushing into the busy market on June 12.
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