Friday should be the day that SpaceX goes public. After 24 years of being a private company and Elon Musk supporting the growth, the company is finally hitting the public markets.
SpaceX was Musk’s first main venture after hitting it big with PayPal, and it’s since grown to do some pretty incredible things – while Tesla (a totally separate entity) has garnered more of the attention. SpaceX is the one behind Starlink, the company that provides a network of satellites to offer internet to pretty much anyone on Earth. They are the ones blasting rockets into space at an unprecedented clip, and managing to bring them back down with precision that makes heads spin.
On top of that, they have folded in X (formerly known as Twitter) as part of their merger with xAI. Best known for its Grok chatbot that is right up there with ChatGPT, Claude, and Gemini from Google, xAI is Musk’s attempt to capture a share of the rapidly-growing AI market. This of course will be a race to see how fast these AIs can grow and whose can be the “smartest” and provide the most value to its users. As you know from a previous Monday piece, the AI race has many potential outcomes, and we will see how it plays out. Will it end like Terminator or something much more mundane that helps the human race? Only time will tell.
In true Elon Musk style, he is doing the IPO in a unique way.
Rather than a typical road show that allows the bankers to get a feel for pricing, SpaceX will go public at a predetermined $135 a share. That equates to a $1.75 Trillion valuation, which would put it seventh overall in size of all US listed public companies, ahead of Tesla even.
That is, of course, before it starts trading. $135 being the starting price, it could trade higher or lower than that number – and meaningfully so.
It’s important to segregate the long-term from the short-term. Long-term, I think SpaceX will be a huge winner and will likely forge many industries we couldn’t even dream up through today’s lens. Will we be living on the moon or Mars in 50 years? Maybe.
Short-term is a little different. SpaceX will have roughly $18 billion in revenue this year and a net loss of nearly $5 billion.
I remember a long time ago (ok, it was the early 2000s), when a fella by the name of Scott McNealy made a comment about his own company’s stock, Sun Microsystems. You may remember that company. It later got bought by Oracle in 2010. Here was Scott’s comment:
SpaceX isn’t 10x revenue, it is 100x revenue. Now don’t get me wrong, you are paying for company that is very diverse and is doing things that no other company can do. Not Boeing at the moment, not BlueOrigin, not even NASA right now. So what is that worth? It’s worth whatever someone is willing to pay for it, just like every other stock. Buyers and sellers come together to set a price that each is willing to buy/sell for. Is $135 the price? It will be for the first trade, but after that nobody really knows.
I told you about a recent IPO in the AI world. This was a much more traditional IPO, in that they priced it based on feedback from their roadshow. It priced at $185, and by the time it started trading, the first trade was $350. It closed the day at $311. Not bad if you bought it at $185. Today, even after a big jump yesterday, it is trading at $226 a share. So, if you bought it anytime the first day, you are losing money. Do I think it’s going to be a big winner, long-term? Yes I do. Without getting in at the IPO price, I wouldn’t touch it though. It too is trading at 100x sales. That’s a big number to grow into.
In addition, this offering (Cerebras) was 20 times oversubscribed. Meaning that there were 20 buyers for every one that was able to buy their shares. What is the number for SpaceX? Well, according to CNBC last week, it is somewhat smaller than 20x.
As of the time of this report on CNBC, SpaceX and its bankers were still looking for $1.65 billion of buyers just to get to 1x. Are they there now, probably. Are they at 20x? Doubtful.
So let’s button this up. We have had many people ask about SpaceX and I continue to tell them the same thing. I like it long-term, but short-term is another issue altogether.
THIS IS MY GUESS, AND ONLY A GUESS.
I would think that $135 holds up the first day, maybe the first week. The bankers have to support the stock if it goes under $135 in the first couple weeks (if they can). I am not trying to throw cold water on anyone’s parade, but chasing SpaceX in my opinion is not a smart thing to do. Do I think it can get to $150 or $160? Sure…$200? Not for a while.
In 10 years will $135 look like a good deal? I think it will. Will you be able to buy it for less than $135 within those 10 years? Probably.
Finally, Fidelity is part of the underwriting companies, and they will be getting shares of this. Madison Park is set up to put indications of interest for our clients, so if you want some shares, let us know and we will put you on the list. I believe this is only for taxable accounts, so no IRAs. If you want to discuss this further, please let us know and we will be happy to talk it through.
That’s it for this week, I hope you have a good week. If you have any questions or comments about this or any other topic. We will certainly be happy to have a conversation.