The biggest investing news Thursday night was that SpaceX (SPCX +27.94%) CEO Elon Musk had become the world’s first trillionaire (at least on paper), thanks to the initial public offering (IPO) of SpaceX at $135/share. This IPO shattered the record for the largest IPO in history, raising $75 billion.
Today, SpaceX stock began publicly trading on the Nasdaq, opening at $150/share at about 11:45 AM ET. Before noon, that had jumped to $168/share, giving it a $2 trillion market cap, making it the seventh-largest company in the world.
But before you fall victim to FOMO and race out to buy shares, there are some things you need to know about SpaceX’s wild opening day.
Supply and demand
The vast bulk of the IPO shares of any company are allocated to institutional investors like mutual funds, pension funds, and hedge funds. Usually, those account for 90% to 95% of all IPO shares. But SpaceX decided to do something different. It initially targeted a 30% allocation of its shares to retail investors, who could request shares through five different brokerages.
Note that I said, “request shares,” not necessarily “buy shares.” In fact, the retail allocation was cut from 30% to the low-20% range. But demand for IPO shares reportedly topped $100 billion: so high that many retail investors who requested large allocations only received a small fraction of their desired shares. Of course, those retail investors — along with everyone else — were able to purchase additional shares on the Nasdaq once they started trading, so an immediate bump in share price was expected.
Meanwhile, crypto perpetual futures markets were pricing SpaceX shares at between $172/share and $176/share (27% to 30% above the IPO price) before trading began on Friday, indicating the first-day surge was expected.
Space Exploration Technologies
Today’s Change
(27.94%) $37.73
Current Price
$172.72
Key Data Points
Day’s Range
$149.80 – $176.50
52wk Range
$149.80 – $176.50
Volume
10.9M
Eyes on the long-term prize
Of course, the question for long-term investors isn’t how well the stock does in its first hour of trading, or even its first day. The question is whether the stock will outperform over years if not decades. And analysts have very mixed feelings about SpaceX’s prospects once the initial hype has settled.
Of the analysts that have already initiated SpaceX coverage, some think it’s poised to climb even higher. Oppenheimer gave SpaceX an Outperform rating and a price target of $190/share, 40% above its IPO price, citing its access to capital, vertical AI integration, and hardware and manufacturing expertise.
Image source: Getty Images
Morningstar, on the other hand, went hard in the opposite direction, slapping a $63/share price target on SpaceX stock, a 53% discount to the IPO price, using a probability-weighted discounted cash flow model. Even using extremely optimistic “Moonshot” assumptions — which it believes only have a 7% probability of occurring — Morningstar couldn’t get above $153.50 in valuation. By contrast, its “No Go” pessimistic assumptions value the company at $43.10/share, and it believes there’s a 43% probability of that scenario coming to pass.
Other bullish analysts point out that SpaceX has two separate revenue engines: its launch business, which it dominates, and its Starlink satellite communications business, which is the fastest-growing and, currently, only profitable part of the business. They also note that CEO Elon Musk’s celebrity status has resulted in his other company, Tesla (TSLA +0.65%), maintaining a high valuation relative to its revenue and net income.
But SpaceX bears counter that the company as a whole is currently unprofitable, with growth in the company’s AI businesses expected to provide the bulk of its long-term revenue. They note that Musk has given himself unprecedented control over SpaceX without much accountability, which could lead to governance issues. Additionally, the company may suffer if Musk splits his focus too much among his multiple companies, while the “Elon Musk effect” tends to make his companies’ stocks more volatile than average.
The takeaway
The unique nature of this IPO and this company meant that first-day trading was always going to be a roller coaster ride. Indeed, as I write this at 1 PM — just over an hour since trading began — SpaceX’s per-share stock price has already climbed from $150 to $168, then fallen back to $156, then rocketed up to $172, and is now heading back down at $169. Nobody knows where it will end up at the end of the day, much less the end of the year.
History has shown that big first-day pops for a hot stock can reverse very suddenly, and SpaceX’s stock is the hottest one around. Don’t let FOMO sweep you off your feet: the sensible move is to wait and see where SpaceX’s stock stands when the initial hype subsides.
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