Here's a hot take: The upcoming IPO of SpaceX will, in all likelihood, burn most investors.
Before we get into this question, it's important to note that this is just my personal view, and could well be proven wrong. But let's go through what we know.
SpaceX is one of the many companies headed up by the controversial yet incredible Elon Musk. However, it is set to become only the second of Musk's companies to hit the public markets in an initial public offering (IPO) very soon. Musk famously already helms the electric vehicle and battery manufacturer Tesla Inc (NASDAQ: TSLA), which listed back in 2010 and has made some investors enormously wealthy.
Image source: Getty Images
SpaceX IPO to make history
SpaceX is set to float on the American NASDAQ exchange later this week on 12 June. It is expected to float at US$135 a share, and at a market capitalisation of US$1.77 trillion. With a 'T'.
That would immediately make it one of the largest IPOs in history, and make SpaceX one of the largest companies in the world right off the bat. It is to use the ticker code 'SPCX'.
SpaceX is famous for its cutting-edge rocket and space exploration technology. However, Musk has also lumped his artificial intelligence platform xAI into the company, as well as the social media site formerly known as Twitter, and now known merely as X.
According to CNBC, SpaceX is aiming for retail investors to receive about 30% of the shares being sold in its IPO. That's well above your typical float, which aims for 5-10%. Not just American retail investors either. Stock market participants all over the world are being invited to join this IPO. Our own CommSec platform has been offering retail investors on the ASX a shot at directly owning SpaceX shares after its float. Even my own beloved, yet usually-stock-market-agnostic, mother asked me about it last week.
As such, many Australians may have already signed up, hopeful that participating in this SpaceX IPO will make them wealthy.
I doubt that will happen.
Weighing the numbers against the hype
Why so serious? Well, there are a few red flags that I have noted that prompted this article.
Firstly, the conspicuous effort to include ordinary retail investors all over the world in this IPO could be construed as an effort to dial up the hype to 11. Musk is already a commanding figure in the investing world. Many loathe him, but many love him, perhaps thanks to his successes at Tesla. Many more may feel tempted to seemingly align their financial fortunes with those of Musk.
As the world's richest person, the ads sell themselves.
However, even if you call me old-fashioned, I think a company's numbers should speak louder than all else to attract IPO attention. Instead, it is Musk, his shiny company with the grand name, and his global army of spruikers that are attracting the attention.
If we actually dive into the numbers, there's a different tale to be told.
CNBC reports that SpaceX "generated [US]$18.7 billion in revenue last year and recorded an operating loss of [US]$4.2 billion". Yet we are being asked to invest in a company worth, according to its own estimates, almost US$2 trillion. For me, flags don't get redder than that.
I'm sure SpaceX is an exciting company with a trailblazing path ahead of it. But at that valuation? I see far more risk than reward. IPOs make many people rich. But it is usually not the investors who buy the shares at IPO. Instead, the rewards go to the insiders selling their shares at IPO, and the brokers and bankers that underwrite the process. The investors on the other side may get what's left, but, as I've written about before, are often just left holding the bag.
Foolish takeaway
I'm not saying SpaceX shares will plunge when they hit the market. Depending on the hype, there's every chance they go 'to the moon'. However, I think it is likely that once the hype dies down and the SpaceX IPO becomes old news, the shares will be less than US$135 each. As investing pioneer and Warren Buffett mentor Benjamin Graham once said: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine".
I wouldn't be surprised if investors 'vote' SpaceX shares higher when they hit the market. But I would be surprised if they weigh them afterwards and find they are truly worth a total of US$1.77 trillion.
I could be wrong, of course. No crystal balls here. But I wouldn't touch this IPO with a ten-foot pole, and unless you know far more about SpaceX than I do, I would recommend an abundance of caution to all.
