Well, it has been just over a month since the much-hyped initial public offering (IPO) of Space Exploration Technologies Corp (NASDAQ: SPCX). The IPO of Space Exploration Technologies Corp, better known as SpaceX, was perhaps the blockbuster investing event of the year. It was the largest IPO in history.
When SpaceX floated at US$135 a share last month, it valued the company at a whopping US$1.75 trillion. Despite valuation concerns, the initial float went exceedingly well for anyone who already owned SpaceX stock, or was able to secure some at US$135. After just a few days of trading, the company had rocketed (no pun intended) more than 67% to a high of US$225.64 on 16 June. That valued SpaceX at a near-inconceivable US$2.93 trillion.
Bear in mind that, as we've previously discussed, some investors have noted the disparity between SpaceX's financials and the value that investors were willing to place on the company. To reiterate, the company generated US$18.7 billion in revenue last year and recorded an operating loss of US$4.2 billion.
That might explain why SpaceX stock hasn't been doing that well since that 16 June high. In fact, SpaceX shares seem to be going in just one direction since that date a month ago. Last night (our time), the company closed at US$135.27 a share. That's just a whisker above the initial SpaceX IPO price. What's more, the company dipped below US$135 a share during intraday trading, hitting a low of US$132.15 (US$1.58 trillion). At that price, only investors who held shares prior to the IPO would not have been sitting on an on-paper loss.
Image source: Getty Images
So what's going wrong with the SpaceX IPO then?
You might be wondering what has gone wrong with SpaceX shares since the IPO. After all, it's not too often that a company whipsaws between US$1.58 trillion and US$2.93 trillion over just a month.
Well, I think this is a classic case of a hype bubble inflating and then deflating as excitement dies down and profits are taken off the table. We often see this happen with IPOs. The case of Guzman y Gomez Ltd (ASX: GYG) is a good local example. IPOs are, by nature, designed to maximise the profits of insider sellers, brokers, and the company itself, not to enrich retail investors. Once the rush is over, the market tends to revert to normalised valuation. And that is often bad news for those who were first to jump onto the train.
SpaceX was, and arguably still is, being priced on what it might deliver in the future, not what kind of profits it is bringing in the doors today (which were reportedly none last year). Potential is a difficult thing to price. So it's no surprise to see the shares coming off the boil since the SpaceX IPO. I wouldn't be surprised to see this stock continue to drift lower until we get a look at the company's books when it reports its first set of public results. Perhaps even beyond that. Let's see what happens to the SpaceX share price going forward.
