SpaceX, Elon Musk’s rocket company, plans to sell shares publicly for the first time this week. It is an unusual event in several ways.
The company’s initial public offering would give it the title of the world’s largest IPO. SpaceX is also giving everyday investors a much larger portion of its shares than is typical for a public offering. And the IPO could create the world’s first billionaire by increasing the net worth of the company’s CEO, Musk.
Here’s what you need to know ahead of SpaceX’s first day of operations on Friday.
What is an IPO?
An initial public offering, or IPO, is a company’s debut on the stock market. It is the first time that the general public can buy a part of the company. Companies do this to tap into a larger pool of capital to help them expand their businesses.
When a company decides to go public, it works with an investment bank to determine how much the company is worth and the price at which it should sell its shares.
SpaceX has set its price at $135 per share, which would value the company at $1.77 trillion. Since last week, SpaceX bankers have been discussing with potential investors how many shares they are willing to buy at that price. On Thursday evening, all stock orders will be final and the bidding process will close.
On Friday, the stock will begin trading publicly on Nasdaq. Once trading begins, the share price is likely to fluctuate as shares change hands on the open market. Bankers generally try to price an IPO so that it has room to rise once its shares go public. Some analysts wonder how much more SpaceX’s value could rise, given its already lofty valuation.
Why is SpaceX’s IPO important?
Hundreds of companies introduce their shares to the market every year. But what sets SpaceX apart is its size.
At a valuation of $1.77 trillion, it would dethrone Saudi Aramco (Saudi Arabia’s state oil company, which debuted in 2019 with a valuation of $1.7 trillion) as the largest IPO in history.
“It’s a big deal because it’s literally a big deal,” said Matt Kennedy, senior strategist at Renaissance Capital.
If SpaceX’s initial public offering fails, it could send a chill through a market that has been riding a wave of optimism related to artificial intelligence and other technologies. The results could include a cooling of the IPO market or a broader market sell-off.
“If SpaceX does poorly and the rest of the market goes down with it, we’ll all point to that as a sign that the market has peaked,” Kennedy said.
Still, investors may stick with the company for reasons beyond the “Elon Musk factor” or AI-related exposure, he added.
Who makes money from the IPO?
The immediate beneficiaries of the IPO are those who already own private shares of SpaceX. These include Musk, who owns the majority of the company’s shares and could see his net worth rise to more than $1 trillion.
Others include SpaceX employees who have been compensated with company stock and investors, including venture capital funds. Banks that help SpaceX go public will also make money, earning a commission of more than $500 million, the largest payout ever made.
Banks are also using the IPO as an opportunity to attract clients in their wealth management businesses, giving them access to SpaceX’s initial offering shares.
If the company’s stock explodes, investors who buy on Thursday night can sell it and make a profit.
In the long term, the performance of SpaceX stock may depend on whether Musk can deliver on his promises to put tens of thousands of new satellites into orbit and develop a viable AI model.
How can I buy SpaceX shares?
It is possible that regular investors will buy shares of the company at its price of $135, although it is not guaranteed.
When companies go public, they typically reserve a small portion of their shares for individuals, with the bulk going to giant investors like asset managers and hedge funds.
SpaceX, however, is seeking commitments from individuals for up to 30 percent of its shares, much larger than a typical offering.
Some of those stocks reserved for individual investors will be available under the symbol SPCX on online brokerage platforms such as Robinhood, Fidelity, Charles Schwab and SoFi.
For anyone looking to buy SpaceX shares, brokerages have said investors may not get the full amount they are asking for, given the limited supply of shares at the initial offering price.
“Here you ask for 1,000 shares; maybe you get 300; maybe you get 50,” said Jay Ritter, an IPO expert at the University of Florida.
People may find themselves owning SpaceX stock even if they did not choose to actively invest.
The Nasdaq-100, a popular index that tracks the top 100 non-financial companies listed on that exchange, recently relaxed its rules to make it easier and faster to list SpaceX. That will force funds that track the index to invest in SpaceX practically overnight.
How much could investors earn from the IPO?
Nearly 16 years ago, investors jumped into the initial public offering of Musk’s electric vehicle company Tesla, which proved lucrative for those who held out. Someone who bought $1,000 worth of Tesla stock in 2010 would have seen its value skyrocket to around $400,000 today.
SpaceX is the largest company in the space industry by a wide margin, making it a defining stock for those interested in that sector. It has also been around for over two decades and has since hosted several rounds of funding.
“The time to be an early investor in SpaceX has passed,” said Kennedy of Renaissance Capital.
