The SpaceX IPO – Trinidad Guardian

The SpaceX Ini­tial Pub­lic Of­fer­ing (IPO) will be priced af­ter the close to­day, Thurs­day June 11, with trad­ing ex­pect­ed to be­gin on Nas­daq un­der the tick­er SPCX on Fri­day June 12. An event of this mag­ni­tude, the largest com­pa­ny val­u­a­tion ever brought to a pub­lic mar­ket, de­serves some col­umn inch­es.

It pro­vides me with an op­por­tu­ni­ty to en­gage with the three things I spent the most time with over the course of my ca­reer – be­hav­iour­al fi­nance, com­pa­ny val­u­a­tions and stock mar­ket in­vest­ing. This col­umn does not pur­port to give spe­cif­ic in­vest­ment ad­vice, but it will of­fer broad guid­ance on how to think about the of­fer. At the very least, the frame­work should trav­el well across oth­er in­vest­ment de­ci­sions you may face.

I set the stage for to­day’s col­umn last week, by dis­cussing stock mar­ket bub­bles. That is not to sug­gest that SpaceX is a bub­ble. It is to ac­knowl­edge that the way an in­vestor must think about this par­tic­u­lar IPO is un­usu­al, and that the psy­cho­log­i­cal pres­sures it will gen­er­ate echo the very forces that have re­peat­ed­ly de­feat­ed dis­ci­plined in­vestors dur­ing spec­u­la­tive episodes.

Ap­pre­ci­ate that spec­u­la­tion isn’t re­al­ly about com­pa­nies that every­one knows are worth­less. Rather, spec­u­la­tion is most rel­e­vant around com­pa­nies that may gen­uine­ly be ex­tra­or­di­nary, be­cause there are a range of out­comes as­so­ci­at­ed with ex­tra­or­di­nary.

SpaceX has changed the eco­nom­ics of rock­et launch, built Star­link in­to a glob­al satel­lite in­ter­net plat­form, em­bed­ded it­self in­to na­tion­al se­cu­ri­ty and space in­fra­struc­ture, and placed Elon Musk’s tal­ent for tech­no­log­i­cal nar­ra­tive at the cen­tre of one of the most am­bi­tious cor­po­rate sto­ries ever of­fered to pub­lic mar­kets. The sto­ry may prove to be worth a great deal. It may even be worth more than scep­tics imag­ine. None of that is the same as say­ing it is worth hav­ing at any price.

SpaceX is tar­get­ing a val­u­a­tion of rough­ly US$1.75 tril­lion on an in­dica­tive price of $135 per share, with po­ten­tial net pro­ceeds of around US$75 bil­lion. The com­pa­ny re­port­ed 2025 rev­enue of US$18.67 bil­lion and a 2025 net loss of US$4.94 bil­lion. If you do the math you are get­ting price to rev­enue mul­ti­ples ap­proach­ing 100. That on the face of it sounds ridicu­lous.

Star­link and con­nec­tiv­i­ty are present­ly the on­ly prof­itable seg­ment. Musk will re­tain more than 85 per cent of vot­ing con­trol af­ter the list­ing, and the of­fer­ing car­ries sev­er­al un­usu­al fea­tures, in­clud­ing a fixed price pos­ture, a po­ten­tial re­tail al­lo­ca­tion of up to 30 per cent, and rapid el­i­gi­bil­i­ty to go in­to the Nas­daq 100 In­dex.

A Les­son

The hard­est part of spec­u­la­tive in­vest­ing is not know­ing that you are do­ing it but rather sur­viv­ing the spec­u­la­tion. I’ll give you ex­am­ples of two world class in­vestors. Stan­ley Druck­en­miller, hav­ing cor­rect­ly iden­ti­fied the dot­com ma­nia dis­cussed last week, sold his tech­nol­o­gy po­si­tions in Jan­u­ary 2000, then watched younger em­ploy­ees with­in his firm con­tin­ue to make $3 mil­lion per day in a mar­ket he de­cid­ed he would step out of. Even­tu­al­ly he ca­pit­u­lat­ed, bought $6 bil­lion of tech­nol­o­gy shares by March, and lost $3 bil­lion with­in six weeks.

Fund Man­ag­er, Ju­lian Robert­son re­fused to even play. He was right about the ma­nia but lost the pa­tience of his in­vestors. He an­nounced the wind­ing down of Tiger Man­age­ment on 30 March 2000. The Nas­daq had al­ready peaked on 10 March. His analy­sis was cor­rect al­most ex­act­ly when his busi­ness mod­el could no longer bear to stick it out.

One in­vestor ca­pit­u­lat­ed to the bub­ble while the oth­er was out­last­ed by it. Both were in­tel­li­gent, ex­pe­ri­enced and ex­treme­ly well re­spect­ed to this day. Nei­ther were pro­tect­ed by that knowl­edge and ex­pe­ri­ence. That is the rel­e­vant con­text for SpaceX, not be­cause the IPO is a bub­ble, but be­cause the of­fer­ing has been en­gi­neered to gen­er­ate the pre­cise emo­tion­al pres­sures that de­feat­ed Druck­en­miller, Robert­son and so many oth­ers in dif­fer­ent ways dur­ing the dot com era.

The les­son from that era is that great tech­nolo­gies can pro­duce great com­pa­nies. The in­ter­net was re­al and the trans­for­ma­tion­al claims were of­ten cor­rect. What was wrong was the price paid for per­fec­tion and the as­sump­tion that every plau­si­ble fu­ture could be cap­i­talised im­me­di­ate­ly in­to present val­ue. The bub­ble did not come from fic­tion alone. It came from truth, ex­trap­o­lat­ed with­out dis­ci­pline be­cause hu­man be­ings by na­ture are prone to ex­trap­o­la­tion with­out dis­ci­pline.

A prop­er val­u­a­tion analy­sis has to trans­late the sto­ry in­to num­bers. Many re­main just cap­ti­vat­ed by the sto­ry even when the num­bers re­quire cau­tion. For SpaceX, the nar­ra­tive is ex­treme­ly pow­er­ful. The com­pa­ny can plau­si­bly claim to op­er­ate across three of the most im­por­tant fu­ture do­mains, name­ly space ac­cess, glob­al con­nec­tiv­i­ty and ar­ti­fi­cial in­tel­li­gence in­fra­struc­ture. Rock­ets low­er the cost of reach­ing or­bit. Star­link con­nects the plan­et. Star­ship may change the eco­nom­ics of pay­load, lu­nar ac­tiv­i­ty and even­tu­al­ly Mars. Space-based com­pute and AI add a fur­ther lay­er of op­tion­al­i­ty. The com­pa­ny is not sell­ing a prod­uct line. It is sell­ing par­tic­i­pa­tion in the in­fra­struc­ture of the fu­ture.

The in­vestor who says no to SpaceX is there­fore not mere­ly say­ing no to a stock. He is say­ing no to one of the most com­pelling founder led nar­ra­tives of any era.

Prob­a­bil­i­ty

To di­men­sion this prop­er­ly, you have to make a dis­tinc­tion be­tween what is pos­si­ble, plau­si­ble and prob­a­ble. Much of the SpaceX sto­ry is pos­si­ble. Some of it is plau­si­ble. The hard part is prob­a­bil­i­ty.

It is pos­si­ble that SpaceX be­comes the dom­i­nant in­fra­struc­ture com­pa­ny for a space con­nect­ed, AI-heavy civil­i­sa­tion. It is plau­si­ble that Star­link con­tin­ues to grow and that reusable rock­et launch re­mains a ma­jor com­pet­i­tive ad­van­tage. It is al­so plau­si­ble that pub­lic in­vestors at­tach a pre­mi­um to Musk be­cause Tes­la, Ama­zon, Face­book, Google and oth­ers taught them that con­ven­tion­al ap­proach­es can be bad­ly wrong when it comes to founder-led tech­no­log­i­cal plat­forms.

Prob­a­bil­i­ty, how­ev­er, is where val­u­a­tion lives. A com­pa­ny can be pos­si­ble at US$3 tril­lion, plau­si­ble at $1.75 tril­lion and at­trac­tive on­ly at a much low­er price. Great sto­ries are not sub­sti­tutes for dis­count rates, cap­i­tal al­lo­ca­tion and in­ten­si­ty, com­pe­ti­tion or gov­er­nance risk.

If an in­vestor be­lieves SpaceX is worth the IPO val­u­a­tion, he should be able to say why in fi­nan­cial lan­guage. What rev­enue does Star­link reach, and at what mar­gin? How much rein­vest­ment is re­quired to get there? What share of the AI in­fra­struc­ture mar­ket is be­ing as­sumed? What re­turn on cap­i­tal is em­bed­ded in the space busi­ness? How much di­lu­tion, debt, capex and tech­no­log­i­cal fail­ure is tol­er­a­ble? What hap­pens if Musk’s at­ten­tion shifts, if reg­u­la­tors in­ter­vene, if launch fail­ures de­lay Star­ship, if ter­res­tri­al AI da­ta cen­tres re­main cheap­er, or if satel­lite in­ter­net pric­ing comes un­der pres­sure?

If those ques­tions can­not be an­swered, the in­vestor is not buy­ing a val­u­a­tion. He is buy­ing emo­tion­al ex­po­sure as­so­ci­at­ed with the IPO. Which is fine, once you know that is what you are buy­ing as your in­vest­ment.

There is a mean­ing­ful dis­tinc­tion be­tween ex­po­sure and sur­ren­der. Ex­po­sure is de­lib­er­ate. It says, this is un­cer­tain, here is my max­i­mum po­si­tion size, here is the price at which I am will­ing to par­tic­i­pate, and here is what would change my mind. Sur­ren­der is emo­tion­al. It says, I can­not af­ford to miss this. Sur­ren­der is an acute mod­ern trend and I have seen mon­ey flow be­hind cryp­to cur­ren­cies, non-fun­gi­ble to­kens, fad stocks and a host of “new” as­set class­es on the ba­sis of “can’t miss out”.

The SpaceX IPO car­ries every fea­ture that can in­ten­si­fy the sur­ren­der im­pulse. It is rare, fa­mous, founder cen­tred and fu­tur­is­tic. Its pri­vate mar­ket his­to­ry has made ac­cess feel scarce. Re­tail par­tic­i­pa­tion takes away the in­sti­tu­tion­al guard rails. The pos­si­bil­i­ty of in­dex de­mand adds a me­chan­i­cal buy­er that can pro­duce im­me­di­ate price ap­pre­ci­a­tion. The first trad­ing ses­sions may cre­ate pre­cise­ly the kind of vis­i­ble price ac­tion that per­suades hes­i­tant in­vestors to aban­don their own process.

Of­ten peo­ple rush in­to things, not be­cause they have be­come be­liev­ers, but be­cause they be­come tired of be­ing scep­tics.

For the T&T in­vestor with ac­cess through in­ter­na­tion­al plat­forms, the prac­ti­cal ques­tion is sim­ple. Can you own SPCX with­out need­ing the po­si­tion to vin­di­cate you? If the an­swer is no, the po­si­tion is too large. Can you avoid it with­out be­com­ing re­sent­ful if it ris­es? If the an­swer is no, your process is not yet strong enough. Can you ex­plain the in­vest­ment with­out lean­ing on­ly on ad­jec­tives such as rev­o­lu­tion­ary, in­evitable or his­toric? If the an­swer is no, your num­bers have not yet caught up with the sto­ry.

Ap­pre­ci­ate that if SPCX ris­es af­ter list­ing, that will not prove the val­u­a­tion sound. It will prove that de­mand ex­ceed­ed sup­ply at that mo­ment. If it falls, that will not prove the com­pa­ny is a fraud. It may sim­ply mean the of­fer­ing price cap­i­talised too much of the fu­ture too soon. Pub­lic mar­kets are not courts of truth. They are the are­na where mood, liq­uid­i­ty and time hori­zon are de­bat­ed and mon­e­tized.

Ian Nar­ine is a fi­nan­cial con­sul­tant who is look­ing for Space from the X. Please send your com­ments to Ian@ian­nar­ine.com