SpaceX could have the biggest IPO in history.
Witness SpaceX rocket pass over California
A SpaceX rocket was spotted flying over Hesperia, California, after liftoff on Monday, April 6th. According to SpaceX, the Falcon 9 launched 25 Starlink satellites into low orbit from Vandenberg Space Force Base in California.
SpaceX is preparing to go public in what could be the largest IPO in history.
After the company secretly filed to go public last week, Bloomberg reported that the company was seeking a valuation of up to $2 trillion, a report that CEO Elon Musk rejected.
SpaceX was valued at $1.25 trillion in February when it merged with Elon Musk’s AI company xAI, which owns social media site X and chatbot Grok, based on estimates by its board of directors and investment bankers. Based on this number, $2 trillion would obviously be a much larger increase, but SpaceX is a unique company, so it may be achievable.
The company dominates the commercial orbital space launch market thanks to reusable rockets like the Falcon 9, and its Starlink division is also the world’s largest satellite operator and leads the satellite-based broadband market with more than 9 million customers.
But while there seems to be strong demand for a SpaceX IPO, I’m content to stay on the sidelines until it happens. Here are two reasons why.
1. Evaluations involve significant risks.
SpaceX has not yet filed its S-1 prospectus, so we don’t know the company’s full financials, but some basic numbers are out there.
According to Reuters, the company’s revenue will reach $15 billion to $16 billion in 2025, up from $13.1 billion in 2024, with earnings before interest, taxes, depreciation, and amortization (EBITDA) of about $8 billion.
Based on the $2 trillion valuation the company is reportedly seeking, it would trade at a price-to-earnings ratio of about 130 times, higher than any other stock in the S&P 500 and more than three times higher than any other stock in the S&P 500 except Palantir.
At such a valuation, very high expectations are already priced into the stock, and at the $2 trillion level, upside potential is limited. In comparison, NVIDIA is worth just about $4.3 trillion, making it the world’s most valuable company.
At the valuation the company is targeting, SpaceX would be in the same league as the Magnificent Seven companies, which dominate the industry and generate far more revenue and profits than SpaceX.
Although it seems difficult to justify, it means that the stock price could easily fall due to market disappointment or a change in sentiment.
2. Elon Musk is too risky for me
There’s no question that Musk was a visionary and a great business leader at a company like Tesla. (NASDAQ:TSLA)SpaceX and others are more highly regarded for the “Musk premium,” or his ability to sell his vision of the future, which for SpaceX includes sending data centers into space and eventually humans to Mars.
However, Mr. Musk faces not only key man risk but also many other risk factors. He tends to overpromise innovation and then shift investors’ attention elsewhere when those promises are delayed or unfulfilled.
He did this several times with Tesla. He said in 2021 that the company’s car sales will grow at an average annual rate of 50% for several years, but Tesla has only achieved that growth rate for two years, and car sales have now been declining for the past two years. When asked about weak EV sales, Mr. Musk tends to veer off to Tesla’s future ambitions, such as robotaxis and its autonomous robot Optimus, and make other promises about the future. This strategy has been successful in inflating the stock price, as Tesla is valued at nearly $1.5 trillion, making it much more expensive than its Magnificent Seven peers.
SpaceX is likely to follow a similar strategy, with an IPO pitch built on Musk’s ability to sell Musk’s vision of what the company could become, likely including space travel, orbital data centers, and other bold but potentially unfeasible ideas, Bloomberg reports.
Musk does have his fan base, and those investors are likely to be attracted to SpaceX’s IPO. But he’s too untrustworthy for me at this point to be a political lightning rod.
Even if I had free money, I wouldn’t invest it in SpaceX. After all, free money is money, and there are many things you’d rather spend it on than a hot stock debut that’s likely to scorch investors.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has a position in and recommends Tesla. The Motley Fool has a disclosure policy.
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