SpaceX is preparing for what could be the largest IPO in history. What can history teach us?
SpaceX rocket crosses Southern California skies
Falcon 9 raced across the sky in Chino Hills, California, on Monday, May 11, during SpaceX’s latest launch. Credit: @necondaa007 via Storyful
@necondaa007 via Storyful
SpaceX is aiming for a $2 trillion valuation in an IPO this summer, raising $75 billion in the process, making it the biggest public debut in market history.
So it’s worth considering what happened when companies set IPO records in the past. Did the five largest IPOs of all time reward Day 1 shareholders?
Performance of the five largest IPOs in history
Take a look at the largest IPOs in recent history (adjusted for inflation). The table below shows the returns of five companies: Saudi Aramco, NTT Docomo, Alibaba, Enel, and Visa. (NYSE:V).
Data source: Author’s research. Note: NTT Docomo went private in 2020.
A fairly clear pattern emerges. Many people achieve success right away, but most people do poorly later on.
The only company that crushed the market was Visa. Saudi Aramco is actually under The remaining three companies, Enel and NTT DoCoMo, were unable to catch up with the market by a wide margin.
Even though it’s a great company. None of these companies are bad businesses. Rather, the expectations set during the IPO were unrealistic.
What this means for SpaceX’s IPO
The pattern in the table does not mean that large IPOs are scams, but their maximum hype tends to coincide with their maximum valuation, which is not the best place for compounding and leaves little room for error or unforeseen circumstances.
An IPO price of $2 trillion means SpaceX will generate less than 15% of Aramco’s revenue while launching at roughly the same valuation as Aramco’s current valuation. Future growth is already factored into this.
If SpaceX’s price is nearing $2 trillion, history suggests that investors who want to own SpaceX stock are better off waiting for a post-IPO sell-off. Of course, patterns are not prescriptions, and SpaceX could very well act as an outlier like Visa. It’s important to have a clear idea of how large a company’s valuation will be at an IPO and what that means for the stock.
Johnny Rice has no position in any stocks mentioned. The Motley Fool has a position in and recommends Visa. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
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