SpaceX, Elon Musk’s rocket company, plans to publicly sell shares for the first time this week. This is an unusual event in several respects.
The company’s IPO would earn it the title of the world’s largest IPO. SpaceX is also offering ordinary investors a much larger share of its shares than is typical for a public offering. And the IPO could create the world’s first billionaire by boosting the net worth of the company’s CEO, Mr. Musk.
Here’s what you need to know ahead of SpaceX’s first day of trading on Friday.
What is an IPO?
An initial public offering, or IPO, is a company’s debut on a stock exchange. This is the first time the general public can buy a share of the company. Companies do this to tap into a larger pool of capital to help them grow their business.
When a company decides to go public, it works with an investment bank to determine the value of the company and the price at which it should sell its shares.
SpaceX set its price at $135 per share, which would value the company at $1.77 trillion. Since last week, SpaceX bankers have been talking to potential investors about how many shares they are willing to buy at that price. On Thursday evening, all stock orders will become final and the offering process will be closed.
On Friday, the shares will begin trading publicly on Nasdaq. After trading begins, the stock price is likely to fluctuate as shares change hands on the open market. Bankers typically try to price an IPO so that it can rise once its shares go public. Some analysts question how much further SpaceX’s value could rise, given its already high valuation.
Why is SpaceX’s IPO important?
Hundreds of companies list their shares on the market every year. But what sets SpaceX apart is its size.
With a valuation of $1.77 trillion, it would dethrone Saudi Aramco – the Saudi state-owned oil company, which debuted in 2019 with a valuation of $1.7 trillion – as the largest IPO ever.
“It’s a big deal because it’s literally a big deal,” said Matt Kennedy, senior strategist at Renaissance Capital.
If SpaceX’s IPO fails, it could send a shudder through a market that’s riding a wave of optimism tied to artificial intelligence and other technologies. The results could include a cooling of the IPO market or a market sell-off.
“If SpaceX performs poorly and the rest of the market goes down with it, we will all take that as a sign that the market has peaked,” Mr. Kennedy said.
Still, it’s possible that investors remain loyal to the company for reasons beyond the “Elon Musk factor” or AI exposure, he added.
Who makes money from IPO?
The immediate beneficiaries of the IPO are those who already own private shares of SpaceX. Among them is Mr. Musk, who owns the majority of the company’s shares and could see his net worth reach more than $1 trillion.
Others include SpaceX employees who were compensated in company stock and investors, including venture capital funds. Banks helping SpaceX go public will also make money, netting more than $500 million, the largest payout ever.
Banks are also using the IPO as an opportunity to attract clients of their wealth management businesses, giving them access to shares in SpaceX’s initial offering.
If the company’s stock breaks out, investors who buy Thursday night can sell those shares and make a profit.
In the long term, SpaceX’s stock performance could depend on Mr. Musk’s ability to 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 stock?
It is possible for ordinary investors to purchase shares of the company at a price of $135, but this 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% of its shares, which is much more than a typical offer.
Some of these 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 stock, brokerages said investors may not get the full number they are asking for, given the limited supply of shares at the initial offering price.
“Here you ask for 1,000 shares — maybe you’ll get 300; maybe you’ll get 50,” said Jay Ritter, an IPO expert at the University of Florida.
Individuals may find themselves owning SpaceX stock even if they have not actively chosen to 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 SpaceX’s inclusion easier and faster. This will force funds that track the index to invest in SpaceX virtually overnight.
How much could investors make from the IPO?
Nearly 16 years ago, investors flocked to the IPO of Tesla, Mr. Musk’s electric vehicle company, which proved lucrative for those who held on. Someone who bought $1,000 worth of Tesla stock in 2010 would have seen its value rise to around $400,000 today.
SpaceX is by far the largest company in the space industry, making it a compelling stock to own for those interested in this sector. It has also been around for over two decades and has hosted several funding rounds since then.
“The days of being an early investor in SpaceX are kind of over,” said Mr. Kennedy of Renaissance Capital.
