The sharp drop in the share price of Space Exploration Technologies Corp (SpaceX) is almost as dramatic as its heavily hyped initial public offering, and the last-minute cancellation of the launch of the company’s Starship V3 vehicle on July 16.
As of July 17, the shares were trading down as far as US$123.99 from its post-IPO high of $201.80 and its IPO price of $135.
The slide has wiped an estimated $1 trillion off SpaceX’s valuation since its June 16 peak. It also calls into question the company’s value proposition, and the price targets floated by its IPO underwriters.
Morgan Stanley put a $300 target on the shares and added the company to its Space 60 list. Deutsche Bank set a $255 target. Goldman Sachs’s target was a more conservative $205.
Not everyone bought into the hype. Part of the high valuation and demand immediately after the IPO was attributed to the relative scarcity of stocks, not least with more companies being taken private.
Morningstar initiated coverage of SpaceX at a valuation of just $780 billion, less than half the company’s own IPO target.
Gary Black, managing director of Chicago-based Future Fund, shared posts highlighting SpaceX’s “totally unproven plans to build data centres in space” and “ridiculous total addressable market” predictions. He said SpaceX “still looks ridiculously overvalued” and that investors who bought into the IPO “deserved what they got”.
Nasdaq was criticised by some for changing inclusion rules for the Nasdaq 100 index to add SpaceX, which only had to wait 15 days post-IPO instead of the usual three months. As of July 17, the Nasdaq 100 was down to 28,592.66 from a June 2 high of 30,660.60.
SpaceX has traded heavily on its support for the artificial intelligence boom, with the promise of orbital data centres. The sudden drop in the share price raises the risk of contagion across the AI proposition.
But Mark Hulbert, finance analyst and columnist at MarketWatch, said that “detractors are going too far”, saying that close to half of major IPOs sink below their offer price and stay there for several years. He cited Meta Platforms, whose share price has increased around 1,700% from its offer price despite dipping post-IPO.
Even if so, the issue raises the question of when — and whether — to seek listing. According to Black, “the cynical way” in which SpaceX and its IPO underwriters and advisers had sought “to engineer short-term gain” created a “highly imbalanced supply/demand situation” where a free float of less than $100 billion supported a notional value of over $2 trillion.
There’s plenty of food for thought in the SpaceX listing story. As usual, caveat emptor.
