Elon Musk likes to do everything on a grand scale. When he takes SpaceX public in the coming months, it will likely be the biggest initial public offering in history. Although SpaceX’s recent Securities and Exchange Commission filing for the IPO was confidential, indications are that the conglomerate is looking for a valuation of $2 trillion. That would instantly make it the sixth-most-valuable U.S. company. By conventional standards, SpaceX isn’t worth anything close to $2 trillion. The company is in fact relatively small and losing money. Yet there is little doubt that Musk will get the valuation he wants. He is one of the finest corporate dream weavers we’ve ever seen, and he has a dedicated following of fanboy investors who will happily buy whatever he’s selling.
SpaceX has a collection of interesting businesses—its rocket business was responsible for more than 80 percent of all commercial rocket launches in the United States last year, its healthily profitable Starlink division provides high-speed satellite-internet service to more than 9 million subscribers, and after a merger in February, the company owns xAI, Musk’s artificial-intelligence firm, which owns X, formerly Twitter. But all of this adds up to what is still a modestly sized company: SpaceX’s annual revenue last year was less than $20 billion, and it lost nearly $5 billion, according to a new report from The Information, mostly because of xAI’s huge capital costs. At a $2 trillion valuation, then, SpaceX would be trading at more than 100 times its annual sales. By contrast, other trillion-dollar companies in the market have price-to-sales ratios of 21 (Nvidia), 10 (Alphabet), and nine (Apple) while also being enormously profitable. In other words, SpaceX will be, by a large margin, the most expensive big stock in the market.
[Ross Andersen: Why doesn’t anybody realize we’re going back to the moon?]
This is not how IPOs usually work. Historically, companies have gone public when they’re younger and growing very fast, and their resulting market capitalizations are relatively small. That’s changed some of late—companies are staying private longer, leading to a rise in the number of what are sometimes called mega-IPOs: Facebook, Airbnb, Snap, and Uber have all gone public at hefty valuations. But we’ve never seen anything like what SpaceX is trying to do.
So why is everyone so sure that Musk will be able to pull off this magic trick? In part because that is basically what he’s been doing with Tesla for years. Tesla is one of the world’s 10 most valuable companies today, despite earning less than $4 billion last year. (Alphabet, by way of comparison, earned $132 billion.) Instead of making more money year over year, which would seem to be what an investor would want, Tesla has been making less; its price-to-earnings ratio is now above 300, up from about 35 in December 2022. But the company is still worth well over $1 trillion, because investors believe in Musk’s vision of Tesla’s future, which includes tens of millions of electric vehicles sold annually, millions of self-driving robotaxis, and billions of Optimus robots in homes across the world. Tesla shareholders are essentially indifferent to the company’s current costs and benefits. Their eyes are entirely on what Musk is saying Tesla will become.
Musk is plainly assuming that SpaceX shareholders will feel the same way. Shares in hot IPOs are typically doled out mainly to big institutional investors such as banks and mutual funds, but SpaceX reportedly may allocate as much as 30 percent of the IPO shares to retail investors (i.e., fanboys). Individual investors are usually more volatile than institutions, not less, but when those individuals are true believers, they’re more likely to hold on to shares than flip them.
Such retail investors, Musk trusts, will also not be doing a rigorous discounted cash-flow analysis of SpaceX’s prospects. Instead, they’ll be betting on him and his wild visions of the future, which include, most notably, a plan for SpaceX to launch and run up to 1 million AI data centers in space, beaming the data back to Earth. Not one such data center exists yet, and even if Musk can solve the massive technical and cost hurdles involved, putting up 1 million of them would cost trillions of dollars. But the whole premise of the SpaceX IPO is that those are mere details—in the end, Musk will find a way to make it happen.
[Charlie Warzel and Matteo Wong: Elon Musk cannot get away with this]
And maybe he will. SpaceX’s rocket-launch and satellite-internet businesses are enormously profitable near-monopolies. The problem is that in taking SpaceX public at such a hefty valuation, Musk is setting himself an almost impossible task. All of the good news the company could possibly deliver for years to come will already be incorporated into the stock price, making it unlikely that Musk could ever give investors the kind of return he’s delivered in the past. Tesla’s stock, for instance, is up roughly 31,000 percent since it went public, in 2010; a similar rise for SpaceX would put its market cap at more than $600 trillion. Let’s just say that’s not going to happen. (Nvidia, the world’s most valuable company, has a market cap of $4.6 trillion.) The track record of other recent mega-IPOs also instills little confidence. Snap, Uber, and Airbnb have all underperformed the S&P 500 since going public.
That doesn’t mean you should bet against Musk getting that $2 trillion valuation. He has an enormously powerful reality-distortion field, along with millions of true believers. But if, as Saint Paul wrote, faith is the “evidence of things not seen,” the SpaceX IPO will be the biggest act of faith in investing history.
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