Houston, We Have an IPO

Why the largest offering in history is probably one to skip

Photo by SpaceX on Unsplash

Back in April, I wrote Vibes & Valuations, and finished the note by saying,

When an IPO is all anyone can talk about, and investors seem more concerned with vibes than valuation, it is generally best for retail investors to stay away.

This week, SpaceX officially announced the launch of its initial public offering (IPO) along with a website for retail investors. The roadshow started yesterday, and the shares are expected to begin trading publicly on June 12^th. It will be the largest IPO in history. The company plans to raise $75 billion at a valuation of roughly $1.785 trillion.

Even if the financials justified the price (they absolutely do not), I would still caution against buying into the IPO simply because history suggests that a year from now, the price will be lower.

I briefly discussed this dynamic at our seminar on Wednesday as part of a broader discussion of volatility (the full slide deck can be downloaded here) and highlighted the chart below.

Of the top 10 largest initial public offerings in US history (Alibaba, Visa, Meta, GM, Rivian, AT&T Wireless, Snap, Uber, Medline, and UPS), the average one-year return was a loss of 27.8%.

I have no doubt SpaceX is a great company, and Elon Musk has a long track record of defying expectations. But investing on the assumption that this time will be different is a hard way to make money.

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Seminar Update

On Wednesday, we hosted a seminar at our office titled “Navigating Market Volatility.” A full copy of the slide deck can be downloaded here. A big thank you to everyone who came out.

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Personal Note:

Every summer, my boys and I take a one-day fishing trip on the Trinity River to chase monster alligator gar.

This year was another successful adventure with the largest fish measuring 6’4” long.