NEW YORK – SpaceX stock ended higher in its first week of trading, even though its rough ride showed the largest-ever IPO was not immune to the type of share-price volatility that tends to rock big companies after they go public.
Shares of Elon Musk’s rocket, satellite and artificial intelligence company fell 3.6 per cent on June 18, bringing a two-day decline to 8.3 per cent. Markets are closed in the US on June 19 for a public holiday.
Still, SpaceX ended its first week of trading as a public company at 37 per cent above the US$135 price of its record initial public offering. The company’s total market capitalisation at close was US$2.4 trillion (S$3. trillion), making it the sixth-largest company in the world.
“After a run like this, a down day or two looks a lot more like exhaustion than anything fundamental. You had a near vertical move off the IPO, very little float, and at some point buyers simply need to catch their breath,” Dave Mazza, chief executive officer of Roundhill Financial, said. “The level I care about is the US$135 IPO price, and as long as we are sitting well above it, I read this as the stock digesting a huge week rather than anything that should concern people.”
Retail trading is playing a part in the choppy moves after the group was allocated about 20 per cent of total stock on offer at the IPO. Retail investors were big net buyers of SpaceX in its first few days of trading, putting more into the company’s stock than other favourites such as Nvidia. The group stepped back on June 17, with net flows flat for most of the day and ending with a small US$2.3 million net buy at market close, according to data from Vanda Research.
On June 18, the cohort had net sales of US$3.5 million in the first 10 minutes of the trading session before flows stabilised and moved back into positive territory.
Volatility is likely to continue as investors weigh lofty expectations for future revenue growth without a clear path to achieving them, according to Michael Monaghan, partner and portfolio manager at Founder Funds in Dallas, which holds shares of SpaceX.
“We got very comfortable owning this stock because we could see US$200 billion of revenue in 2030,” he said, noting even higher estimates elsewhere. “But literally and figuratively you need a rocket to go get those revenues.”
Arete Research’s Andrew Beale initiated coverage on the stock on June 18 with a buy rating and US$401 price target, implying it will more than double from where it currently trades.
“We think fundamentals and SpaceX’s long-term growth potential will drive investor interest,” Beale said. While he forecasts that the firm will top US$200 billion in revenue by 2030, he cautioned that the path there will not necessarily be entirely smooth sailing.
“Space is hard and timelines can slip with launch anomalies, technical challenges, environmental concerns and any number of other factors, so all estimates should be treated with a wide degree of caution,” he added.
Despite a rocky couple sessions of trading, shares may be about to get some support from index inclusions in the weeks ahead. SpaceX will be eligible to be added to the Nasdaq 100 index after 15 days of trading, thanks to Nasdaq’s rule change to allow faster entry for megacap IPOs.
Of course, if SpaceX is added to the Nasdaq 100, it will likely command a small weighting in the gauge at first. It will also soon be eligible for inclusion in FTSE Russell and MSCI gauges.
As a result, about 30 per cent of SpaceX’s free float is set to be owned by passive investors just two weeks after the IPO, according to Intropic, a provider of index-rebalancing forecasts. That demand, combined with its low float – as lockups prevent insiders from selling shares for months – could put upward pressure on SpaceX shares.
“You’re already seeing ETFs and other things popping up, trying to capture some form of SpaceX already,” said Ann Miletti, head of equity investments at Allspring Global Investments. “I don’t know that it will be that dramatic of a shift. Obviously investors who are very focused on benchmarks, and if you’re involved at all in growth or technology, you’re looking at ‘how do I position myself if this does enter any benchmarks?’ So that’s kind of the main thing that tends to drive a little bit of volume.”
History shows trading can be very turbulent for megacap IPOs: The average maximum drawdown from the close on day one is 55 per cent within the stock’s first year, according to a Truist Wealth analysis. But with the weekly gain at Thursday’s close, SpaceX stock beat out the average first-week performance of 30 major US tech IPOs from the past 15 years, according to Truist Advisory Services.” BLOOMBERG
