SpaceX IPO: Looking Ahead to What’s Next After the Day 2 Surge

Two days after its historic IPO, SpaceX is trading well above $160 per share, with a valuation exceeding $2 trillion. In this quick Ask Avidian update, Jake Borbidge breaks down the $135 IPO price, opening surge to $150, strong retail participation, high trading volume, the executed green shoe, and what’s ahead with index inclusions, institutional demand, and upcoming lockups.

Learn how this landmark event could impact portfolios and what private investors should consider as more shares unlock.

Disclaimer: 

Avidian Wealth Solutions is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  

Avidian is neither a law firm nor an accounting firm, and no portion of its services should be construed as legal or accounting advice. 

Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

This information contained herein may be dated.

Transcript

– IPO Pricing & Opening Trade

SPEAKER_00 0:00

Hi everyone and welcome back to the Ask a Videan podcast. This is Jake Borbage, Chief Investment Officer with Avidean Wealth Solutions.

SPEAKER_01 0:08

Let's get started. Elon Musk's SpaceX will begin trading tomorrow when markets open the price that you see here at $135 per share, giving SpaceX a valuation of $1.7 trillion.

SPEAKER_02 0:21

SpaceX opens at $150. That is an 11% increase on $135 pricing.

SPEAKER_00 0:30

All right. Questions? Uh quick update today. This is uh two days hence the SpaceX IPO. So wanted to let everybody in on what we're seeing, what we know, and some of the things that are still TBD in our perspective. Uh so as everybody that's not living under a rock knows, uh, SpaceX IPO'd last Friday. Uh it was priced on Thursday, $135. Uh, I believe the first tick was $150, meaning the first uh publicly traded uh exchange. Uh Friday close a little north, a rate around $160 today. Uh currently trading well north of that. Uh nice kind of day after IPO pop of

– Day 1 Close & Valuation

SPEAKER_00 1:15

around 10%. What we're kind of seeing. We'll see what the market ends today. Uh, in market value terms, our valuation on the company would be uh north of $2 trillion. Uh, so that's a little bit higher than what markets were speculating. So I think what we saw is the IPO was priced slightly below the $2 trillion mark at 1.75, uh, began trading Friday, and now today is actually trading above uh above that $2 trillion mark. Um, keep in mind that a very small percentage of the uh company's shares are actually listed publicly. Uh, but one thing that is relevant is the uh the um sponsoring brokers, Goldman, uh Morgan Stanley, uh among others, also were able to execute their green shoe, which I think actually happened today. Another $10 to $11 billion of worth uh sorry of share value um on the market, which was quickly absorbed. Uh on Friday, we saw a little over 500 million shares trained change hands. So basically every share that was issued changed hands at least one time. Uh, we're seeing pretty high volume as well today. Uh was north of 100 million shares when I entered the studio to do this podcast, and I expect it to continue to climb uh through uh throughout the day today. A couple notes on what's going to happen over the next days, weeks, and months with this particular stock and then some of the other market structures that are gonna surround the stock, ETS, indexes, active fund managers. Uh most people know that this was an IPO that uh had a large amount of retail participation. Uh, we know personally that the retail custodians that we work with received a meaningful allocation. I've heard between 20 to 30 percent of all of the shares issued went to the retail marketplace, uh, which is larger than most IPOs. Most IPOs do not have a large piece of retail participate participation in them. However, uh most retail investors that indicated an interest in buying shares of SpaceX at the IPO received only a small fraction of their overall allocations. Uh, you could probably guess one share per 100 shares of issuance was roughly what we were seeing on our side. Uh, so very significant uh reductions in overall allocations based on what people wanted to buy. Uh so for retail investors, if they want to continue to fill that

– Retail Volume & Green Shoe

SPEAKER_00 3:30

level of interest, they would obviously have to buy in the open market. That's probably part of what's driving the volume today, uh, amongst also that uh that issuance of the green shoe. Uh however, what we think is going to happen over the next, you know, all over the coming weeks. So there is a couple uh angles to observe here. One is on the demand side, demand meaning who is going to be the incremental buyer of shares as time passes. And then two is on the supply side. So as we know, uh at the IPO, only a very small fraction of the overall supply uh is able to be traded, or we call that float. Uh, roughly four to five percent of the value of the company or of the of the shares in SpaceX are actually able to be traded right now. So that's a very small percentage. However, on the demand side of things, uh, only a small percentage of institutional buyers likely are actively buying shares to fill their own mandates. Uh, the reason being is that indexes have yet to include SpaceX in their in their allocations. When they do include SpaceX, uh, there is some attention paid to the amount of shares that are publicly traded or the float uh that actually kind of reduces the overall weight in in uh set indexes. And so what we expect to see, you know, probably five or six days from now, we'll see a couple of indexes start to uh include SpaceX as a holding. Uh, it's not going to be something that is, you know, extremely extremely broad based, but a few index providers, uh NASDAQ, Russell, um, I believe uh FTSE and MSCI uh have all indicated that they are going to fast track uh the inclusion of SpaceX over the next five to 15 days. However, those indexes a lot of times look at the amount of float, right? So be just because SpaceX is a $2 trillion company doesn't mean it's going to get $2 trillion worth of market weight in an index. That weight is going to be adjusted down by the amount of float. Uh each index provider has their own methodologies for handling that percentage of float calculation. Uh some index providers just look at that as kind of the market cap. And other index providers increase that, like NASDAQ on the on the uh NASDAQ 100 actually has a multiplier of float to include those shares at a higher degree. And so over the next couple of weeks, we're gonna see some of those index providers include SpaceX as a holding. Uh, it's not gonna come in at full market weight, it's gonna come in at a float adjusted weight. Uh, that's probably, you know, more in the lines of kind of like that 50 to 150 basis point range. So not a huge holding, definitely not the size of a $2 trillion company in those indexes. And that's really when you're

– Index Inclusions & Lockup Schedule

SPEAKER_00 6:00

probably gonna start seeing some of those institutional buyers, you know, called Blackstone or called BlackRock, uh, Vanguard, State Street, right? The the funds that are running those large uh ETFs, uh, they're gonna start buying shares on the open market to fill uh their mandates. They're likely buying some of those uh ahead of ahead of time as well. However, what you're not gonna see, so the biggest uh ETFs in terms of AUM are typically the ones that track the SP 500. And as we know, the SP, SP, the index provider, is not including SpaceX uh in the near term. So you're not gonna see those large pools of asset uh asset buying. However, on the institutional side, outside of the ETF world, um, many active managers as well as many large institutions are benchmarked to the Russell 1000, growth managers to the Russell 1000 growth. Uh, you know, the SP 500 is a less common uh active benchmark to benchmark yourself against. And so many of those active managers are going to see SpaceX added to their benchmark uh in the very near term. And so they will have to make a decision. Do we want to be market weight? Do we want to be overweight, or do we want to be underweight, which is the same decision they have to make for every other stock in their benchmark? However, they're going on very little information for SpaceX. So even at the I I don't know anything uh decision point, even after analysts start publishing uh estimates on these uh on these stocks, which we saw a couple come out, still haven't seen. I think Goldman and Morgan Stanley are probably some of the big ones. JP Morgan, right, still need to publish their research. But once that research is out, you'll see active managers. A lot of them are probably gonna take the initial position of we just want to be neutral and wait and see and learn. Uh, but some will probably be underweight, some will probably be overweight, uh, and we'll see some of that that deal flow or sorry, that uh that trading flow as well. So the other side of the the coin is the supply side. So we haven't talked about that yet. Uh I think that is probably the area where there's still the uh the greatest amount of um vagueness or or lack of understanding, and likely because again, this is a private company moving to a public company. There are hundreds, if not thousands, of institutional owners on the private side that now own the public shares. Uh, this is a company that has been private for well over two decades. Uh it's so it's it's a mature private company that's gone through multiple rounds of funding on the private markets. Uh, each one of those rounds of funding, each one of those uh you know, investors on the private side may have different lockups. And so what we're seeing is a very diverse set of potential lockups uh starting in starting after Q2 earnings are announced, but going all the way through 365 days out. And so what I expect to see over the next handful of months and quarters is new supply

– Portfolio Implications

SPEAKER_00 8:45

of shares being unlocked. That means that if you own shares in the private side of the world, you probably aren't able to sell your shares until one of those lockups hits. Once one of those lockups hit, you'll see an additional uh public supply, which actually increases the float. And so you have uh two things happening, right? The float increases because private investors are unlocked, they're able to sell their shares publicly. Some of them may choose not to, but they still get counted as as floated shares because they could be sold. So you'll see those some of those shares unlocked increases the float. That in turn increases the allocation that index providers will calculate because they'll see this the float increase, which naturally increases the multiple that they have or the weight that they have on that uh individual stock. So you'll see natural institutional buying as that supply increases over time. Um, the how balanced that supply and demand uh will be is is obviously still TBD, and we'll see that borne out in the price action uh over the next uh months, weeks, and and quarters, uh weeks, months, and quarters. Um so we do expect to get more clarity on the lockup schedule, at least as it relates to our own clients who have participated pre-market uh in the coming weeks. Um, but like likely uh as we watch uh this stock continue to trade, um the additional supply of new shares and then the you know fluctuating demand is gonna be what moves the stock going forward. So last thing to think about uh your own portfolios, especially as the story continues to evolve and the market continues to digest new information. Uh if you happen to own SpaceX and like many of our clients have owned SpaceX for a number of years in their portfolios, you may have a sizable position, and that position likely is gonna have some sizable gains. Uh, it's not too early to start planning on how to potentially exit the exit that position. You're not forced to exit, but there are a number of different interesting strategies that can help you to, you know, bank losses, capital losses that you can use to offset the gains of your SpaceX position. If you have a desire to learn more detail about any of those potential exit strategies, or if you just want to ask more questions to your advisor, just come check us out at AVIDIMWealth.com.