The highly anticipated SpaceX IPO is set to make history in the coming weeks, with the company aiming to raise a staggering $75 billion at a valuation of $1.75 trillion. This massive offering is poised to become the largest public offering in history, but what does the past tell us about its potential performance?
The data is mixed, with recent IPOs struggling to maintain their first-day gains, but larger, more mature companies outperforming over the long term. The key question is whether SpaceX fits into this category. With its valuation based on speculative growth expectations, it shares similarities with Tesla, valued on potential future ventures.
However, history suggests that buying shares on the first day of trading is often risky. The average IPO pop on the first day is 23%, but over the following year, returns are negative 1.7%. This trend has worsened since 2020, with a 49.1% average return decline in 2021. The only other period with negative one-year returns post-debut was the dot-com bubble in 1999-2000.
The simplest explanation for this downturn is that companies are waiting longer to go public, raising private capital. When a company is mature, there's less room for capital appreciation. Yet, larger companies can still produce solid returns, with venture capital-backed businesses outperforming the market by 11% over three years.
SpaceX's valuation is highly speculative, based on massive growth expectations for long-term endeavors. This makes its stock similar to Tesla, valued on potential future ventures. Investors willing to take on the risks may find good value at the IPO price, but waiting for a pullback could offer a better entry point within the next year.
In conclusion, while SpaceX's IPO is a historic event, the past performance of large IPOs is mixed. The key is to understand the risks and potential rewards, and for investors, it may be wise to wait for a pullback before entering the market.
