SouthernWorldwide.com – Historical data from significant initial public offerings (IPOs) suggests that investors in SpaceX might experience a period of turbulence following Elon Musk’s rocket company’s debut on the stock market this Friday.
It is common for companies undertaking major IPOs to witness an initial surge in their stock prices during the first few days or weeks of trading. However, this upward trend often proves temporary, with stock values frequently falling below their initial offering price within a year.
“Historically, major IPOs have tended to experience a considerable amount of volatility within the first 12 months,” stated Sam Grelck, an equity strategy analyst at Truist Advisory Services, a division of Truist Financial. “Even those that have performed well often see significant downturns at some point.”
It is important to note that exceptions do exist. For instance, shares of the online video communication company Zoom Communications experienced a remarkable rise after its market debut in 2019, maintaining a gain of 142% above its offering price, according to data from Truist.
In the long run, IPOs can be unpredictable. An analysis conducted by Truist, examining 30 substantial technology IPOs over the past 15 years, revealed that these companies experienced an average maximum loss of 55% within their first year of trading. More than half of these offerings reported negative returns one year after their initial listing.
“The short-term outlook – specifically one week, one month, and three months – tends to be stronger,” Grelck commented. “As the investment horizon extends, the impact of drawdowns and negative returns becomes more pronounced.”
Further data compiled by Jay Ritter, a distinguished IPO expert and professor at the University of Florida’s Warrington College of Business, also highlights the inherent risks associated with public offerings. Ritter’s research, which encompassed over 9,200 IPOs from 1980 to 2024, found that investors who purchased shares at the company’s closing price on their first day of trading had an average three-year market-adjusted return of -21%.
SpaceX has set its stock price at $135 per share, anticipating to raise $75 billion, which would establish it as the largest IPO in history. Following the offering, the company is projected to be valued at an impressive $1.77 trillion.
For context, this valuation would surpass that of Musk’s electric car manufacturer, Tesla, which holds a market value of $1.5 trillion. It would also be larger than Meta Platforms ($1.4 trillion) and Warren Buffett’s conglomerate, Berkshire Hathaway ($1.04 trillion).
“IPOs typically increase by 19% [on average] on the first day of trading from the offer price, so in this particular deal, that would equate to approximately $30 per share,” Ritter informed CBS News. “The return for investors will be considerably better if their purchase price was $135 compared to $165.”
“Investors participating in this offering will only achieve a decent return if the company demonstrates exceptional revenue growth and achieves significant profitability,” he added. “While this is a possibility, it is not a guaranteed outcome.”
What does this mean for SpaceX shareholders?
While historical IPO performance provides grounds for a cautious outlook, Grelck pointed out that SpaceX’s trajectory may not necessarily mirror past trends.
“We cannot definitively predict how its stock will perform. There are instances where companies deviate from high volatility and potential negative returns,” he stated. “It is conceivable that SpaceX could perform exceptionally well and avoid major downturns.”
One factor that could contribute to volatility in SpaceX shares is the anticipated large number of ordinary investors who are expected to invest in the stock, Grelck further explained. SpaceX has designated 30% of its IPO shares for retail investors, a significantly higher proportion than the typical allocation of 5% to 10%.
These retail investors might be more inclined to sell their shares if the company’s growth falters, rather than enduring periods of market instability, Grelck suggested.
Exposure through indexes
The performance of SpaceX will also have an impact on individuals who do not directly own its shares, as the stock is scheduled to be incorporated into major index funds. This means that millions of Americans will indirectly become SpaceX shareholders through their 401(k) plans and other retirement accounts, which commonly allocate investments to index funds.
For example, the Nasdaq-100 index recently revised its regulations for newly listed companies, thereby creating a pathway for SpaceX to be included in the index within 15 trading days of its public debut. This development could affect individuals who hold shares in the popular QQQ exchange-traded fund, which tracks the Nasdaq-100 index.
Similarly, the Russell indices have also adjusted their expedited entry rules, allowing SpaceX stock to be added within five trading days of the IPO.
“There is a substantial amount of capital that tracks that index, so as SpaceX joins, I believe there is a genuine possibility of systematic buying activity that could provide some level of support for the shares,” Grelck concluded.
