SpaceX IPO Draws Tens of Billions in Demand Ahead of Historic Listing

The excitement surrounding Elon Musk’s SpaceX IPO continues to break records, as the company prepares for what would be the largest public offering in history, with a $75 billion share sale. ● At a loss of $5 billion, there has never been a company listed at such a valuation.

According to reports, BlackRock submitted an order to buy at least $5 billion worth of shares, while other large asset managers filed similarly sized requests. These are extraordinary amounts, several times higher than what is typical in traditional offerings. By comparison, the largest IPO so far this year was Cerebras Systems, which raised only $5.55 billion, less than a tenth of SpaceX’s offering.

Private investors also rushed into the deal, with cumulative demand exceeding $70 billion. In addition, sovereign wealth funds and family offices submitted significant orders, including one request of more than $1 billion from a single investor.

The massive demand points to high expectations for continued growth in space, satellite and artificial intelligence businesses, but also to investors’ fear of missing out on one of the most talked-about offerings in Wall Street history.

History suggests caution: A study by Yves Bobouc, Cathy Donnelly, Eric Carroll and Kurt Dale, published in the book The Lifecycle Trade, found that more than 90% of IPOs at some point trade below the low reached on their first day of trading. Even when the stock later recovers, the process can take a long time. For example, after Facebook’s IPO on May 18, 2012, the stock fell 54% from its peak to its low and ended its first trading year down 32%. During that period, the S&P 500 rose by about 10%.

Spotify, which went public on April 3, 2018, struggled to gain momentum. By December that year, the stock had fallen nearly 50% from its peak of $198.99. Truist Financial Chief Investment Officer Keith Lerner reviewed 30 of the most recent large IPOs and found that returns tend to be negative both over six months and over 12 months. In most cases, steep declines are also recorded during the first year of trading.

The order book is now closed, as is customary in highly sought-after IPOs. Many investors submit orders far above the number of shares they expect to receive in practice, understanding that in a hot offering they will not get the full amount requested. SpaceX’s order book closed on Wednesday, and underwriters are now working on share allocation ahead of the planned start of trading on Friday.

One unusual feature of the offering is Musk’s desire to allocate a larger-than-usual portion to private investors, possibly as much as 30% of the total offering. This is significantly higher than what is typical in mega-IPOs, where most shares are usually allocated to institutional investors.

Musk set a take-it-or-leave-it price of $135 per share, without a preliminary price range and without the traditional process of adjusting the price according to demand. After the offering, Musk is expected to retain an unusually high level of control, drawing criticism from corporate governance experts.

It should be noted that the company is still not profitable. The enormous valuation of about $1.77 trillion rests largely on expectations for the company’s new artificial intelligence unit, which is still in early stages of development. But in SpaceX’s case, the massive demand appears, at least for now, to outweigh the concerns.

The fact that institutional investors, wealth funds, family offices and private investors together submitted orders worth hundreds of billions of dollars reinforces the sense that this is one of the largest and most intriguing capital-market events in Wall Street history.