SpaceX Set a Fixed IPO Price of $135. Is That a Red Flag or a Power Move?
Key Points
SpaceX is set to make history with a record-setting $1.77 trillion valuation at its IPO.
The company had previously been expected to IPO at a valuation of as much as $2 trillion.
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SpaceX is gearing up to complete its initial public offering (IPO) on June 12, and the stock's public debut is set to make history. The space-tech company will have the largest-ever IPO valuation by a large margin, and the public offering is set to be a big moment for the broader market. With CEO Elon Musk's company seemingly on track to become one of the world's top 10 largest publicly traded companies upon its IPO, there's understandably a lot of interest heading into its first public stock sales.
SpaceX recently confirmed that it will be pricing its first allotment of stock at $135 per share. The company will be selling 555.6 million Class A shares and aiming to raise roughly $75 billion in its first public offering. While that still has the company on track to set IPO valuation records, the $1.77 trillion market capitalization it's setting also comes in significantly below the roughly $2 trillion valuation that SpaceX was previously looking at.
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With that in mind, is the company's move to fix its IPO share price at $135 a power move or a red flag?
Image source: Getty Images.
What should investors make of SpaceX's IPO valuation?
SpaceX's apparent move to step back from a roughly $2 trillion valuation to a $1.77 trillion valuation has attracted a lot of attention. On the one hand, the company is still poised to have the largest ever U.S. debut by a wide margin. SpaceX's plan to raise roughly $75 billion through stock sales trounces Alibaba's initial capital raise of $22 billion in 2014 at a $167.6 billion market capitalization.
SpaceX's roughly $200 billion valuation reduction comes on the heels of questions about the company's lofty valuation and the accelerated process of its public debut. Some reports also suggest that CEO Elon Musk could be looking to merge the space tech and artificial intelligence (AI) company with Tesla (NASDAQ: TSLA) at some point in the not-too-distant future.
Notably, SpaceX's move to cut its IPO valuation target also came after Blue Origin's latest rocket launch attempt ended with an explosion on the launch pad, which has sparked an uptick in caution when it comes to the space industry.
Along with concerns about SpaceX's overall valuation profile, I think the Blue Origin explosion and move to reduce SpaceX's IPO valuation by roughly $200 billion is a red flag. While the company's record-setting valuation still looks like a power move, I would be wary about buying into the company at a $1.77 trillion market cap and think Musk's space-tech venture still has some proving to do when it comes to justifying its valuation.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
