Elon Musk’s SpaceX made less than $19 billion in sales last year and is deep in the red – and yet it wants to be worth almost $1.8 trillion when the stock market starts.
With proceeds of around $75 billion at an issue price of $135, it will also be the largest IPO ever. And after the start of trading, expected on Friday, the valuation could rise even further given the high demand.
What does SpaceX even do?
The company, founded by Musk in 2002, is best known for its rockets. The tech billionaire’s plan was to dramatically reduce the cost of rocket launches and eventually build a colony on Mars. Back then, space travel was the domain of superpowers – and his activities were initially laughed at. But SpaceX managed to build cheaper rockets – and also make them reusable, which reduced costs even further. Especially since the discontinuation of the space shuttle program, SpaceX is currently practically indispensable for US space travel and the military.
What does the SpaceX business consist of?
The majority of the revenue – around eleven billion dollars – was brought in last year by the Starlink satellite internet service. SpaceX put around 9,600 satellites into orbit. Currently, you usually still need special antennas and receiving devices on the ground; with the next generations of technology, smartphones should increasingly be able to access the network directly from space. This would mean that mobile internet would be available wherever there is no mobile phone network. Starlink had a good ten million customers at the end of March. Amazon is building a competing service, but still has significantly fewer satellites. A few months ago, Musk also had SpaceX take over his AI company xAI, which previously also incorporated the online platform X.
With these business numbers, how does SpaceX justify a $1.8 trillion valuation?
The valuation targeted for the IPO is more than 90 times higher than last year’s sales – and that is an extraordinary amount. For the currently most valuable company, the chip company NVIDIA, which costs almost five trillion dollars, this value is around 20, for Apple it is around 10. SpaceX explains the high valuation with the prospect of future business. According to the stock exchange prospectus, the company sees a total market of $1.6 trillion for satellite connectivity alone – but for all providers.
This is also where xAI comes into play: SpaceX wants to secure a piece of the business with AI applications for companies, which is estimated to be worth more than $22 trillion. Among other things, Musk is planning data centers in orbit – although it is still unclear whether this will technically work. Musk is often overly optimistic in his announcements, which are sometimes only fulfilled years after the deadlines he stated. At the one he also runs Electric car-Manufacturer Tesla, for example, autonomous driving still does not work as promised over the past ten years.
What role does the factor play? Elon Musk?
Traditional IPOs usually involve institutional investors such as banks and funds. But Musk has been relying heavily on an army of fans among private investors for years. When SpaceX goes public, around a fifth of the almost 555.6 million shares are expected to be reserved for them, as the Wall Street Journal reported. The proportion is usually five to seven percent. Demand from private investors is still likely to far exceed supply.
Even after the IPO, Musk will retain full control of SpaceX with a voting share of more than 80 percent. The basis for this is shares with more voting rights. He is also expected to become the first person with a fortune of more than a trillion dollars. The financial service Bloomberg currently estimates his assets at around $700 billion.
What else could affect the share price?
Three major stock index providers – Nasdaq, FTSE Russell and MSCI – changed their rules and as a result the paper can be included in their indices more quickly than was previously usual. This automatically means early additional demand from funds that reflect the index composition. S&P Dow Jones, meanwhile, is holding out and maintains that the stock can only move into the S&P 500 selection index after twelve months on the market.
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