What History Suggest About SpaceX's Explosive IPO Debut

The Space Exploration Technologies Corp (NASDAQ:SPCX) initial public offering (IPO) is off to a fantastic start. Investors lucky enough to get shares at the $135 IPO price are already up over 50%. Those who bought in on the first day of trading last Friday are up somewhere between 20% and 40%. This week, I’m looking at several of the largest, most hyped IPOs. I’ll discuss some similarities and differences to SPCX, then show a chart for their first year of trading. While SPCX is a one-of-a-kind IPO (as they all are), these historical examples might give us an idea about what to expect from the stock over the next several months.

Chinese Tech Concern, Alibaba (BABA)

Alibaba Group Holding (NYSE:BABA) stock, which went public in September of 2014, may be the most apt comparison to SPCX. Both were highly anticipated IPOs with famous founders (Elon Musk with SPCX and Jack MA with BABA) and set a record for how much was raised in the IPO. The differences though are that SPCX has a market cap 10 times bigger than BABA's IPO. What's more, BABA was very profitable when they went public while SPCX on the other hand is unprofitable due to large investments and growth spending.

The chart below shows how BABA performed in its first-year trading. I show the return from its IPO price and from where it opened on day one of trading (9/14/2014). This could be taken as a cautionary tale for SPCX. BABA was immediately profitable for those who got in at the IPO and those who got in during the first month of trading had a sizable gain in the next few months. Over the course of the whole year, however, the stock ended flat based on the IPO price and for those that got in on day one, they had losses of 20% or more. The S&P 500 Index (SPX) was about flat over the period.

Media Conglomerate, Facebook (META)

A case could be made that Meta Platforms Inc (NASDAQ:META), which was Facebook when it IPO’d in May of 2012, is the most similar situation to SPCX. Both companies have famous founders (Mark Zuckerberg) and their companies were the biggest ones in their sector (social media for META, and space for SPCX). Also, like SPCX, the META IPO attracted a huge amount of retail investors. Just like BABA, META was highly profitable when it started trading which is different from SPCX.

The chart shows a very disappointing first year for META. Those who got in at the IPO lost about 30% of their investment while they could have gained 30% by holding the SPX. For those who held on for the long term, however, they’ve been handsomely rewarded. META has gained nearly 1,500% from its IPO price since its debut in 2012. It’s an annualized return of more than 20% per year.

Honorable Mentions (TSLA, RIVN, and V)

Here are first-year charts of other large, highly anticipated IPOs that occurred in the last few decades. Tesla Inc (NASDAQ:TSLA) is one of Elon Musk’s other companies. It began trading in June of 2010. It was volatile in the first year, but investors would have gained over 50% in the first year compared to about 20% for the SPX. Hopefully, SPCX investors do just as well, or better.

The electrical vehicle (EV) maker, Rivian Automotive Inc (NASDAQ:RIVN) shows what can go wrong when investors have huge expectations for the future. The stock began trading in November of 2021 and immediately spiked but within a few months the stock was lower and early investors were down over 60% for the year. RIVN currently trades about 80% down from its IPO price. 

Finally, Visa Inc (NYSE:V) went public in March of 2008, and it was the largest IPO ever at the time. V was already a market leader in their industry. Despite going public during a financial crisis in which the SPX lost about 40% of its value over the next year, V performed relatively well. Those in at the IPO price gained over 20% and investors getting in on day one were close to flat over the first year.

Implications

You can’t draw conclusions from a handful of data points, but I think this exercise is good in seeing some potential outcomes of large, hyped-up IPOs. Overall, these IPO examples lost a significant amount on average, and it would have been better to hold the SPX. However, it shows a wide range of outcomes and it’s Elon Musk’s TSLA that gained over 40% for investors in its first year. Also, TSLA has been even more impressive in the long term, gaining over 35,000% from its IPO which is over 40% per year annualized since 2010.