SpaceX IPO: Underperformance Looms

SpaceX IPO Faces Underperformance Risk

A analysis published on May 26 indicates that most large initial public offerings (IPOs) over the past five years have underperformed the S&P 500, suggesting potential risks for investors in upcoming high-profile debuts like SpaceX. The analysis found that 75% of the 50 largest IPOs by valuation in the last five years yielded lower returns than an S&P 500 index fund over the same periods.

An investor buying each of these IPOs would have seen an average gain of 27% through May 21, compared to an average 53% gain for the S&P 500.

SpaceX, Elon Musk's rocket and satellite company, is preparing for an IPO as early as June 11, targeting a valuation of $1.75 trillion. This valuation would result in a price-to-sales ratio of nearly 100, significantly higher than Nvidia's ratio of 24.

SpaceX reported a loss of nearly $5 billion last year. While some shares will be made available to retail investors through platforms like Robinhood and SoFi, historical data suggests that retail investors often struggle to acquire shares at the initial IPO price, and returns for those buying on the first day of trading are typically worse.

The trend of underperformance for highly valued IPOs is a concern for new listings. University of Florida professor Jay Ritter noted that companies with high price-to-sales ratios tend to fare the worst post-IPO.

Despite this, some AI-related chip designers, such as Astera Labs and Arm Holdings, have seen significant gains, surging over 700% and 400% respectively since their debuts. Conversely, companies like Didi Global and Rivian Automotive have experienced substantial declines, with Didi Global shares down 74% from its IPO price and Rivian Automotive down 82% since its 2021 IPO.