ep 372 | The SpaceX IPO is bigger than you think
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On Point with Craig's Investment Partners. The information provided here is general in nature and it's not financial advice. It doesn't take into account your situation, objectives, goals or risk tolerance. All investments are subject to risks and none are guaranteed. Before you make any investment decisions, we recommend you contact an investment advisor. For more information about our services or to view the Craig's Investment Partners financial advice provider disclosure statement, please visit our website, which is craigsip.com. Welcome to On Point. I'm Mark Lister, Investment Director at Craig's Investment Partners, and I'll be talking about a range of topics including economics, portfolio strategy, investor education, and anything else that's happening out there in financial markets.
SpaceX is coming, team. It's coming soon, and it's going to be big. One of the largest listed companies in the world, in fact. Now, the Elon Musk-founded business is expected to raise $75 billion in its IPO. That stands for Initial Public Offering, and that will see it debut with the share market ticket code of SPCX, for SpaceX, obviously, and a valuation of almost US $1.8 trillion. That would put it among the biggest publicly traded companies on the planet from day one. Now, whether this valuation is justified is an area of intense debate right now. Some people see an extraordinary growth story that spans launch services, satellite communications and A.I., others are questioning whether a company that is not yet profitable should command such a lofty price tag and i don't know the answer to that but if you want to know more one of our research team has written a report on spacex and it will very much focus on what the company does its business units and its opportunities i actually think the more interesting story here at least for me is what the ipo tells us about the way financial markets themselves are evolving
because while US $75 billion is a very, very big number, it is only 4% to 5% of that $1.8 trillion market value. Now, SpaceX has talked about allocating a bigger slice than usual of that IPO pie to retail investors, but it's still a much smaller total size that is hitting the market for investors to buy and sell than you would usually see in an IPO as a proportion of total market value. And that relatively limited supply of shares does mean that the mechanics of the lock-up periods, index eligibility, and the gradual release of additional shares to the market all become much more important. It's especially relevant at a time when some companies, like SpaceX, are staying private for longer and then arriving on the public markets at an unprecedented scale.
That also raises some really interesting questions for the providers of many share market indices. Investors have embraced index funds and ETFs because of their simplicity, the instant diversification they offer, and their low-cost nature. However, this passive approach to investing still relies on many important decisions that are made behind the scenes, such as who should get included in the index, how quickly should new companies become eligible, what role do voting rights and public ownership play? A mega IPO like SpaceX is really forcing some of these index providers to consider issues that simply didn't exist. 10 years ago, 20 years ago. Russell and Nasdaq have already moved to shorten the timeframe that it takes for new companies to enter some of their benchmarks.
S&P Dow Jones considered similar changes too before deciding against them. Now, these decisions aren't made behind closed doors. That's really important to note. It is not a case of the system being rigged to ensure that SpaceX gets slotted in early. The index providers always consult extensively with investors and other stakeholders before they make any such changes. So they will have read the room in this instance as well. Another aspect of the SpaceX story that caught my attention is how quickly financial markets have adapted ahead of its arrival.
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