Earlier this week, a reader forwarded me a clip from CNBC with the headline…
"SpaceX IPO — Your chance to be in on the ground floor, like Amazon."
Seeing as today’s the date the stock finally gets listed… I'm going to explain why that comparison is one of the most dangerous things you'll read this year.
You see, when Amazon went public in May 1997, the company was valued at $450 million… or about 3x revenue
Then when Google went public in August 2004, the valuation was $23 billion, about 7 times revenues. Still aggressive, but Google had already demonstrated it could print money from search advertising.
When Meta went public in May 2012 at $104 billion it was at 20 times revenues.
Wall Street was already nervous with this one and the stock dropped nearly 50% in the first year.
And today SpaceX is expected to come to market at a valuation of $1.75 trillion. Which is 93 times revenues.
So the SpaceX-is-the-next-Amazon story only works if SpaceX is worth what Amazon eventually became.
And Amazon is currently worth $2.5 trillion… after 25 years of compounding.
But the major difference is, SpaceX is being priced TODAY as if that journey is already complete.
At 93 times revenues, you are not buying a rocket company at the start of its story. You are buying one at the price of the ending.
To justify that price, SpaceX would need to grow revenues so dramatically and so reliably that the business eventually grows into the valuation.
That is not impossible but it is extremely difficult when the starting point is so high
For context, at Meta's IPO in 2012, the stock fell from $38 to $18 in the first four months.
And Meta's multiple at IPO was 20x revenues while SpaceX's is nearly five times that.
I'm not saying SpaceX is a bad business. Elon Musk has built something that changed what is possible in aerospace. The Starlink division alone is a real, growing revenue stream. These things are true.
But that so-called ground floor was priced 10 years ago. When insiders in private funding rounds had the chance to buy at much lower valuations… and those insiders now need to sell to someone to cash in.
And at IPO, that someone is you 🫵🫵🫵
Because the most expensive four words in investing have always been this time it's different.
And at 93x revenues, it would need to be very different indeed.
We can revisit this email when SpaceX stock is down 50% within 3 years… maybe at that point I’ll take a position.
But here’s the good news from all of this…
While insiders and sovereign wealth funds have the advantage on stocks like SpaceX… there is a different advantage that us mere mortals do have over them.
It’s one of the most underrated edges you can have… backed by decades of data.
And yet, I don’t see too many people talking about it.
More to come on this over the next week…
Oliver