I can hear the keyboards working overtime already…
SpaceX is primed to go public at a valuation between $1.5-1.75 trillion… which means by the time it’s available to buy on a normal retail brokerage… it could be well over $2 trillion already.
But as I discussed with Capital Gains Multiplier students last night… my number to watch is $1.89 trillion…
Because at that valuation, the company would be trading at a whopping 100x revenue.
Not earnings… revenue
Which is not only unchartered territory for a company of SpaceX’s size.
It’s almost completely unchartered for any public company (discounting zero revenue companies like OKLO)
In fact, there has only been one large cap company that has hit the same valuation in the past decade.
And the stock performance is indicative of why valuation matters…
Because when Snowflake went public in 2021… it was arguably the most hyped IPO by smart money
The data analytics firm had best-in-class numbers… world class leadership… and even Warren Buffett bought at the IPO price
But if you’d have bought Snowflake at IPO… here’s how you would have fared in the 5 years since…
Not great is it?
The crazy thing is… Snowflake has been a great business since it went public…
Revenue is up 8x and is still growing 29% a year at a $5 billion run rate
Free Cash Flow is up 4x…
Margins have improved across the board…
So why is the stock down? Because valuations matter!
Today Snowflake trades at a far more reasonable 13x revenue… roughly the same as other great businesses like Taiwan Semiconductor
But if you’re buying a company at 100x revenues… then the revenues need to keep soaring to justify it… and that’s assuming the market will even agree to pay an obscene valuation in the future.
In the case of Snowflake, the market decided against it… and the stock got punished as a result.
With SpaceX, I believe something similar will happen.
So no matter how great the business might be in 5 or 10 years time… I can’t justify paying 100x revenues today.
Especially when I’m convinced the stock will trade 50% lower within the next 3 years… and that’s when I’ll be more interested
Because history is littered with cases of investors getting burned by buying great companies at the wrong price…
Oliver