SpaceX: Worth It or Overhyped?

We break down the SpaceX IPO and what it means for markets, investors, and the broader shift of major private companies entering public markets.

Plus, we discuss whether SpaceX is overvalued, how to think about IPO valuations, and what investors should consider before buying into one of the most important listings in recent years.

We also zoom out on the broader IPO landscape and what this could signal for the next wave of public listings.

Transcript

SPEAKER_00 0:00

From Wall Street to managing hundreds of millions in client money, Nick and I use our alphabetic dupe of credentials to discuss the investing and tax strategies that actually work. Oh, and we played Division I college football together. So strap it. This one hits hard. Let's go.

SPEAKER_02 0:21

Okay, let's go here today. Number one IPO of all time coming to market, record-breaking valuation, right? $2 trillion. So this is, of course, SpaceX powered by Elon Musk. And uh they filed SpaceX filed to go public uh back on May 25th. It's likely to come out here mid-June. Uh you'll actually see it uh trading on the exchanges at that point in time. It's gonna go out on the Nasdaq. Super, super exciting. And uh it's gonna come out under the ticker SPCX, right? SpaceX. So uh this is going to shatter the prior record IPO. Uh it's gonna be about three times the size of it. And uh, you know, just putting some numbers around that. It's it looks to be about $75 billion is going to get raised. And this is a $2 trillion with a T is in Tango market cap, right? So this is uh this is gonna be one of the largest companies in the world. Kind of crazy, right? It's gonna be added into the mix with the rest of the Mag 7. Put some perspective on what $75 billion is, which is likely what's gonna be raised by this IPO, that is six months of net flows into the Vanguard VOO ETF, right, which is arguably the most popular ETF in the world. So to have $75 billion move uh in the matter of you know essentially a couple weeks, um, and obviously there's gonna be a lot of money moving around that day when it actually, you know, when it actually opens up trading, but there's a lot of people that are gonna get positioned ahead of time, raise cash uh in order to be able to buy it, et cetera, ahead of time. So pretty eye-opening. Um, you know, tossing it over to you, Nick, why don't we touch a little bit on kind of what we've seen historically from IPOs?

SPEAKER_01 2:07

Yeah, we'll get into the the mechanics a little bit uh uh of of any company IPOing, but specifically, there's obviously a lot of excitement uh about SpaceX. Um Elon Musk is is driven a ton uh of excitement from a variety of angles. I mean, SpaceX is is doing so many things, but you know, when it gets just getting down to the basics on uh what an IPO actually is, right? It's a private company selling shares to institutions and retail investors uh to under that are underwriting the deal um at the time of um uh of of listing that that exchange. Um you know, IPO is is typically historically, right, when companies were coming out at lower valuations, they were usually smaller cap companies, they needed to raise the capital in order to finance the future growth of that company. This is obviously uh uh the polar opposite of that, uh, with a company coming out uh at a at a $2 trillion valuation. But um, you know, in this case, you know, it's either a company raising capital um or uh you can have some equity holders, folks who own private shares of the company uh that that are gonna get some liquidity and are cashing out at this point. So um the kind of the timetable you laid out um announced on May, then we got the the June roadshow where the institutions that will be raising the capital um and building a book for for IPOs, um they're gonna go and start building out the offer price based on the kind of engagement they get on that roadshow. So we'll see what the the official offer price uh is is gonna come in at and what that IPO price will be. But typically what that initial number that's gonna come out and is quoted is not the price that you retail, us retail investors are going to get, right? That's what the institutions are gonna start their bidding at, and then they'll distribute that to and sell that to their clients, typically with with a markup, which is how they're gonna make their money. So that's that's kind of just some uh some of the nuance there in terms of kind of how that that works. Um looking at just the historical scorecard of IPOs broadly speaking, there's a professor out of um University of Florida who's dedicated years of his life to IPO research, uh his data has shown that the average first day pop that an IPO gets is about 18%. Uh a gain that you know mostly accrues to whoever's got that offer price, not the retail buyer open price, right? So there's a bit of a there's a bit of a gap there. But if you zoom out and look at IPOs in the following three years, uh IPOs have historically underperformed the broader market, uh, somewhere between an average of 15 and 20 percent. And 60 percent of IPOs are trading below their offer price three years out. So a lot of excitement here, but it is something that you know you really got to take a hard look at uh the numbers uh because historically this has not been the best entry point uh into individual stocks. So that's kind of just the uh again, high-level um history and and uh just kind of the mechanics of how IPOs are work. But you know, Brett, we've had a lot of folks reaching out that are that are super excited about this IPO. How how does how does that retail investor take that next step and actually get access?

SPEAKER_02 5:34

Yeah, for sure. So I'll just throw a little bit of color too on some of the comments you just made there. So one of the things that you'll see a lot of investors do is they'll look to buy as quickly as possible after an executive has recently been buying back shares, right? So you see a lot of strategies out there, whether they're an ETF or whatever, where the executives are buying shares, and therefore that ETF strategy or that actively managed strategy is to accumulate shares of whatever company stock it is after the executive is has just put you know laid their name down and bought shares. Let's keep in mind this is the exact opposite of that, right? This is the exact selling their shares, right? This is uh you you IPO when you think that you have the highest possible valuation, no different than selling a piece of real estate or anything else in your life, uh a car, whatever it may be. So uh arguably the smart money is selling, right? Elon is selling, um, and we are on the other side. Uh, and obviously Elon has to kind of you know work out of both sides of his mouth, and everybody else that was in his situation has to, where you know, this is the best company in the world, you know, sell as much sizzle and pop and and you know everything that you can to drive that price so that you can you know create as much liquidity as possible for yourself and your fellow shareholders. Now, obviously, you know, that's exciting if you were a shareholder, and and I'm excited to say that a lot of the lifegual clients have been shareholders now for several years. That's not just on SpaceX, um, but as well as many different private companies. Um, and it kind of touches a little bit on uh, you know, a lot of folks follow Taylor, uh my brother and our and our CEO on social media. He's talking a lot about uh private equity investing these days. And reason being is actually 80% of the companies in the United States that do more than $100 million a year in EBITDA are still private. So it's like, where's the most fertile hunting ground? You know, obviously the SP has done exceptionally well, uh, primarily driven by a few key key names. Outside of that, the private markets are very, very, very, very fertile hunting. And um, we are happy to be uh you know heavily exposed to that asset class. And generally speaking, every single one of our clients, I'm not talking just our our biggest clients, almost every single one of our clients have been exposed now uh for several years, and um it definitely has uh has served them well. So touching on access, right? So it's a little I think that folks should be extremely careful in the way they're trying to participate in SpaceX. Um the way that we go into uh the private markets is through very, very well-known um Wall Street names and uh you know, big, big private managers. And we are not just embracing the big private managers that have been traveling this space for decades with trillions in assets under management, but also we're embracing the concept of diversification, right? We're not putting, you know, uh, if we have 10 eggs, we're not putting eight eggs in SpaceX. Um, even you know, even years ago, and obviously we wish we did. We're trying to be very diversified because uh private equity markets there is a little bit more volatility, but a broad-based diversified portfolio should serve folks exceptionally well. There's a lot out there though that is getting pushed around right now in the markets, whether it's uh closed-end funds that had a little bit of exposure to SpaceX or um uh spec, they're called SPACs, special purpose acquisition vehicles, where you know maybe they their initial goal of the company was something else, but because the company wasn't working all that well, they acquired some SpaceX or some other private company essentially rebranded the company and rolled it out, and now you have the SPAC trading at a massive, massive premium in the market. And as soon as the SpaceX shares actually come out and they're trading, likely what you're gonna see is an unwind of that. Um, and then you know, there are other examples too, broader, more, more um, you know, public names that have a lot of credibility that come with them, like EcoStar, uh SAT SATS is the ticker, and um, it's up a crazy amount, right? It's up like over 500% in the last year. That company owns, and Nick actually knows it well and has a pretty cool story that goes along with it. But that company owns 28 uh 28 billion dollars worth of SpaceX, and then Google is obviously a pretty big owner of SpaceX as well. So you're getting you're picking up some exposure there uh via the public markets. Um Nick, if you if you wanted to touch on that story you had, I thought that was really cool.

SPEAKER_01 9:54

Oh, yeah. Well, I mean, EchoStar formerly dish network. My uh you know, full disclosure, my father was uh uh an executive there for for many, many years. But um you you saw a lot of insider transactions happening over over three years ago um with Charlie Ergin and Did DeFranco buying back large amounts of shares uh in EchoStar, SATS. Um these two, I mean, if I've gotten to know them a little bit, uh, are just two of the most um how should you put it? Uh just grittiest uh business operators that you you've seen. And they've had to evolve that company uh a couple times over at this point, and and and they've made a really, really smart play uh and kind of using their existing infrastructure to help support and playoffs of of Star of SpaceX and Starlink specifically.

SPEAKER_02 10:49

Yeah, I love it. It's um coming into my news feed right now. I am I don't know if it's because I'm building a new house that I'm getting Starlink uh pushed to me right now. It looks like I can throw a little set a little like you know, satellite dish solar panel looking thing on my house and not have to worry about connecting to the grid. But I think they're really trying to move the needle on uh on sales. And um, you know, that kind of brings us a little bit again to uh to the setup here um on SpaceX stock. So Nick, I'll kick it back to you, but I think the vast majority of that revenue is actually coming from Starlink.

SPEAKER_01 11:20

Yeah, yeah, it uh it is a very, very, very high percentage uh at this point. I think 67, almost two-thirds uh of the revenue from SpaceX currently is coming from Starlink, right? Um and this is again a conglomerate of Elon Musk ideas. You've you've got SpaceX, you've got the the rockets, reusable rockets he's gonna be colonizing Mars with. Um we've got a lot of momentum building uh uh around space-based data centers and what that's gonna mean for AI as, you know, I think politically here in the U.S., the the tide is kind of turning the wrong direction on some of these data centers, uh, at least politically speaking. Um so maybe, maybe a longer term solution, depending on who you're talking to. I was listening to Gavin Baker the other day, um, who's a big venture capitalist. I mean, he was talking about, again, he's probably talking his own book a bit, um, that you know, maybe we're we're three to five years out from data centers in space. He says that they're close. Obviously, you know, maybe, maybe a little bit of conflict of interest there, but um, you know, if anyone can figure out those those engineering challenges, it's uh it's gonna be Elon Musk and the team he's built there um at SpaceX. But you know, looking at today, where where the company is, where revenues are, Starlink, you know, I think this year generated about $10.6 billion of revenue in 2025. Um the adjusted EBITDA on that is is $6.6 billion per the prospectus that just came out. That is um a very, very rich multiple that you're paying for $6.6 billion on EBITDA, historically speaking. Um so there's a lot of of exponential growth still being priced into that that IPO price at this point in time. Um, you know, and and then obviously Grok, their AI component um of uh of SpaceX is is is also within that venture. Um there's a lot of CapEx that's going out with that AI build. Uh I think for 2025 and and some forecasts, it looks like it's gonna be close to 7.7 billion uh for for AI. So you're not just getting the rockets, the internet, you're actually, you know, you're you're getting exposure to a to a massive bet on space-based data centers and also the XAI uh relationship there. So there's there's a lot to to dive into and and try to understand because there's so many different components of this stock. But at the end of the day, it it is being valued that it is going to continue to experience exponential growth, I think, across all facets uh of this business. So we'll see how that that ends up playing out over time. Obviously, the markets will will flush that out. Um, but I think when you're looking at the impact that uh an IPO of this magnitude, which we've we've rarely seen, is gonna have on not just the the public stock markets, but also the private markets. There's there's a lot of ripple effects and second-order effects that are that are gonna be that are gonna take place when this when this IPO is Brett, I guess how how are you thinking about the impact that this is gonna have on existing public and and private market across the board?

SPEAKER_02 14:40

Yeah, I think I think we can use a just a story of a fellow New Yorker actually who lives out in Long Island. Um his name's Ron Barron, and he's uh you know, he's definitely at the you know the later innings of his career, but he runs Baron Funds, um, which are you know have been absolutely huge investors now for probably going on uh probably going on two decades in uh Elon Musk. Uh at one point in time, some of his Baron funds, uh which are you know kind of old school mutual funds, uh growth oriented, uh they were actually getting to the extent to get to the point where the the shareholders of it were actually saying, hey, you know, we have too much exposure to Tesla. You know, it's it's getting too big. It was growing so fast. But I guess the point of this is where I'm going is he, Ron Barron actually not only has he already participated in SpaceX, but he said, I am also a billion-dollar buyer at the open. So when, you know, whatever day in mid-June when uh SpaceX can actually be bought, he's gonna go in and he's gonna buy a billion dollars worth of this. And he didn't disclose whether it was with his personal money or with um his shareholders' money, either way. It's you know, it comes into the essentially the same complications. And you know, the complication is well, okay, where are you coming up with the billion dollars? And he may say, Well, I'm actually gonna sell some of my Tesla. Um, you know, that would be natural pin action that we would expect. So I guess you know, if we're gonna raise $75 billion uh in order to seed this thing in you know in the in the 10-day window around the IPO, where is that money coming from? So the cash that's gonna be raised is coming from the public stock market, right? Because the natural buyer of SpaceX now is going from private to public. SpaceX is gonna be a publicly traded stock, it's gonna go into a lot of indexes, right? As a pretty heavy weight. So any portfolio manager that's a career job is to, hey, my job is either to beat the SP 500 or beat some growth-oriented oriented index. I have to source cash in order to be able to buy index because, or pardon, SpaceX, because SpaceX is now gonna be added to my index at you know a 3% weighting, as an example. Probably be about that. So you're gonna see that happen. They're gonna be selling different names to come up with that cash. That's gonna create a headwind for the public stock market, right? And it doesn't mean that it's uh you know gonna crash the stock market. Who knows what the what the effect will be. Um $75 billion again is nothing to shake a sick stick at. That's six months of flows, net flows for VOO, right? Which is you know, arguably the most popular popular ETF in the world. So that is the headwind, right? Is on the public markets. The tailwind, I would argue, is on private companies that have not yet IPO'd. Because you got to remember, all the private equity companies that own this, which is a ton of them, right? And and insiders potentially as well, they're gonna get handed a bunch of cash for their shares, right? And it might not be, you know, that day of the IPO, maybe three months after, three days after, whatever it is, depending on when they uh sell their position to the public markets. Um, but essentially they're gonna get a bunch of cash. So what's gonna happen with that cash? Well, private equity managers don't sit on cash, right? Generally speaking, they want to put it back to work. That's how they drive their return. So that's gonna get redistributed back into private names. So I would argue that that's gonna create a tailwind or a bid for you know all the different private companies that are out there in the world. So, you know, looking at that, we've argued that, you know, we have already been at LifeGoal arguably overweight private equity. But when I see this setup, it's not just SpaceX, right? Anthropic's coming next, uh, OpenAI is coming. Um, you know, there there looks to be, as long as the market's gonna digest it and take it and continue to offer an attractive price to the next IPO that's coming to market, they're gonna keep coming to market because they gotta essentially the window's been closed now, right? You really you haven't seen these big IPOs come to market now all the way back, uh dating back to essentially 2021. So for five years, the window has been closed. So all the private, you know, call it high net worth families that have put their money into private equity with the thoughts that they were gonna get their money out someday, now have the opportunity to get their money out when the IPO market is when the IPO window is open. So essentially you're gonna see a rush here. Uh and the biggest names get the lead the show, right? Because they're the biggest names. But IPOs are gonna keep coming to market as long as the market will accept them. And that just means that they'll continue to give them an attractive valuation where the founders and shareholders are willing to sell at that price. Um, but again, just kind of in summary there on that quick set on that segment, I see this as a headwind to the public stock market, specifically the large cap growth-oriented names, and a tailwind to the private market. Because that cash is gonna come out of Tesla, Amazon, you know, Meta, Google, it's gonna come out of names like that, and then it's gonna go into private companies. Um, so that is uh, you know, that's that's pretty interesting. And the other aspect of it is the main buyer, right? The main buyer, not just the main buyer, but the two primary buyers are active portfolio managers. Their job is to, you know, it's actually track an index or beat an index, and then just the index itself. And there's very, very material assets on both. So one of those buyers doesn't care what the price is, right? The NASDAQ index doesn't care what the price is, it's a forced buyer. Whatever the the weighting uh is described to be, maybe it's about 3% of the index, it's a forced buyer no matter the price. That same exact uh thing is gonna happen across the SP 500, the Russell 1000 growth, the Russell 3000 growth, every different growth-oriented index out there, or you know, index that has US large cap stocks in it, outside of a dividend or value-tilted index, it's probably gonna give a slice of this thing. So you have trillions of dollars lined up to buy this that are price agnostic, which is a crazy thought. What a perfect handoff for the founders. Let me find somebody that that has to buy, no matter what the price is, and I'll sell it to them. I mean, what an amazing, amazing um, you know, setup. And it's funny too that a lot of times the founders um and and the the private shareholders, they have um essentially a window where they can sell over the first maybe three months, give or take, uh, where essentially they have you know told whoever was gonna bring the company uh public that, hey, we're not gonna blow out of it the first day because we don't want to completely tank this thing. So we're gonna essentially stag stagger our way out of it. The indexes stagger themselves into it, right? So each index has a different essentially bylaw that says, hey, you know, we're gonna accept this uh this private company into the public market index in, you know, I think the NASDAQ, something like 15 trading days when it's a company this big. So that's pretty quick, right? Pretty much two weeks out the gates. Some of the other indexes want to see a little bit more public market exposure, and then they'll pick it up, you know, two months later, three months later, whatever it may be. But essentially, you have a perfect handoff here going from Elon and his fellow shareholders to the public market and an agnostic uh buyer in the index funds. And then obviously the active portfolio managers can make a decision to either buy SpaceX or not buy SpaceX or underweight it or overweight it. Um, so it's a pretty wild thought that uh that that's set up so perfectly for them. So that's some of the serious pin action that uh we're anticipating. Um I know that our shareholders are and ourselves are are pumped to see this thing go off, not just because you know we may have some exposure, but it enough, nothing else. It's you know, it's like a um it's like the day we landed on the moon, right? It's a day that will always be remembered. Uh pun intended there. Um Elon now will be running two trillion dollar companies, and uh it's a pretty cool, it's a pretty cool deal. So I think lastly, Nick, just come coming back to you on this, looking at the valuations of SpaceX, um, you know, trying to put our Warren Buffett hat on here, look at the fundamental valuations and try to make some sense of it. What are you seeing in that world?

SPEAKER_01 22:42

Yeah, and I and I think just through the way that that life goal goal views things, it this really is um, again, very, very steep valuation. Um at $2 trillion on, you know, call it round up to 19 billion of revenue. That's that's roughly a hundred times sales. The the typical SP 500 company trades at about three times sales. So this is this price is is embedded in an enormous amount of of future growth and really continued exponential growth on a on a go forward basis. So, you know, from Starlink, AI, and and and potentially going to Mars. So for us, I think looking at that, it's it's a it's a it's a very difficult uh evaluation to wrap your head around. Um and if I was advising a client who is considering buying on on the open um when this this finally does IPO, I might be a little to a little hesitant. And if you are dead set on it, or if you're a long-term holder, um, you know, I I still think we would recommend a more diversified approach. But if you are going to be going into an individual name that's very speculative, it's it's making sure you're sizing that position correctly, you know, and and making sure that you understand, like, hey, you know, just history, generally speaking, is IPOs are a very difficult environment in security to get to get right. So um, you know, know that's coming, and then just have the expectation that this is going to continue to be a volatile ride. Um, you've got insider lockups that that are going to be unwinding um uh you know over the next you know 90, 180 days. Um so expect waves of insider selling and getting their liquidity and and creating some volatility on that space. But you know, I think generally speaking, our advice is is to be getting access to the to the next SpaceX, to the next next great wave of of private companies earlier at a lower valuation, uh, and be able to have a position built up to capitalize when when one of the next one of those does IPO. So um I think that's it's but I mean it's it's it's a steep value. 2 trillion on uh 19 billion in revenue is uh is is pretty steep.

SPEAKER_02 25:05

Yeah, to say the least. I I you know just taking a step back even further from from this space from SpaceX and this IPO and you know the record setting day that it's gonna be, I think it is you know a pretty good example of why folks should be extremely bullish though on the US economy, right? On the long-term success of the US economy. And US economy does trade at a premium to to global markets. But I think when you look at that, you look at you know where else you could be investing and you know what service does the US and our companies play to the rest of the world. I think you know, like we are essentially the core technology infrastructure for the world at this point. So it's and that may not be perfectly fair. Obviously, China's trying to you know get a horse in the race here, but if we are going to be uh the arguably brains of the global economy, we should treat it at a premium. Um, because obviously technology drives the fattest margins. And essentially what that's what we're trying to do, right? There are obviously other sectors here in the United States, but broadly speaking, a lot of those sectors essentially serve, you know, serve technology one way or another. I mean, look at the energy markets this year, right? We we realized just how important energy was because it wouldn't power our AI, not because it wouldn't get our vehicles to work necessarily. But um, you know, just thinking about that just makes us extremely bullish on the US economy. And we absolutely want to have meaningful exposure to the private equity markets. The private equity markets have never been uh bigger and they've never been more important today than they've been, you know, in in forever, essentially. Um and you know, looking at that, we want to have exposure there because we think that's where the evolution is happening, the real technology is being developed. And not only is it exciting to watch, uh, and SpaceX is the perfect example, but it obviously helps folks retire on time and you know live out all their financial um goals as well. So thank you all so much uh for joining us, and we look forward to catching up with you next week. Be well.

SPEAKER_00 27:01

Quick ask if you're enjoying the show, hit the follow and drop a rating. It helps more folks find our podcast. Thanks so much. The information discussed in this video is for educational purposes only and should not be considered investment in taxes or financial advice. Investing involves risk, including possible loss or principle. Always consult a qualified financial professional before making any investment decisions.