The Hidden Risks of Buying Into Mega-IPOs Like SpaceX
6/14/202636 min
In this week's episode of WSJ’s Take On the Week, co-hosts Miriam Gottfried and Telis Demos break down the historic launch of SpaceX, the biggest initial public offering ever, which priced at $135 a share before popping 11% to open at $150 on Friday. The share price rose steadily after that, closing up 19%. Meanwhile, Tesla shares were volatile, though they ended higher on the day. Plus, the hosts look ahead to a major milestone at the Federal Reserve as Kevin Warsh presides over his first meeting as Fed chairman. After the break, Owen Lamont, senior vice president and portfolio manager at Acadian Asset Management, breaks down whether the sudden rush to include mega-cap companies such as SpaceX into major indexes like the Nasdaq 100 and Russell 1000—often through specific rule changes—is a signal that the market is beginning to overheat. Then, they discuss the risks of buying into IPOs, particularly those with small floats (that is, a company’s available shares to trade) or lack of profitability. He explains what he calls the "third horseman of the bubble apocalypse" and whether current IPO plans for Anthropic and OpenAI are the beginning of a larger, potentially dangerous market trend. This is WSJ’s Take On the Week where co-hosts Telis Demos, Heard on the Street’s banking and money columnist, and Miriam Gottfried, WSJ’s investing and wealth management reporter, cut through the noise and dive into markets, the economy and finance—the big trades, key players and business news ahead. Have an idea for a future guest or episode? How can we better help you take on the week? We’d love to hear from you. Email the show at takeontheweek@wsj.com. To watch the video version of this episode, visit our WSJ Podcasts YouTube channel or the video page of WSJ.com Further Reading Is it Worth Investing in Unprofitable Companies? We Ran the Numbers For a Select Few, IPOs Are Winners. Good Luck to Everyone Else. A Guide to Buying SpaceX Shares via Your Brokerage Account SpaceX Shares Closed Up 19% in Historic Debut as Musk Becomes First Trillionaire For more coverage of the markets and your investments, head to WSJ.com, WSJ’s Heard on The Street Column, and WSJ’s Live Markets blog. Sign up for the WSJ's free Markets A.M. newsletter. Follow Miriam Gottfried here and Telis Demos here. Learn more about your ad choices. Visit megaphone.fm/adchoices
Clips
Transcript preview
First 90 secondsMiriam Gottfried· Host0:00
[upbeat music] Hi, Telis.
Telis Demos· Host0:03
Hi, Miriam.
Miriam Gottfried· Host0:03
So this is a really exciting day. It's SpaceX IPO day when we are recording right now. The shares priced at $135, and they opened at 150, so we got an 11% pop right out of the gate, and as of this recording, they were continuing to surge higher.
Telis Demos· Host0:22
I would argue that that's exactly what they were probably aiming for. Let's look at the long-term averages for IPOs. If you take IPOs going all the way back to 1980, and this is of course thanks to Jay Ritter at the University of Florida's data. He's the benchmark guru of IPO data. The average pop across all IPOs is about 19%. So, you know, if SpaceX ends up there at the end of the trading day, uh, that would be totally on average across all IPOs. And in fact, it would be better than big IPOs. Big IPOs, companies with, um, uh, larger kind of annual sales when they go public, they tend to have smaller pops, right? Uh, the number for companies with over $500 million in inflation-adjusted kind of annual sales, uh, the average pop is about 10%. Um- And this is a big IPO.
Miriam Gottfried· Host1:09
This is the biggest IPO ever.
Telis Demos· Host1:11
And you would've expected maybe because it floated such a relatively small amount of its stock in the deal, less than 5%, at least in the initial sale, we'll see where it ends up after the banks exercise their green shoe, which look it up, it gets kind of technical, but that could end up issuing more stock. Um, you might have expected a lower float IPO to have a bigger pop