IPO Fever and the SpaceX Reality Check

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SpaceX and IPOs by the numbers. Yeah, I there hasn’t been a show that I have not appeared on over the past couple weeks where there hasn’t been a multitude of questions about SpaceX and IPOs and all these things that are going public and nothing really changes. And I’ll get into that a little bit. you know, I’ll get into it now. back.

When I started in this industry and of working in investment banking and placing and getting interest was one of the jobs I had is getting interest in IPOs. dialing for dollars, had stack of cards, stack of cards, done in Bradstreet cards, businesses cold calling, CEOs of companies, businesses out there getting what they called indications.

Of interest. And believe it or not, it was not a difficult thing to do. you mentioned the word IPO to the secretary and you’re calling from investment, whoop. You you you’d get the CEO on the horn. It was extraordinary. It really was, because they wanted to be a part of these things. So you’d get indication of interest. Yeah, I’m interested. how much can be? I don’t know. We’ll send you out a what was again prospect red herring.

The initial before the final prospectus was put out. and again, that’s how these things were placed. everybody wanted a piece. most of them didn’t get it. the investment banks would structure these deals based upon, okay, you want part of our IPOs. Well, how much business are you going to do with our firm? how much money are you going to buy in some of our other deals? There’s a myriad of different things that went on.

And what I noticed in a very, very short period of time is it was a bit of a racket. Not not a bit of a racket, a a massive racket. anyone that actually got, it wasn’t even a significant piece of any deal that went public. you know, they were asked, okay, they committed to buy stock in the aftermarket, meaning after it went public and after the stock popped, they had to buy more.

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And they also, you know, we we won’t sell right away. We’ll hold on to it. most did. again, wasn’t the smartest thing to do. A lot of these deals went up initially. They bought in the aftermarket, would hold up for a period of time, holding period would would end up, insiders could get out, the stocks would would end up coming back down to earth. it’s interesting. Is it you know, they lowered with SpaceX, give me example. and this is different.

Okay, especially massive, largest IPO of all time. BlackRock is putting in like five billion dollars, committing five billion dollars to buying into this IPO. And there was a story out there saying, well, the amount of IPO that was committed to retail investors, and again, they were just gonna sprinkle it here and there in accounts. that got cut. And the reason got cut simply is probably BlackRock or another big player out there said, hey.

Hey, I’m putting billions of dollars into this thing. I want more. What are you going to tell them? No. Whatever. Neither here nor there. It’s exciting, sighting party time, IPOs. I wanna I wanna go through the actual numbers. Again, we here at The Watchdog on Wall Street, we like to deal in something called reality. Reality is a good thing.

When it comes to investing. We don’t, we don’t kid ourselves. It’s interesting, it was an actually a random act of journalism at the Wall Street Journal. I gotta give credit to this guy, Teles Demos. And he looked up, he looked up a professor at the University finance professor at the University of Florida. this guy probably has he’s got a lot of I I would bet you, I would betcha.

He’s got a lot of little grad students helping him out. And they compiled some amazing numbers. This guy’s done other work before that we cited here on the program. Basically, how have I POs actually done historically? Hmm. we’ll tell you. the Goldman Sachs won’t tell you, Morgan Stanley won’t tell you, all these other they’re they’re not gonna tell you this stuff.

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They don’t want you to deal in reality. They want you to deal in, you know, make-believe. The amazing world of make-believe out there. Anyway, the average, the average US listed IPO’s first day gain from its offering price to its closing price at the end of the first day of trading is 19%. This is data, okay?

Again, the professor’s name is Jay Ritter, University of Florida. This is going back to 1980 to 2024. 19% in the first day. You know what’s in my mind, whenever I see those numbers, I’m like, sell, Mortimer, sell, sell, you know, from trading places. Anyway, reality is most don’t get in or they get.

That price. I I mentioned here on the program. we are persona non grata at Markowski Investments when it comes to IPOs, because we don’t buy aftermarket. And if a thing goes up, we sell it. We sell it. Again, I’m gonna make that type of a profit in one day. Take it. I’m gonna take it. Anyway, interesting.

Follow me here. if you hold, you buy it IPO the first year, this is average 1980 to 2024. and you hold it for three years.

It is 21% lower than what a value weighted market index would have returned.

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Over three years. Okay? This is 9,300 IPOs from 1980 to 2024. There’s not even 9,000 publicly traded companies. I don’t know, what is there? Almost like 4,000? I forget the number exactly. But anyway. And it’s interesting too. The smallest companies, because you factor in, you factor in all of those little penny stocks and small market cap companies that

Popped on the first day. under a hundred million dollars in revenues. First day the stock went up on average about 24%. Value weighted after a three-year period of time, down thirty-five percent. Revenues of a hundred million to five hundred million, up about yeah, fifteen percent first day, down about five percent.

Compared to an index. five hundred million dollars and up up about ten percent, eleven percent first day, down about seven percent over a three year period of time. So that’s the reality. That’s the numbers. What does that have to do with SpaceX? Nothing.

Absolutely. S SpaceX could be a massive winner. Could be a massive and I’m I’m actually, you know what? I’m hoping it is a winner. I I’m a bit of a fanboy of the stuff they do. They watch their launches and watch them catch rockets. I have used their Starlink service and I am impressed.

Would I love for Starlink to incorporate also phone service as well? Yeah, I’ve been a Verizon customer for decades. You know what? Their customer service is awful. It’s a reliable network and whatnot, but it’s still a pain in the neck. Every single time I travel, I gotta freaking call them up. I gotta, you gotta turn my international on, but you know, they’re gonna bang out if you don’t turn it off or so it’s just it’s ridiculous. And again, it wouldn’t

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Love to have competition there. But again, look at the risks that are involved with the company like this, especially a guy like Elon Musk. let’s just look into it a little bit. Elon Musk was, wasn’t he a darling of the left not too long ago? They loved him, Elon, because he had electric cars. They left loved electric cars. You know, you know what he was pushing to? Remember those

The battery thing for your house. And I I wish that actually worked out because I would have put that on my house. They those roof tile solar panels. That never panned out. Remember, he he combined the company into SpaceX and then he took over Twitter and they got upset with them there. And then he, you know, tried to doge government spending, and all of a sudden, people were setting their Teslas on fire and trying to wreck Tesla dealerships. So he to this day.

He’s a bit of a lightning rod. You still see stuff people say things about, all right, send it back to South Africa. I’m like, are you kidding me? Anyway, not neither here nor there. there’s political risk involved there. Somebody becomes president. Again, SpaceX is gonna have quite a few government contracts. Quite a few government contracts. You know, what if somebody’s like him, decides to pull them, say, hey, you know what? We’re gonna, we’re gonna, we’re gonna, you know, we’re gonna give that money to the government.

Gonna give, we’re gonna rebuild NASA. No more money for trillionaires. I can see it. I can see some populist moron saying something like that. That’s a risk factor for the stock. Elon Musk himself is a risk factor. His health is a risk factor. Something going wrong, like what happened with Amazon, Blue Origin, that explosion, that is a risk factor. So there’s a lot of moving parts. This is also the factor that people are worried.

That he might want to combine Tesla into this as well and what that means going forward and what that could do to dilute the float. There’s a lot of things that are going on. Okay, so again, congratulations if you got some of the IPO. Don’t go chasing the stock. Don’t go chasing the stock. I I wouldn’t do that. Hold off. Hold off. But again, I could be wrong. The thing could keep going up in a straight line.

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I’m just I’m telling you what I know and what I’ve seen in my 30 years when it comes to IPOs. What’s that song by one of my favorite rap groups back from the 1980s and 90s? Public Enemy. Don’t, don’t believe the hype. Watchdog on wallstreet.com.