Before You Buy SpaceX Stock… Watch This | The Complete IPO Breakdown

Added: 2026-06-01

[00:00:00]Hello and welcome back to the Marketmaker podcast and this week it is all about space. SpaceX is going public and we are going to provide you as what we believe is the most comprehensive deep dive of the IPO and all the interesting strategy and investment banking intrigue surrounding it. So, here's how we're going to approach this particular story. First, we'll start with the headline and a bit of context, then we'll go deep into the numbers.

[00:00:28]We're going to go mining, if you like, into the asteroid, into the numbers.

[00:00:32]Breaking down SpaceX's three business units and then we'll take a step back and get a sense of the space and satellite industry, how SpaceX's oversize impact is distorting the market. And then we're going to get into the nitty-gritty and there's no better person than Stephen on the call with me to do so. We're going to discuss SpaceX's unique governance structure, the pre-IPO frenzy, which I'm sure you're already reading about, the accelerated index admission and of course, how much money the lucky bankers are going to make off the back of this record-breaking deal. Before we get going, quick shout-out to Denise and Darius for doing such a great job researching this story as well and helping us get to the bottom of this historic IPO. So, Stephen, perhaps we can start with with the headlines.

[00:01:22]>> Yeah, absolutely. Thank you, Anne. I I love that introduction. I do believe that it is the most comprehensive deep dive of the biggest IPO of all time and I believe that because I think I've listened to every other podcast that exists that is speaking about SpaceX. It is such an attractive story and it's such an intriguing series of headlines and lots of different side stories. So, if there's only one podcast you listen, and I know we're a little bit late to the story, some other podcasts went early, but they went pretty superficial. We're going to get it right and we're going to do it so it comes out at the right time.

[00:02:01]All right, so headlines.

[00:02:03]We all know anyone, it would be very strange if you're listening to this podcast or watching us on YouTube, and you don't know that SpaceX, the most exciting privately held company run by Elon Musk, is going to go public, and it is actually happening. I was looking on Polymarket, the the the the site that helps at the prediction market site, and obviously there was a real early market for when is SpaceX going to go public, and that was one of its most traded things.

[00:02:35]Obviously that's shut down now, because we now know that SpaceX the road show, we'll talk a little bit about what the road show is, the IPO road show, is happening well, it's happening starting the the private jets are going to start whirring on the 4th of June.

[00:02:50]And the bell is going to ring on the 12th of June.

[00:02:55]So that is when SpaceX goes from being a private company that we speak about so much to being a publicly quoted company.

[00:03:04]Now lots of numbers have been bandied around. I think I mean, if we were to talk about SpaceX's valuation a year ago, we'd be we'd be putting a $400 billion dollar number on it. That was the valuation about summer last year.

[00:03:20]Then they did a secondary internal secondary sale, so existing shareholders selling some of their shares, existing employees. That was about 800 billion in December 2025. So a nice doubling.

[00:03:32]And then obviously a lot of you will remember that in February of this year XAI got acquired and pushed into this entity, SpaceX, bringing the total value of the combined entity to 1.25 trillion. We got the T, The big T.

[00:03:53]And now numbers again, if we were to record this podcast this time last week, we'd be talking about 1.75.

[00:04:02]Then if we were to record it a few days ago, we'd be talking about two, two trillion. That was the number.

[00:04:08]Amazon's valuation, which absolutely blows my mind.

[00:04:11]And now as of today it's 1.8 trillion. That's the number.

[00:04:17]That is the valuation of SpaceX that we believe and that everyone, the commentariat believes is going to go out come the 12th of June.

[00:04:27]>> Can I can I just ask then I was interesting that they've it's obviously the advisors or the company drip feeding into their contacts at a financial media outlets to go whoa whoa whoa whoa.

[00:04:40]Let's just rain this in a little bit.

[00:04:42]The bankers definitely want to over deliver on this one and not disappoint.

[00:04:46]Wasn't it just the other week we were talking about a similar sort of setup with Anthropic?

[00:04:52]>> Yeah, you you don't want to you don't want to over promise and under deliver and you don't want a failed IPO, right?

[00:04:59]And the last mega IPO that you would read about if you studied finance was the Facebook IPO, the last mega failed IPO. Share price dropped 50% within the first couple of months.

[00:05:12]Obviously look who's laughing now, but there is no chance that the bankers want this to be a damp squib because they've got they've got a whole host of fees coming down the pipe with Anthropic and OpenAI. And if this thing launches and then the share price halves I would if I was OpenAI and Anthropic I'd be, you know, I'd be maybe stepping back from the cliff edge.

[00:05:37]>> I I've got a question for you then cuz you mentioned there a lot of numbers.

[00:05:41]So there's kind of this combination of it's a historic size, it's a the it's two trillion.

[00:05:47]Can you just put that into some actual tangible context? What sort of size company are we talking about then if you were to like insert this into a major one of the stock indices or a comparable that people will know as a benchmark company, for example?

[00:06:02]>> Yeah, this is this is super interesting and there's lots of different ways to look at this. So, firstly we're going to look at it from a valuation perspective.

[00:06:09]We've got 1.8 trillion. That is almost as big as Amazon. It would be the seventh or eighth largest company in the S&P 500.

[00:06:19]But, by revenue, as we'll get on to in a little bit, it would be about 250th.

[00:06:24]So, a kind of mid-ranking player, the same size, I've got it in my notes, the same size as General Mills, who make Lucky Charms.

[00:06:34]When was the last time you had Lucky Charms, Ant? I haven't had it for years.

[00:06:38]>> It still exists?

[00:06:40]I don't know, 30 35 years ago.

[00:06:44]>> Yeah, there's a very very strong correlation between me stopping eating Lucky Charms and me no longer getting fillings.

[00:06:51]>> [laughter] >> Indeed.

[00:06:53]>> I would I yeah, I don't think I think they should be banned as a as a as a cereal. But anyway, that's not what we're talking about. So, 2 trillion dollars.

[00:07:00]However, they plan to raise 75 billion dollars.

[00:07:05]2 trillion dollar market cap, what they're actually raising from investors, the ask, they're going out on this roadshow to try and raise some money, is 75 billion dollars.

[00:07:15]Still a whole heap of money, three times as much as the previous largest amount of funds raised. That was Saudi Aramco, 25 billion back in 2019. But really really importantly, if you think about a 2 trillion dollar beast, 75 billion, it's three to four three to four percent of the total size of the company.

[00:07:39]So, we're going to talk later on about this concept of the free float, the float.

[00:07:43]So, even though we've got the two trillion number, there's only going to be 75 billion dollars worth of this stuff of SpaceX shares knocking around the ecosystem.

[00:07:55]>> Ooh, I better put my boxing gloves.

[00:07:58]There's going to be plenty of investors to to trample over to get my hands on some of that action.

[00:08:03]>> Well, absolutely.

[00:08:06]So, let's >> With the 75 billion then, what do they actually need 75 billion for?

[00:08:12]>> Yeah, so there's a lot of things. I mean, so they're investing obviously extremely heavily in AI and in data centers. We're going to be talking about Colossus and the fact that this whole story, if you wrap this narrative together, it's much less about obviously Grok and launching new LLMs, and it's much more about the infrastructure, the picks and shovels, the architecture of artificial intelligence. Whenever we talk about data centers, Elon Musk is probably thinking, "Well, you could probably put one of those in space, right?"

[00:08:47]Oh, and by the way, we've got rockets with the payload to do that. So, the rockets send the equipment to build a data center in space, you rent out that data center, Anthropic pays billions and billions of dollars, and you've got a multi-trillion dollar company. Simple.

[00:09:06]>> You say simple. I remember Oh, maybe it was IBM or something like that, and they said, "Wouldn't it be cool to put uh data centers deep in the ocean?"

[00:09:18]Why? Cuz it's cool.

[00:09:20]The temperature, and then therefore make a lot of sense.

[00:09:23]The problem is, what if there's a problem?

[00:09:27]How do you fix these things? How do you get it down there? You know, it's So, yeah, but anyhow, I digress.

[00:09:34]>> Yeah, absolutely. And and this thing is extremely fanciful, but hey, it's Elon Musk and he has built a rocket company, a profitable as we'll find out in a minute, a profitable rocket company. So, maybe maybe this is true.

[00:09:47]Mhm. But let's just bring us back down to earth, to excuse the pun, and talk about a couple of metrics, couple of ratios. So, on launch, we reckon it's going to be about 90 times enterprise value to to sales, which would make it, apart from maybe Cerebrus, which is the chip company that IPO'd a couple of weeks ago, it would make it the second Well, the the Cerebrus is not even in the S&P 500. But it was a very, very high valuation, 250 times enterprise value to EBITDA.

[00:10:20]Right? So, this is crazy. Oh, and by the way, a successful listing would make Musk the world's first trillionaire.

[00:10:30]>> Oh, that's going to be terrible. I mean, it it's kind of inevitable, but it is Oh, he's going to love that.

[00:10:40]Shout out to Elon.

[00:10:42]>> Shout out to Elon. All right. So, why now? Why now? So, we've spoken a little bit about the fact that there are these three mega IPOs coming. And again, if you follow the financial news, you'll also realize that Elon Musk recently took OpenAI and Sam Altman to court. He subsequently lost, but what did this do?

[00:11:03]It delayed OpenAI's IPO plans, so that SpaceX could be front of the pile, right? First in the pecking order to get out what will be one of three absolutely massive IPOs.

[00:11:18]That's important because all three of these companies are essentially fishing in the same lake, right? They all want money from people that are excited and want exposure to artificial intelligence. SpaceX has got a different take to OpenAI and Anthropic, but they wanted to get in early.

[00:11:37]They wanted the frenzy to build up for this IPO listing. And yeah, look, you know, if the if the heat comes out of the IPO market afterwards and if people get a little bit kind of full up with their SpaceX allocation, they don't mind. They just want to be first.

[00:11:54]>> Mhm. So, it sounds like almost as uh tactical strategy, let's go first.

[00:12:00]However, carries some risk if it doesn't deliver. So, you're the first up to bat and the unknown of the magnitude of these types of IPOs when I'm thinking Anthropic, for example, coming down the pipe.

[00:12:12]So, you're playing a little bit safe, perhaps. So, risk-reward trade-off, I guess.

[00:12:19]>> You're the first up to bat, but all of the signals look extremely positive.

[00:12:24]>> Mhm.

[00:12:24]>> From from a SpaceX perspective, I don't know whether they're extremely positive from a market functioning, market rationalism rational perspective. You know, this this is already bonkers. The valuation is already dislocated from the fundamentals quite some time ago. But, if you think about if you think about the fact that there's $8 trillion of effectively cash sitting in asset managers' funds.

[00:12:53]This is waiting to be invested. So, cash as an asset class is now over $8 trillion.

[00:13:00]That cash can very quickly be moved into something like SpaceX.

[00:13:05]So, you know, suddenly $75 billion doesn't look so big. Secondly, we all know about how much bigger the role or more significant the role of retail investors has become.

[00:13:18]And especially in America, there's some really big pools of capital when you add it all together.

[00:13:23]And 30% of the IPO allocation, 30% of the $75 billion, that's going towards the retail investors. And we all know retail investors, they love they love a bit of Musk, right?

[00:13:35]So, the you know, the the the tailwinds are there, I think.

[00:13:38]>> Mhm. And then looking at the when they did the filing the other week, you know, you got your first eyes on this prospectus. It was a beast, but it was beautiful, actually. A lot of the Is it the the imagery? What were some of the highlights that you saw in that that document?

[00:13:54]>> You're absolutely right. It was beautiful. There were so many cool images of of rockets taking off and satellites and space. It was it was cool. The first 20 pages were all cool images.

[00:14:06]>> and I was like scrolling and scrolling and I was like just just picture picture picture, which is unusual.

[00:14:14]>> Look, I spent a little bit of time having looked at the prospectus. I went back and looked at two other prospectuses. The first was WeWork.

[00:14:22]>> [laughter] >> And WeWork did a very similar thing.

[00:14:26]They filled their first 15 pages of the prospectus with the great community vibes, right? The beer on tap, the beer pong, whatever it might be, the cool office space, a little bit of smoke and mirrors because the numbers were pretty tragic. Maybe the prospective investors will get bored by the time they get to the numbers. I don't think so. And then I went and looked at the Tesla prospectus and thought, look, has Elon Musk always been this bombastic? Has he always been this outrageous in his claims and in his rhetoric? And I was a little bit little bit disappointed.

[00:15:02]Tesla prospectus was boring. There was no grand mission, no great claims, and not even that many photos. So, >> [laughter] >> from an entertainment perspective, the SpaceX IPO prospectus is much more interesting.

[00:15:17]Well, let's get some sta- Let's get some stats.

[00:15:19]>> favorite stats then? Hit me with some numbers here.

[00:15:22]>> Well, look, it's a really cool company. There are 10,000 Starlink satellites floating around up above us providing everyone from uh you know, ships in the middle of the Pacific to me in the middle of the rural countryside with Wi-Fi where there was once not Wi-Fi. So, that's amazing.

[00:15:44]There are 10.3 million Starlink subscribers. They've had 650 launches so far.

[00:15:52]They've flown 78 crew members.

[00:15:55]They put over 80% of all of the space mass into orbit in 2025.

[00:16:03]You know, so this thing is a beast. And my favorite stat, and I'm going to credit Mihir S. Raj from Prof G Media for this one cuz I saw it on Substack.

[00:16:12]AI AI was mentioned in the prospective uh prospectus more times than Jesus was mentioned in the Bible.

[00:16:23]>> [laughter] >> How's that for a stat?

[00:16:25]>> Oh, that that's a highlight for the podcast right there.

[00:16:29]>> [laughter] >> 1,251 versus 983.

[00:16:34]>> Ah.

[00:16:35]Wow.

[00:16:36]>> [laughter] >> And And then one of the other things when I was having a scan through it cuz I actually did a post about this cuz it was the bit that jumped out to me and spoke to me the most was was the total addressable market graph that they had or table.

[00:16:52]I wonder if you could just walk me through some of those numbers cuz they were epic.

[00:16:58]>> Yeah, so we talk about in the world of finance, in the world of startups, we talk a lot about TAM, the total addressable market. And that's basically the revenue that could be taken if you get all 100% of the markets that you may or may not be able to address effectively. And SpaceX's estimated total addressable market is $28 trillion, according to the Digital Cooperation Organization, which I think might be made up.

[00:17:30]$28 trillion is the size of the US economy, just to put that into context.

[00:17:35]And what's super interesting about this is I'm going to go through this little stack bar chart. So, you've got total addressable market for space-enabled solutions, 370 billion. That's a chunky market.

[00:17:48]870 billion total addressable market for Starlink. That assumes that every internet user is going to use Starlink.

[00:17:55]740 billion additional for Starlink mobile.

[00:17:59]2.4 trillion for AI infrastructure.

[00:18:03]760 billion for consumer subscriptions, 600 billion for digital advertising.

[00:18:09]And then, 22.7 trillion for enterprise applications.

[00:18:17]So, previously, all of those other numbers, they're big, but you can somehow get your head around it.

[00:18:24]$22.7 trillion, that suggests that SpaceX needs to take over every single software company in the entire world, smallest to largest, right?

[00:18:36]It It It makes absolutely no sense. And I think what they're trying to do here, just to kind of read between the lines, is one of the big things that stood out to me was that SpaceX is a fantastic company, but it already has an 85% market share in space.

[00:18:54]It already takes take It can't grow that much bigger within the market size of space.

[00:18:59]So, in order to justify a $2 trillion valuation, you need to start saying, "All right, here are all of the other things that there is a much, much bigger total addressable market for."

[00:19:11]But the problem is that the reason why I like SpaceX is because it's got an insane moat.

[00:19:19]It's got unbelievable barriers to entry.

[00:19:22]It's really hard to build a rocket company.

[00:19:24]But what they're trying to sell the valuation on is the fact that there's a $28 trillion market where SpaceX do not have a great moat. They become much like any other LLM provider, any other AI SaaS killer, whatever it might be. So, the numbers don't quite tally from my perspective.

[00:19:47]>> And that the bit that I thought was interesting is under that TAM section in their prospectus. Immediately below it, the the subsequent paragraph was the challenges.

[00:19:58]So, here's here's a big fat number, 28 and 1/2 trillion I think it was, and then the two things that they said. They said the major execution risk is the successful scaling of Starship.

[00:20:11]Which Starship is critical for increasing launch frequencies, deploying these next gen satellites. And then the other thing, and this is kind of classic Musk.

[00:20:20]But I I say classic Musk, but I like the fact that he says it, rather than he he kind of owns the space, if you like.

[00:20:28]No pun intended. In the in the sense that SpaceX acknowledges significant un- or uncertainty around timelines, techno- technological developments, regulatory approvals, commercial adoption. There's so much of this that they're saying is at threat. But here's a number that we think we can gun for.

[00:20:49]>> Yeah, but who cares about all that when their mission is to build the systems and technologies necessary to make life multi-planetary, to understand the true nature of the universe, and to extend the light of consciousness to the stars.

[00:21:04]Who Who about numbers?

[00:21:06]Right?

[00:21:07]This is This is cool.

[00:21:10]>> Okay, so should we move on then and investigate the business a little bit more?

[00:21:15]>> Yeah, sure. Let's Let's break it down.

[00:21:17]Um so, SpaceX has three businesses now that it's got xAI.

[00:21:23]It's got a connectivity piece. That's its Starlink. It's got its space piece.

[00:21:29]That's its bringing payloads into space.

[00:21:32]And then it's got its AI piece.

[00:21:35]So, can it will go through them one by one.

[00:21:38]Connectivity, Starlink. It's a really good business.

[00:21:43]And if you look at any commentator, they will say as much. It is a $11.4 billion annual revenue business growing at 50% year-on-year. And it generates $4.4 billion of net income. That is a really nice business. Good margins, good growth. I would invest in that at a $200 billion $150 billion valuation.

[00:22:07]Maybe a little bit more if I was feeling feeling Musk punchy.

[00:22:12]The second business is the one that garners all of the nice photos, space.

[00:22:18]And that is still a pretty good business. It's a $4.1 billion business only growing at 8%.

[00:22:25]Bare in mind.

[00:22:26]And it lost about $700 million last year due to a pretty big CapEx buildout.

[00:22:32]And then the third division, >> [laughter] >> that's AI. That is xAI. That's Grok.

[00:22:40]That's the data centers. It generated $3.2 billion of revenue and lost $6.4 billion of net income.

[00:22:52]So, you've got an absolutely beautiful, lovely business. You've got a really good business that's got very good barriers to entry and supports that lovely Starlink business. And then you've got this kind of dog that you've kind of that you've slapped on to try and make this a big AI story. And the numbers just suggest I mean, the AI division only grew by 22% last year. It's not It's not It's not going great guns, shall we say?

[00:23:21]>> And then no no mention here then about Tesla or robotics or things of that nature cuz I'm sure I read in the last week that some murmurings about Tesla also coming into this X fold in the end as the end game.

[00:23:37]So, is that not even registering at this point?

[00:23:40]>> It wasn't really mentioned in the prospectus. It is something that analysts acknowledge might happen at some way down the line. I think possibly it's one of those things that if you look at the Elon Musk playbook, you have the you have a portfolio of of companies and the ones that are doing extraordinarily well tend to prop up and then potentially acquire the ones that are not doing so well. And then a new narrative is created. So, the way that Tesla's going with regards to its car manufacturing business, it might be that if SpaceX absolutely flies and suddenly becomes a $5 trillion company due to the frenzied stock market and and and things like that, their share price becomes the currency to fold a relative minnow, the $1 trillion Tesla, uh insert into the fold and create a robotics AI AI data centers data centers space Wi-Fi connectivity to all the robots that are kind of doing doing our bidding around the world.

[00:24:49]That's maybe where it ends. I'm not sure.

[00:24:52]>> Just going back to the AI part. The other business units make sense to me, But, the AI apart where what are they spending money on?

[00:25:01]And given that companies like Anthropic are just going vertical at the moment, one would expect that demand for data centers will go up.

[00:25:12]There's obviously a lot of private equity money. I think I read just today about a new fund coming together with some PE PE giants looking to fund through Anthropic uh more funding for for build-outs.

[00:25:25]Can can't SpaceX and their AI division take advantage of some of these these tailwinds at the moment?

[00:25:32]>> Yeah, abs- absolutely. And I think a lot of the narrative around their AI division is moving away from hey, Grok is hm xAI as a leading lab and X has 550 million users and Grok has 550 million users and that's that's great. I think there's a there's a bit of a concession that they have and will not be able to keep up with the bit with OpenAI and Anthropic and and Google as well.

[00:26:02]But, they're building these big data centers, right? So, just to just to look at the way that they break down their AI divisional revenue and their divisional uh numbers, so the first line is what's called I had to look this up nameplate compute draw in gigawatts.

[00:26:23]That's basically a proxy for capacity of data centers.

[00:26:27]So, they have got 1 gigawatt worth of capacity for data centers in 2026. They only had 0.3 gigawatts in 2025. A lot of that loss, by the way, is the CapEx required to go into building out these data centers. So, they're making a massive play on getting these Colossus they've got Colossus 1 and Colossus 2 data centers up and running and then effectively renting them out.

[00:26:57]If SpaceX and Elon Musk really believed in xAI and Grok and all of that stuff, that would be the headline. That would be the That would be on the top of the breakdown for this division, right?

[00:27:12]It'll be like number of new users added, number of paid monthly subscriptions, total revenue per average revenue per user, all of these things. But here, we've just got nameplate compute draw in gigawatts. So we're really pivoting into this. We are the infrastructure of the AI revolution.

[00:27:33]>> You mentioned about them having a a big defensive position in the space market.

[00:27:40]But when I think about some of these other largest companies in the world, the one that comes to mind, the Googles, for example, they're all fighting within this AI domain, requiring this build-out and compute power.

[00:27:55]Can we just explore a little bit about the wider space industry?

[00:28:00]Who are the How is that shaping up? I I find it impossible to believe that there's not other people within this space race.

[00:28:08]And how do you get exposure to that ex-space race in its different forms?

[00:28:13]Cuz I'm sure there's uh you know, this is a SpaceX is a beast and a multifaceted one. Is there any specialists that operate within like the supply chain, so to speak?

[00:28:24]>> Yeah, it's a really good question. I think space, as a result of SpaceX, is increasingly hot as a subsector or sector that investors and speculators and retail investors are very interested in. And quite frankly, if you had bought a space adjacent ETF, exchange-traded fund, 6 months ago, a year ago, you would be a very, very happy person.

[00:28:48]Because the momentum of SpaceX, the doubling and then tripling evaluation, the pre-IPO build-up, the fact that it is saying some things that well, they seem quite unbelievable, have this maybe it will happen ring about them, whether it's data centers in space or mining mining various different things up in space.

[00:29:12]The whole space industry has kind of come up alongside SpaceX. So, you've got you've got a number of players that are worth mentioning, and maybe some more happily than others.

[00:29:24]So, firstly, just as a just as a note, the first big beneficiary, you wouldn't have guessed it, but it's Alphabet.

[00:29:33]So, Alphabet invested $900 million in SpaceX in 2015.

[00:29:39]So, I don't know what the valuation was, but they If you're holding onto a couple of Alphabet shares, you might see a little bit of a tick up as well.

[00:29:46]>> Oh, nice.

[00:29:47]Thanks, Elon. It's not bad, is it?

[00:29:49]>> [laughter] >> It's not a bad one, is it? You never really think about, you know, a company like Alphabet investing in a company like SpaceX, but it happened. So, there are other companies. So, I'm going to mention EchoStar.

[00:30:00]So, EchoStar uh it's a telecom telecoms company which sold some wireless spectrum to SpaceX last year in exchange for an equity stake. Importantly, has jumped more than 500% over the past year.

[00:30:16]Nice.

[00:30:17]Uh Redwire, which is a US-listed company. It's a satellite infrastructure and spacecraft component company.

[00:30:25]It has Well, it's up 158% year-to-date.

[00:30:31]Rocket Lab, often viewed as the closest public market comparison to Space SpaceX, builds rockets and launch systems. It is up 94% year-to-date.

[00:30:44]But, it's not all good news.

[00:30:46]Can we This is absolutely brilliant. Can we spare a thought for poor old Jeff Bezos?

[00:30:55]Poor old Jeff Bezos' Blue Origin, which as of recording, I think Friday of last week when this comes out, on the eve of SpaceX going public, Blue Origin's New Glenn rocket exploded. I put a photo in the show notes for you just to get a look at that extraordinary explosion.

[00:31:18]And it had 48 satellites due for Amazon's Leo Amazon's Leo broadband network. It was going to send them all up to become a Starlink competitor.

[00:31:31]And Elon Musk, in his in his pretty typical way, he responded to the announcement that this thing had blown up on X.

[00:31:40]He said only, "Most unfortunate. Rockets are hard."

[00:31:44]That was his response to Jeff Bezos and Blue Origin. Oh, you know, there could not be better news for SpaceX.

[00:31:52]In the context of the fact that they're, you know, their rockets aren't blowing up and and one of its biggest competitors' rockets are.

[00:31:59]Bezos has got some exposure here to SpaceX, I reckon. Just like Demis of DeepMind Google has little exposure to Anthropic. We're all We're all in it together. We're all bros here.

[00:32:13]Yeah, I mean, the web is very tight, right? And and and and again, none of these people are going to go out onto the streets. So, a big rocket exploding, no one was hurt. So, we're allowed to laugh at it.

[00:32:24]But, it's just great timing. Wonderful timing. So, yeah, the space industry is is is definitely coming up alongside SpaceX, and it is a function of SpaceX growth and the growth in the market size that will continue to propel these adjacent, slightly less interesting stocks along with it.

[00:32:43]>> Okay, one of the things then is that when I think about Tesla, I feel like Elon Musk can be a blessing or a curse in in you know, quite polar ways.

[00:32:54]So, how does the governance side of this business, how is that going to work in practice? Because I'm assuming this seems to be the the centerpiece for his legacy ambition for Musk. And so, his identity is going to be entirely built into this company.

[00:33:14]So, how does that look given some of the challenges that he's met running his previous organization, which he would have learned a great deal from with having grown Tesla to such a degree?

[00:33:25]>> Yeah, and obviously he had a a load of governance challenges at Tesla and and obviously they ended up moving to Texas so that he could get his pay plan in place, his incentive plan in place.

[00:33:38]I think it is one of those things where you have to if you want to invest in SpaceX, you need to hold your nose.

[00:33:45]You you need to be like, "Look, I accept that the governance here is non-existent.

[00:33:52]You cannot sue Elon Musk. You cannot replace any board members. You cannot replace Elon. He has I well, I think 1.3 billion uh super voting class B shares which give him 10 times as many votes as the normal share. Which actually means that he has I think 94% of all voting all voting rights. So, this is Elon Musk's company and it will never not be Elon Musk's company. That is That is it, right? I think a US pension fund a bunch of US pension funds got together and called it the most management favorable governance structure ever brought to the US public market.

[00:34:35]You hold your nose, right? And you go, all right.

[00:34:38]As one commentator said in the FT earlier on today, Elon You don't lose money backing Elon Musk. That was what he said. So, I'm going to hold my nose. I'm going to accept that this is an absolute pig's ear of a governance structure. It's not even a governance structure. And Elon Musk could go from trillionaire to multi-trillionaire, especially if he puts up permanent human colony on Mars with at least 1 million inhabitants, which is one of his one of his targets, one of his key performance indicators.

[00:35:12]>> I I almost feel I almost get a feeling that Elon Musk through now the SpaceX venture, he's almost become too big to fail.

[00:35:22]There's so much money wrapped up and interest that's interconnected without the broader ecosystem into this one individual's assets and ambition.

[00:35:36]I yeah.

[00:35:37]I I find it quite in- intriguing, quite intelligent strategically, but quite scary at the same time.

[00:35:46]>> Yeah, and it's really interesting to think, and I totally agree. I think I think there's so many vested interests and so much money in and around SpaceX and the ecosystem around it that it does almost make this thing too big to fail.

[00:36:00]Maybe I'll look back on this podcast in a few months and I'll eat my words. But, what I'm really interested about the strategy of Musk, I would love to know to what extent it's opportunistic and to what extent it is all part of the master plan, right? So, was it totally opportunit- opportunistic that he turned he bought Twitter and turned it into X and then turned it into an AI lab to compete with the old enemy open AI. Was it totally opportunistic that SpaceX decided to acquire open AI 4 months before sorry SpaceX decided to acquire X 4 months before the listing to create this new narrative. Would it be totally opportunistic if they decided to to fold Tesla in there or is this all part of this plan? You know, one thing that I keep reminding myself of is that before the PayPal days Elon Musk's PayPal equivalent that got folded into PayPal was called x.com.

[00:37:01]So so he I know it was a different company, but there is certainly a continuity in the way that he thinks and no one can ever blame him for being short-termist.

[00:37:13]A short-termist and opportunistic is a two different things. So I look basically I just want to get into the mind mind of the man, but not stay there for too long.

[00:37:23]>> [laughter] >> Brief visit and a cup of tea.

[00:37:25]>> Brief visit, yeah, exactly.

[00:37:27]>> Let's talk about then the finance side of this cuz I know that there's a unusually large amount of Wall Street interest in this because the amount of fees to go around is enough to feed many mouths. So what does that look like in practice?

[00:37:44]>> Yeah, this is super interesting and again it gets back to slight you know some of the slightly more technical elements of an IPO. There are a total of 23 Wall Street lenders acting as underwriters, guarantors of the deal. So they basically guarantee the 75 billion dollars will be put into the bank accounts of SpaceX regardless of whether there's any investor interest or not.

[00:38:14]Interestingly enough, oh by the way that's probably going to equate to about a billion dollars of underwriting fees for the banks.

[00:38:22]Of which the lead left the lead company uh the lead bank will get maybe up to $300 million. So, who's won the mandates?

[00:38:33]Goldman Sachs.

[00:38:35]>> Yeah, I was quite shocked by that because I saw that come out just a week or so ago and I thought it was a shoe-in for Morgan Stanley for reasons I'm sure you'll you'll explain. But yeah, so what happened there? I mean, someone at MS is surely getting the hairdryer treatment these last few days.

[00:38:51]>> Yeah, it seems like a a real case of complacency versus just putting in the hard work. So, no one can say that Goldman Sachs is a plucky upstart.

[00:39:04]It is the world's best M&A bank and it is in the top three in terms of equity capital markets and has done some of the biggest tech IPOs of all time.

[00:39:15]But it was always expected that Morgan Stanley would be the lead left, which is the phrase that we use to say basically the one that's in charge, the one that has strategic control, the one that has price-setting power, the one that can basically manage the whole thing, and the one that gets the most fees.

[00:39:36]The reason why Morgan Stanley was so sure of themselves, or so goes the journalistic comment, was because of a guy called Michael Grimes.

[00:39:49]Now, Michael Grimes, he is like a legendary TMT technology media telecoms banker out of Silicon Valley. He's been at Morgan Stanley for 30-plus years and he has taken Google, Facebook, Uber, Airbnb public, right? He helped uh Elon Musk take Twitter private and helped to arrange the financing for that. He even left or had a sabbatical from Morgan Stanley to go and join a similar department to the DOE's department when Elon Musk stepped away and and did his politics thing. So, the theory was this guy Grimes, legend in the field, has helped out Musk before, has followed Musk kind of around the houses. It is Morgan Stanley's nailed-on, right?

[00:40:39]But, Goldman Sachs supposedly put in 4 years of super diligent work, right?

[00:40:47]Not just David Solomon, I think we mentioned last week, sliding into Musk's DMs and saying, "Hey, you know, we're good for this. We know how to do it."

[00:40:56]But, also the really, really senior bankers in Goldman Sachs probably just putting together a concerted, extremely well-thought-through, we are on the doorstep, we're giving you the updates, we're giving you free advice for 4 years. And Morgan Stanley might have just been a little bit slower, thinking, "We've got this." Little bit of complacency. And then, bam, Goldman Sachs gets the big one. So, you said that at the top of this explanation there's 23 Wall Street lenders acting as underwriters on the deal. One of the things I read in your note was something like terminology-wise called a stabilization mandate.

[00:41:33]Most people probably would haven't heard of that. What is a stabilization mandate in this process?

[00:41:39]Yeah, it's really interesting.

[00:41:41]So, a bank or a number of banks will be in charge of managing the post-IPO volatility and stabilizing that volunteer volatility for a period of time after the IPO. Usually, you don't announce who the stabilization manager is.

[00:42:00]You would assume that it's going to be the lead left or one of the lead arrangers or lead underwriters. But, in this case, they explicitly said that Morgan Stanley is going to be the price stabilization agent.

[00:42:14]So, Goldman Sachs leads the strategy, leads the deal, is the one that's flying around on a private jet, doing the road show, all of that stuff.

[00:42:23]But, there is there's some credence to the argument that Morgan Stanley might actually get a bit of a better payday out of this.

[00:42:31]Because, and if anyone tuned in about three or four weeks ago to when we talked about IPOs and the concept of a green shoe option, there is this concept where the underwriters, they basically allocate 15% more than the 75 billion that is being raised, and then, if the share price tanks, the stabilization agent will buy those shares back in the open market at the depressed share price, bumping up demand and bumping that price back up, stopping it becoming a failed IPO, and then selling it back at the original price to the original investors.

[00:43:15]So, So, if this IPO starts to tank a little bit, Morgan Stanley have the opportunity to having gone short 15% of the overall raise, or an extra 15% of the raise, they have an opportunity to buy back in the open market, stabilize the price, and then get return those shares to the original investors, pocketing the difference between the depressed share price and the IPO price.

[00:43:41]So, who knows? Morgan Stanley might have an absolute, you know, this is what 10 billion dollars worth of of of shares that they're effectively going short.

[00:43:54]So, we'll see.

[00:43:55]>> I have this vision in my head as you're explaining that that scenario of like in the original Wall Street with Gordon Gekko and Charlie Sheen's going around and Goldman Sachs are having all the lunches and pitching, and then Charlie Sheen's there sort of going, "Oh, he's meeting him."

[00:44:10]And then they're trying trying to make sure that the share price dips so they can buy it back.

[00:44:15]>> Well, that's it.

[00:44:16]>> That's it. I don't know whether there's a conflict of interest between Goldman Sachs who obviously want this thing to be a blockbuster.

[00:44:21]>> And Morgan Stanley who have got the price stabilization mandate.

[00:44:24]>> Really wanting to get that nice short position out there. But >> [laughter] >> I'm sure every everything's above board.

[00:44:30]>> So, talk to me as well about some more terminology like you mentioned about retail investors.

[00:44:35]And also lock-ups. So, how does the lock-up work with a period of the stabilization factor and for the price to kind of I guess to find its its natural setting place. But then also can retail investors just get in on day one? Like how does it work from that perspective as well?

[00:44:53]>> Yeah, so we'll talk about the lock-up and then maybe we'll talk straight about getting this thing on an index because this has been one of the hot topics in the world of finance over the last few weeks. So, lock-up period, usually with an IPO, there's a pretty significant lock-up period for existing investors.

[00:45:10]So, you cannot sell your shares straight away.

[00:45:14]Because we know, as we've discussed before in this podcast, that there is a price discovery period of time in those first three or six months where you don't want a load of new shares being flooded onto the market from the existing investors.

[00:45:33]You want to get to some form of stable you know, stable supply normal supply meets normal demand to create an equilibrium share price that feels just about normal. So, there is real logic for locking up these shares from the existing original investors for a decent period of time.

[00:45:54]Now, that doesn't always happen. So, in the prospectus you can, as an existing shareholder insiders can sell up to 20% of their holdings after its first quarterly earnings. So, that's the first rung on the ladder.

[00:46:09]They can sell another 10% if the stock trades at 30% above the IPO price.

[00:46:16]I There's a nice buffer. 30% above the IPO price. If a load of supply comes onto the market, it might depress the share price, but not by that much. And then, an extra chance is to further sell 7% of their holdings on each occasion arising on days 70, 90, 105, and 135.

[00:46:36]So, it's this kind of drip feed of selling. It's not a 1-year lockup. It's not a 6-month lockup. It is a lot of complex rules so that, you know, the share price doesn't tank and there's not a selling frenzy. But, these original investors can start to make, you know, can start to get liquidity, get an exit from from some of these uh from some of these shares.

[00:46:59]>> And And you mentioned there's a significantly large portion allocated to the retail market. So, well, how does that come into play?

[00:47:06]>> Yeah, this is a really interesting one.

[00:47:07]And I do I don't know what your opinion on this is, Ant. But, obviously, retail's become a much bigger chunk of assets under management, trading, investing, speculating, certainly relative to when Facebook and Google were IPO'ing, you know, 15, 20 years ago.

[00:47:27]And this is a very attractive story and a very attractive opportunity for retail investors.

[00:47:35]So, instead of the normal maybe 10% allocation to retail investors, that goes by the way through your brokerage retail brokerage platforms, you know, your Robinhoods or your Hargreaves Lansdowns or your Fidelitys or whatever it might be, in this case, it's 30%.

[00:47:52]So, retail investors are going to get 30% 22.5 billion of this 75 billion, right?

[00:48:00]And there is no doubt in my mind that there'll be demand there.

[00:48:05]The big question is and we've used this analogy previously, it's is this a game of pass the parcel and does the music stop as soon as this stuff has been dumped onto the rubes, the the naive meme frenzied retail investors that you know, a little bit hot because it's the summer and they just fancy taking a bit of a punt, but actually the fundamentals aren't there.

[00:48:32]And all the sophisticated investors know that the fundamentals aren't really there. So, let's give 30% to the to the retail investors and they'll you know, they'll put out some memes and they'll prop up the share price and you know, we can all laugh our way to you know, to the Hamptons.

[00:48:47]>> Yeah, I I see what you're saying.

[00:48:51]I don't know. I think the the what you've described from this company I don't think it's quite the same as some of those other extreme distressed companies that those particular pump and dump scenarios have been. So, as much as there's probably validity in that that view, I don't think that's the case this time is my >> I mean, you know, the flip side is look, this is an opportunity for many more this is a democratization of finance.

[00:49:19]We're getting more individuals sharing in the bounty of of SpaceX's upside.

[00:49:25]>> Mhm.

[00:49:25]>> Obviously, the flip side to that is well, why didn't you go public when you were a 100 billion dollar company? And then they would have seen this rise to a multi-trillion dollar company and that would have been at the behest and owned by the retail investors. So, staying private for longer doesn't really help the retail investors.

[00:49:41]>> See, you said something interesting earlier and that's something that I haven't investigated.

[00:49:46]Perhaps I should have done 12 18 months ago as you you said earlier.

[00:49:50]But we were just talking then about investing into SpaceX directly.

[00:49:55]What are these space ETFs? And like what what are the means of exposure that investors could get that are kind of second order to the SpaceX moves?

[00:50:08]>> Yeah, absolutely. So, you can invest in a mutual fund or an exchange-traded fund that has exposure to private companies.

[00:50:20]That has exposure to SpaceX. So, for example, the UK-based closed-ended mutual fund Scottish Scottish Mortgage Investment Trust, one of the big ones, uh 18% 17.9% of its portfolio is SpaceX.

[00:50:37]So, they are a they're a fund that you can buy and sell shares in, you know, on the market, but part of their holdings are extremely illiquid private companies. If anyone knows their financial history, this feels a lot like Neil Woodford and the Woodford fund.

[00:50:55]>> Oh, yeah.

[00:50:57]>> There is there is a there is a real problem. It It feels quite nice to say, all right, here are these private companies, a sophisticated fund like the Scot- Scottish Mortgage Investment Trust would get access to private, you know, large private company fund-raisers, so they can stick a slice of privately owned company within their overall portfolio, but the danger is these portfolios are liquid, right? These funds are liquid.

[00:51:27]So, I need to be able to take out as much money as I want from that fund every single day, right?

[00:51:34]It's a traded fund. It's or it's a or it's yeah, or it's an exchange-traded fund.

[00:51:39]So, if too large a percentage of your mutual fund is held up with super illiquid privately held companies and suddenly everyone wants to redeem their money which they're legally allowed to and they have the right to, that's when we've got a problem.

[00:51:56]So, the fact that Scottish Mortgage Investment Trust has 17.9% of its portfolio in SpaceX, you know, that's a pretty chunky amount and then there there are there are rules that govern the amount of illiquid assets that are allowed to be held within a mutual fund structure.

[00:52:12]>> I mean, I was kind of laughing at the beginning cuz I was kind of thinking of like grandma and she sees all this the Scottish Mortgage Investment Trust. Yeah, that'll be great for my hard earned life savings. That sounds really stable and I don't know how you can pull off the marketing around the compliance side of that and it's 20% in SpaceX.

[00:52:35]It seems it seems ludicrous.

[00:52:38]>> It is it is quite bonkers and it's it's definitely something that's worth taking a look at and again, it's all good if you get on the right side of it and you invest in a in a breakout company like SpaceX, but if you get on the wrong side of it, again, we've referenced the Woodford Fund and and people can take a take a look at what happened there. If you have if if these investments in private companies go the wrong way, suddenly you're left with no money to return to your shareholders and it's and it yeah, again, your your old your old granny would have a bit of a bit of a fit.

[00:53:11]>> All right, the final thing to close on then was something that also caught my from the headlines in the the last week was just about the accelerated nature of getting this stock on the index and I was like the NYSE, the NASDAQ and it almost felt like again, we talked about the incentives of all the participants involved in the ecosystem around this company.

[00:53:34]It almost felt like yeah, we can change the rules. You're you're you're so big, so powerful and important, we'll just we'll rip up the rule book for you. So, what happened here and why is it important? Why is it a talking point?

[00:53:50]>> Yeah, so I mean the kind of sub-headline to the main headline is that Nasdaq and FTSE are fast-tracking SpaceX into its most heavily tracked indices. S&P's going to do the same, we just don't know when. And this this basically means that SpaceX will become a constituent part of a passive ETF or a passive, you know, portfolio that is tracking a particular index within a few weeks of it going public.

[00:54:22]You might say, "Well, that's a great thing because that, you know, we want we want the biggest companies in the world to be part of the biggest indexes in the world and it would look really quite weird if the S&P 500 didn't have a company like SpaceX in there super quickly." But there are a couple of things here. So, firstly, there is a reason why there is a 6-to-12-month waiting period between going public and getting entrance to these indexes historically, that is. And that's because we what we spoke about before.

[00:54:57]There's a lot of volatility, there's a lot of price discovery, there's a lot of ups and downs that happen between going, you know, having your IPO and then and then having that degree of stability and understanding about where your price sits. And if you stick something straight into an index, then those volatility that volatility is going to potentially distort the performance of that index, certainly during those early months.

[00:55:26]Now, interestingly, the S&P have a bunch of rules, which obviously are being flouted by SpaceX.

[00:55:35]The market cap has to be higher than 22 billion. Well, that's great.

[00:55:40]Uh must report positive net income over the recent quarter. Wrong. And over the last four quarters, also not not achieved by SpaceX. And this by the way is why Tesla wasn't allowed in the S&P 500 for so many years. It's It's kind of staggering now that it wasn't, but it took seven or eight years between IPO and S&P 500 admittance.

[00:56:04]And then this is super interesting.

[00:56:07]At least 10% of the company's total outstanding shares must be available for public trading. This is the free float, what we spoke about right at the top of this episode.

[00:56:17]Tesla's 3 to 4%.

[00:56:21]75 billion over 1.8 1.9 trillion. That's a tiny tiny tiny free float.

[00:56:28]Microsoft, just as point of comparison, 99.9%.

[00:56:33]Nvidia, 96%.

[00:56:35]So So the reason why the reason why the S&P will want at least 10% is you want you want enough If you think about If you think about a 2 trillion-dollar company where that valuation is being determined by only 75 billion dollars worth of liquidity, then effectively relatively small buy and sells can have a order of magnitude bigger impact on a 2 trillion-dollar market cap, right?

[00:57:09]And therefore you'll you will expect to see SpaceX's market cap move around quite wildly because it's being controlled by 75 billion as opposed to Microsoft which has 99.9% public float.

[00:57:25]The last thing to note here is that most of these indexes, and this is something that I learned really recently, I have to say. Most of these indexes are float-adjusted.

[00:57:37]So, you might think, "All right, you know, as soon as this you know, my main in personally, my main investment is in the S&P 500, right? I might think to myself, well, I don't need to go in on SpaceX because within a couple of months, you've got $2 trillion worth of SpaceX slotting its way into the S&P 500, seventh biggest company. If it does well, the S&P 500 does well."

[00:58:03]But that's not the case.

[00:58:05]The weighting is determined by the free float.

[00:58:11]So, it's not the market cap, it's the free float. So, in the S&P 500, the index, if and when SpaceX gets to become a part of it, even though it's a $2 trillion company, that $75 billion of free float will make it approximately 0.1% of the overall constituents of the S&P 500.

[00:58:38]>> [laughter] >> So, actually, you're not you're not going to get that much exposure to SpaceX by getting into the S&P 500 and thinking it's a $2 trillion company.

[00:58:48]Can you just >> Uh my naivety here. So, Microsoft's almost 100% public float, Nvidia's 96, Amazon's 91.

[00:58:58]Why is Tesla so low? Um SpaceX so low?

[00:59:01]What is the strategic benefit of the business owner or management team to go one way or the other?

[00:59:09]>> Yeah, it's it's a really good question.

[00:59:11]It does It's a function of control.

[00:59:15]The bigger percentage that is owned by private shareholders, especially if your name is Elon Musk, the more voting rights you have. And obviously, there are structures to to to turbocharge that as well. If you are 99.9% public float, you are well and truly a public company.

[00:59:35]And if you think about an annual general meeting, you can get voted down very easily with 99.9% free float, right? And the other the other the other justification for a large free float is the need to raise money, right? So, Microsoft been a public company for 50 years, it would have gone out to the market I don't know how many times, tens, hundreds, thousands of times to go and raise more money, which means selling more shares, which means more public float relative to the increasingly small amount of private investment. And also, by the way, you know, if I'm Bill Gates, I will want to decrease my holding over the course of 50 years, and again, sell strategically into the market when I feel is appropriate. I might have had 20% on IPO day, but as times have gone on, because it's been around for a long time, I'm going to sell down, and it's 99.9% So, hopefully that explains it.

[01:00:43]>> Cool. Well, look, I think that was uh a deep dive, definitely by definition. So, hope everyone found that really interesting. It's going to be fascinating when this all pans out in the coming weeks and months ahead. I'd love for you to put into the comment section your thoughts.

[01:01:02]You know, what do you agree with, disagree with? Do you think this is the chance of a lifetime? Do you think this is crazy town?

[01:01:10]Like, put what you think. I'd love to see a validation behind your your arguments and what evidence you have.

[01:01:16]And yeah, we can see how how this is going to play out. So, Stephen, thank you as always for sharing the insights, and look forward to our next conversation.

[01:01:25]>> Thank you, welcome.