Valuation Of SpaceX Is Based On A Perfect Storm - Eronmosele Aziba

[00:00:05]It's a big day, ladies and gentlemen.

[00:00:06]It's Democracy Day, yes, but it's also happy Space X day. It's a historic day.

[00:00:12]This is the biggest IPO in history. $75 billion raised by SpaceX. The last um milestone was 25 billion by Saudi Aramco in the oil and gas space. That's this is three times more than that. The valuation is 1.7 trillion. This is the this this is what we're talking about.

[00:00:30]This is the big debates. The big debate about the SpaceX valuation. Uh 555 million shares, 135 a share. We'll see if it pops or or how things go by our show later on today. Uh and then there's an option of an additional 83.3 million shares over 30 days. Uh and of course, trading begins today, June the 12th. So, um I think we should we should we should get into the debate. Yeah, this is this is where we're going to start with our guest, our technology analyst in commentary. Look at look at the price to sales ratio of um SpaceX. This is based on $18 billion of revenue. You're dividing by that one 1.7 trillion by that 95x price to sales. You can see Facebook when it IPOed was 22, Tesla was 20, Uber at 7, Snowflake a software company at three. So this is this is where the debate is. So let's join our guest uh joining us from uh Coventry uh in the UK a good morning to you sir. and um happy democracy day to you all the way in Coventry uh in the UK. It's good to [laughter] it's good to have you. So look um I guess I should just start with your own thoughts. What what do you make of this massive IPO? It's four times overs subscribed. It's just all the headlines.

[00:01:43]What do you make of it from your from your vantage point?

[00:01:46]>> All right. Good morning, Rotus, and happy Democracy Day to all Nigerians celebrating at this moment. I think it's it's a blockbuster. I mean we it's already been tagged as one of the potentially the largest IPO in the you know of the decade. Um yes there are a lot of concerns around it being um overvalued. I mean like you mentioned earlier at about 95 to 97 times price to sales uh um um price to sales ratio but the considering the nature of the business which is a perfect blend of infrastructure um connectivity AI as well and defense systems which seem to be industries that are starting to boom. SpaceX has sort of positioned itself as a major player in that space and that is kind of what a lot of investors are banking on now. So essentially it's they're they're investing now on the hope of things to come. Um but also we can't get away from the Elon Musk factor when you look at how his other companies have performed and there are a lot of investors now who despite all the fundamentals that you might show them and all the financial models that you might show them the fact that Lon Musk is involved in it means they'd rather be on his side and not bet against him and I think that's one of the factors that's currently driving the um current overvaluation um of of the company. Okay. So, great. I'm glad you mentioned that because there's two valuations I want to throw at you uh to get your thoughts. Uh one is from Oppenheimer. Oenheimimer has put an outperform rating on the stock. They are putting a target price of $190 a share, which is a 40% premium to that 135. Uh and they're essentially valuing the company at 2.5. I'm going to get to Morning Star in a second, but first, what do you think of Oenheimer's um Oenheimer's target?

[00:03:46]Yes. So, so when you look at openheimer's um target, yes, they linked it to, you know, um expected um performance of some of the aspects of the business particularly within the space um infrastructure arm of the business. But they also sort of sound a note of warning that this expected growth over the next 3 to 5 years is largely dependent on a perfect a perfect storm of execution of the plans in space and you know uh potentially uh launching from the infrastructure sector as well potentially having data centers located in space as well. So there there needs to be a perfect storm for that to happen. Is it possibility? Definitely. I mean, no one really knows the future. We can look at the present and potentially project for, you know, project for what might happen. Um, but it's important to note that even though there's there's this projection of an outperformance, um, it's still largely tied to a lot of other factors perfectly aligning for that to be achieved.

[00:04:50]>> Gotcha. All right. So, on the other side, we have Morning Star. Morning, I'm going to read this quote to you. Morning Star they are valuing the company at 780 billion which is I guess less than than half of the IPO valuation. And there they said we don't see Grock as one of the leading AI labs today. We think the company SpaceX has been significantly overvalued and investors will have opportunities to buy the stock at more attractive levels after the IPOS.

[00:05:17]Nicholas Owens with Morning Star. So what do you make of Morning Star's own angle where they're coming from?

[00:05:22]Yeah. So they also make quite valid um they they all make quite um valid projections as well. And I think this is a good thing about financial projections. They're landly subjective based on um based on your perspective.

[00:05:35]Yes. In the AI space grow wouldn't be considered as one. I mean I I think um um open AI's GPT and anthropics cloud are considered to be larger players you know um in that space and larly dominates in that space. So on that basis they they make a valid case um they make a valid case for why um basing the projections on just the AI performance might not be enough. But the important thing that they also mentioned regards to the stock pricing. Yes, a lot of investors are trying to get in now at this um at this entry level of 135 because there's an expectation that the price is going to surge. But considering that um there would also be a period of like price discovery where um some um prior investors that want to exit will start to take profit and there'll be new ones that would come in. They're suggesting that we're still going to have troughs in um um in in the pricing.

[00:06:31]So don't get over excited on the hype of trying to get in at the IPO price. there might still be opportunities further down the line um for you to take advantage because you know we also need to remember that now that stock is going public there's increased increased scrutiny. Yes, there's only a limited um float of the stock that's going to be available on the market, but there's still increased scrutiny on the performance of the company and that could um that could impact price movement considering that two of the three major businesses are still lossmaking businesses and are still expected to um record quite significant losses with the huge um investments that currently going into that space. It could potentially um influence how investors are looking at the pricing of the stock. But a key factor that we need to also remember is there are a lot of retail players that are getting into investing now. And Elon Musk as an individual um controls has has a significant influence on the perception and the sentiment and that could ultimately be what then swings the price movement of the stock.

[00:07:40]>> All right. Now, okay, one more. Uh Jim Chanos, uh he's a famous short seller.

[00:07:45]He I'm going to play a clip for everyone to listen to. He says the IPO is based on hopes and dreams. I want to get your reaction to that. Let's listen to Jim Chanus at a at a at a conference where he talked about this IPO.

[00:07:59]>> Going to be doing a $75 billion IPO with a valuation of close to $2 trillion um for a company with revenues of $19 billion. negative free cash flow. Um, so this is really, excuse me, um, this is really a hopes and dreams IPO and I think it's an important bellweather for the market as a whole, particularly the tech sector.

[00:08:26]>> So, is it is it hopes and dreams? What do you make of what he what is his own points?

[00:08:34]I mean really if we were to drill down to the basics of investing, every investment that you make today is for the hope of something to come in the future really. Um but I guess focusing specifically on what he's saying is is it's the fact that there's a lot of oh this should happen and this will happen as opposed to what we're currently seeing. So looking at the sort of hype that's currently around SpaceX and this fear of missing out, that's kind of what is driving um that that's what's driving this um interest in the stock and not not necessarily down to the you know down to the fundamentals of the company.

[00:09:16]If if if we also look at the fact that at at the current valuation expected to come in at about 1.7 trillion. When you look at all the other top 10 um bell weathers in that same space, they're all profit making companies. Space space um Space X still isn't a profitm company.

[00:09:33]So again, when you're comparing it, when you compare it to some of its pairs in terms of like just market capitalization and all that, it could be difficult to make um to make a strong case for why people should be buying it at this current price. But there's a lot of hopes and dreams and everyone is hoping that I'm praying um that those hopes and dreams come true and that's what's driving that's what's driving this interest. But ultimately, considering that the market moves in cycles, prices undulate over time, there will definitely still be opportunities for investors to take position. All right, so we're out of time, but I do want to get your thoughts on some outlets have already said Elon Musk has passed the trillionaire status, but we use the Bloomberg billionaires index. They have him at 971 billion. Look, what I just want to get your thoughts on Elon Musk as a person and how, you know, if it's risky to attach the value of a company to one individual, what you make of his his his wealth after this IPO. What do you make of it all in terms of Musk himself?

[00:10:33]>> I mean, one of the things we can say is he's an innovator. He's a visionary. He comes up with these lofty potentially futuristic plans and some way seems to be able to convince investors based on his historical performance. And that's what a lot of people are betting on.

[00:10:48]Yes, there's a key man risk in there definitely. Um, but I think it was Isaac Newton that said, I can predict the, you know, I can predict the movement of the heavenly bodies, but I cannot predict the madness of individuals. And that's really what we're seeing. That's really what we're seeing right now with that stock.

[00:11:08]>> Eron Mela Aiva, thank you so much.

[00:11:10]Technology analyst joining us from commentary there on Democracy Day to talk about this historic IPO uh that has, you know, taken place with the trading later on today. Thank you so much for your time. I hope to talk to you again soon.

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