SpaceX After The IPO

SpaceX’s IPO didn’t just light up the charts, it raised a harder question: are you buying a business, or buying belief. We look at the spike after the debut, the slide back toward the offering price, and why that pattern can lure long-term investors into making a short-term decision without a risk plan.

From there, we get practical about fundamentals. We put profitability at the center of the debate, compare SpaceX’s earnings profile to companies like NVIDIA and Microsoft, and ask what it means when a company can trade at a sky-high valuation while still lacking real profits. We also dig into the “dumb money versus smart money” dynamic of IPOs: insiders and early investors finally get liquidity, while the public often shows up with the least access and the most enthusiasm.

The biggest red flags, though, are structural. We talk about Elon Musk’s control, special voting rights, potential cross-company maneuvers, dilution risk, and why a one-person power structure can be dangerous for junior shareholders even if the technology is real. We also cover index inclusion and forced buying through Russell-style products and QQQ exposure, plus the lockup timeline that could change the supply-demand picture fast. If you’re tempted to own SpaceX for the mission, we offer a clear framework for separating inspiration from investability.

Subscribe, share the episode with a skeptical friend, leave a review, and tell us where you land: would you ever buy SpaceX at any price?

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Transcript

SpaceX IPO Pop And Drop

Steve Davenport 0:02

Hello, everybody, and welcome. This is Steve Davenport, and I'm joined here by Clem Miller again. Clem has been away for a while in the Great Lake North, drinking his Molsons and having some fried fish. So I think it's good to kind of take somebody who's been getting a lot of fresh air and have them look up above him in the sky and think about what on earth is going on with SpaceX. He wasn't here for the IPO. He didn't feel the energy of the world gathering behind Elon Musk and saying, We support you, we love you. And helping him become a trillionaire and helping um, you know, lift what is a historic IPO. Um SpaceX has flown up. Um at public, it went public around 130. Um, I think it was 133 or 143. It went up to 220 intraday, and now it's back down to where it went public. Um rockets do fly up and they do come back, and some of them land um calmly into their um into their launch site, and others fall violently into the ocean. Um I guess Clem, I don't have a feeling as a skeptic that this really belongs in many people's portfolios. Do you feel that there's a place for SpaceX and a place for names that you just wouldn't normally buy, but you just want to make sure if it does succeed, that you participate? Or do you just say it's about the earnings stupid? And if you don't have earnings, you don't get into my portfolio. How do you feel about high flyers like SpaceX?

Clem Miller 2:04

Uh

Profits First Or Pass

Clem Miller 2:05

well, I think you got to distinguish between companies that are profitable and companies that aren't profitable, right? That's the primary criterion, I think, in terms of just a sort of a yes or a no issue, right? When I look at, you know, let's compare it to NVIDIA, for example. Nvidia is a company that actually is quite profitable, and it has been quite profitable for a number of years. Whereas SpaceX is is not even remotely profitable. So I would say, yeah, no, I wouldn't be involved in SpaceX at this point. It's I don't have it in my portfolio. I don't plan on having it in my portfolio.

Steve Davenport 2:56

Um what if it drops to 122? I mean, and it comes below its its IPO price.

Clem Miller 3:02

Wouldn't it be why why why fixate on that? I mean, a lot of IPOs, a lot of IPOs actually, the price goes down a lot after the IPO comes out. And so I don't want to be, I don't want to make the mistake that many people do after IPOs of buying in because that makes you the dumb money, right? It can make you the dumb money because you're taking out the smart money. Dumb money takes out smart money, right? Well, what could you explain to our listeners what you mean by that? Uh so you got a company that is that wants to reward, or it's management wants to be rewarded for the efforts they've taken to bring a company to a certain point. And so they want to make some money, and the way they do that, the way they make that money materialize is they issue shares to the public. And that way they can they can equitize, they can, you know, they can monetize their equity, their private equity shareholdings in the company. They can monetize it and and finally make money that they've been waiting to to make for years and years and years and years. So they so you know they go to an investment bank, and the investment bank tries to figure out the price, the details, the timing, all that in order to maximize the money to the to the original equity investors, private equity investors, the the insiders, the shareholders from the inside, the you know, in the case of SpaceX, Elon Musk, you know, how do you how do we make, you know, the the investment bankers are asking, how do we make Elon Musk as much money as possible? And so in order to make the smart money more

Dumb Money Versus Smart Money

Clem Miller 4:55

money than they can ever imagine, how where you know how where do we find the dumb money that's going to allow that to happen? How do we how do we arrange for this big transfer of money from dumb money to smart money?

Steve Davenport 5:11

I'm being yeah, I mean, the people who bought at the IPO, I don't want to be totally demeaning. I mean, I would just add two or three clarified comments. One, the people who have invested in SpaceX, some of them invested five, ten years ago, and they they had an insight and they had exposure and they got asked by Well, they had access. They had access. Right. They had access and they they participated and they took risk. Now, did they take a lot of risk? I I don't know. I think it's you know, but that's all that happens to people in Silicon Valley and people in these areas, that's why they want to get exposure to some of these venture cap and private equity type of situations. This is, you know, a story that goes on for years. And so when they finally do come to a point where they they get um liquidity and they can sell into these um the demand that comes from the public, there is a feeling that the public knows the least about the company because these insiders who are private equity and venture people, they're meeting closely with management before they're ever public and they're getting exposure to how the company is done, and they've seen it increase. But one part of this that I have a problem with is look at Microsoft. Microsoft, you know, about 300 billion in revenues versus 20 billion for SpaceX. Yeah, Microsoft takes that 300 billion and turns it into 100 billion of earnings. So you sit there and you go 20 billion, no earnings, losses of 40 billion through its whole history, it's never, you know, it's got a ways to go before it gets to that next level and actually has earnings. Microsoft already has 100 billion in earnings a year. So you look at that and say, for five times the earnings, I'm going to, you know, or not five times, I mean infinitely more earnings, but revenue of 300 billion versus 20 billion, you know, 15 times the revenue. Um, the market cap of SpaceX passed Microsoft last week. Yeah, it's ridiculous. Therefore, you look at that and say, I don't think that's logical to look at that and not expect some return. And so I guess I'd ask, is this just like a trophy? You say I support technology in the future in space, and you put your share up on the wall and it's a it's a trophy, or it's a I mean, one of the things that someone said to me is Musk himself increases your multiple three times. Just putting

Valuation Math Gets Weird

Steve Davenport 8:20

his name on the company, they're on average going to trade for three times more based on the you know leaders' history. And I think we've seen this in the past with jobs, I think we've seen this in the past with some of the companies, but at this time it feels extreme. I mean, when you look at Cisco and you look at um how they did at the extreme, they were trading at their highest point at something like 20 times sales. And so in the 2000s, when they were trading at 20 times sales, Amazon was trading for 10 times sales, and now we've got SpaceX at 100 times. Does does does that make sense compared to the impact? Those companies were making money, those companies had um you know real sales in developing the internet and in developing the Amazon brand. And does it make sense that Musk is, I think now almost 10 times the wealth of Bezos?

Clem Miller 9:33

Right. So a few things, Steve. One is that we're talking about a company in SpaceX that is still controlled by Elon Musk. You know, he's got the majority of the shares still. Um, he controls the company. And so, you know, you're putting your faith as a as a a super junior shareholder, right? Uh you're putting your faith in in Elon Musk. And then the question becomes, do you want to put your faith in Elon Musk? And and one one reason you wouldn't want to put your faith in him is the fact that he keeps talking about you know sort of a shell game with his companies, right? Like do we, you know, do we do we take Tesla and put it into SpaceX? You know, he just talked about that. Do we take you know other companies and put them into SpaceX? You know, it he's got a lot of different companies. If he if he wants to use public capital in a way that maximizes his personal return from multiple companies, I think that's not good, right? I think that's that's a bad thing. We don't know.

Steve Davenport 10:57

Well, if you believe he's the greatest inventor and technologist in the world, and you believe in technology, do you get on the magic carpet and go for a ride? Or do you say, I I would like to do I I agree with you. I think the whole thing should have come down to his structure is too unusual. He he owns these special shares that have higher voting rights and basically controls 88% of the shares. Yeah, therefore, when he takes over Tesla in the board that sometimes disagrees with him, he will he will then have the structure of SpaceX controlling the asset of Tesla because the buyer's corporate structure is what gets going forward. So when you look at that, you say, hey, I've invested in Tesla, and I kind of like the fact that the board was there to challenge him and to question him and to be supportive and help him grow. And now you're looking at a situation where he's not going to allow the board to remove him. So just the structure of this, even if the mechanics and

Control Shares And Governance Risk

Steve Davenport 12:10

the numbers were good, the structure would tell me, stay away. This is too dangerous. Umbody should get that kind of a free ride. Right. It's a person.

Clem Miller 12:20

Am I being too skeptical? Absolutely not. This is exactly how I believe. It's a it's a firm built around one person, and you're and in order to invest in this person, in this person slash person-firm, right? Uh, that you need to have a lot of faith in that person. And we're all we've already seen, I mean, despite you know, his you know, technological visions, okay, and I you know, I mean that both in a positive and negative way, right? Um, I I think you know, you you have to have, I mean, you you're exposing yourself to you know various kinds of, I don't want to use the word manipulation, but you know, various potential actions he might take that might diminish the value of your shares. Right. He could go out there and issue more shares and dilute your shares. I mean, just think about that.

Steve Davenport 13:20

Well, I think that that's interesting to me is that what he did in the first week was he bought a company with 60 billion of shares, which I think is going to further, you know, mean there is more shares out there because he's gonna pay those shares in the fall to this takeover candidate. And then he's also issuing um debt. And so as he issues more and more with this current valuation and this current ratings, um, without any more proof of earnings, I think what he's doing is he's taking advantage of this moment and he's he's doing these things to make the company structurally sounder. Um, and I think that the market is reacting so far in a way that's been pretty supportive. So I think when he says, you know, strike will the the the irons hot, that's what Leon's doing. And my question is if you really believed in the earnings and things, might might you hold off now? Because if you believe the real growth is going to happen that he's projecting, then wouldn't you, you know, wouldn't you keep your share? You know, I I think there's some question about this. And my last point on this will be um, he for the last two or three years has been talking about SpaceX colonizing Mars. And I think that when you hear that, you think, wow, we've come a long way, Apollo 19, you know, , the late 60s, we took our first steps on the moon. And he's not taking us to the moon, he's taking us to Mars, and we're gonna colonize. And then what happened during the pre-IPO period was people started asking, well, exactly how much will we make from colonization of Mars? And what will be the you know, how long will it take? You know, how do the rockets? And all of a sudden, colonizing Mars became colonizing the moon. And so when you look at changes like that to the story, because we're really investing here in a story, Clint. I mean, we're investing in the Musk story, in the belief that boy, the future is bright and we can have all these things. And wouldn't it be great if I lived on the moon? You know, wouldn't that be, you know, just such an example of how man's technology can overcome all these things? And so when I see the story change from Mars to the moon, I changed from being somewhat skeptical to very skeptical. And as a very skeptical person, I have to almost go over into the cynical side and say, this isn't good for you. This is never going to be good for you with this structure. And therefore, I would say stay away. It doesn't have to do with earnings, it doesn't have to do with revenue,

Dilution Deals And Banker Incentives

Steve Davenport 16:20

it has to do with a structure where you're not in a position to win. And I think that the marketing and the way that the CNBC and others portray this as a story of growth, a story of the future. I think they should have talked about the story of the capital structure and the story about how unusual it is and how dangerous it is whenever we make a company about one person.

Clem Miller 16:46

I I hope I hope that the people who watch and listen to us already understand that they can't necessarily trust what they get from the main, well, I hate to use this term mainstream business media about what's going on. But that's you know, you gotta apply a high degree of skepticism to everything you hear. And , and especially when it comes to you know hyped up things like this SpaceX issue.

Steve Davenport 17:19

One number that came to me during the IPO was 500 million, and I said, Well, 500 million, what is that what are they doing? And that's the payment that goes to the investment bankers on that first day based on the price. And do you know what? The payment goes up the more the value of the IPO goes up, yeah. So when you say Clem, you commented earlier about you know um doing what's good for himself and and the the early investors, I think you left out one group, the investment bankers. Yes, because they have an interest in a higher number because guess what? Their their payment is based on the percentage of the assets that go public. So they went public with 75 billion, and basically that produced about 500 million in fees for these investment banks. Is that a number that should influence the morals and integrity of the industry or the media? Absolutely. Yeah, 500 million will will do a lot in advertising dollars and other ways that makes that media say this is good for everybody. Right. It's really not good for everybody. It's good for the people who are on the inside, who are doing the deal, and who have been on the deal for a while. So I don't want to say you've done money, I don't want to say there's other people that have smart money. I just want to say it doesn't feel like it's a safe investment on many different aspects, the numbers and also um how it's how it's structured.

Clem Miller 19:06

So Steve, let me just mention one more thing on this. My understanding, and of course I've been off in Canada, so I haven't been paying too much attention to these details, but my understanding is that is that the Russell indexes are going to include SpaceX. Uh, but that the S P 500 index people have decided, at least for now, not to include that. Because I g I I guess you know the S P 500 committee has a little bit more discretion on on what stocks to add, whereas Russell is pretty much quant-driven, right, in terms of the Yeah, I mean they made an exception, which again, I don't like exceptions because then you say, why are they doing this for them versus another company?

Steve Davenport 19:49

And so, yes,

Index Inclusion Forces Buying

Steve Davenport 19:50

the Russell and also the QQQ um went for immediate inclusion, which creates demand. And so, since those instruments have so much demand in market cap, when you include a member like this on day one, that requires them to go into the market and own the shares. And so, yeah, that's the I guess third, fourth, or fifth area of doubt that we're bringing to you. And I don't mean to be negative, but I I also don't want you to walk away thinking Steve's neutral on whether you should own this.

Clem Miller 20:28

A lot of people, obvious, you know, obviously a lot of people own QQQ. And and , you know, should this make you think twice about that? Perhaps. You know, a lot of people own you know, funds that are benchmarked or ETFs that are benchmarked to the Russell indexes. Uh, should you be skeptical about those now? Possibly, right?

Steve Davenport 20:55

Yeah, I mean, I think the the the last thing I'll I know I'm saying I've said the last thing three times, but this is really the last thing. The the the as it as an as working with people with concentrated positions, what I look at is when are insiders allowed to sell? And it looks like a lot of the employee insiders are are are allowed to sell in 90 days from the IPO date. So that puts you into September first week, September 12th, maybe. So when I look at it, I say that's a date that I think if I was gonna take a speculative bet on this and buy it, I would have plans to get out before those insiders start to sell. There's some insiders that are are forced to hold it for a year. But employees who a lot of them have become center millionaires and decamillionaires, um, I I think that they're gonna want to put some of that liquidity aside for them and their families because they don't know what the three and five year Number is going to be. It could be Elon's number. It could be a different number. We could see a very different mindset. One of the things that I've questioned is what is the relationship with Trump? Is Trump going to be supportive of SpaceX? Is he going to be non-supportive because he's not happy with the way that Musk left and after the Doge involvement? I would say that's one of the bigger risks out there because I can't imagine you can do all of these launches of satellites and all of these things without some government approval

Lockups Politics Competition And Closing

Steve Davenport 22:35

and some government regulation. And then, as we've seen, when Trump gets vindictive against people who he feels have wronged him, he could affect your SpaceX revenue and earnings. And so if you have this much question about just Elon himself, one of the questions you have to ask is is there a risk that he and his relationship with the Trump administration could lead to a negative outcome? And in my mind, the answer to that is yes, possibly. Yeah, I agree with that.

Clem Miller 23:13

Let me just throw in one last thing very quickly. One last thing, okay. SpaceX does not exactly have a 100% monopoly on things. There are other launch services that are coming up. You know, clearly they are in the lead. No question about it. You know, Starlink's in the lead. There's SpaceX launch services are in the lead. But there are a lot of other companies that are You're gonna name Bezos who has a company, doesn't he? Yeah, he does. Okay. Um but , you know, there are others too that are smaller, more niche, and and so you know it's not gonna be tomorrow, it's not gonna be next month, maybe not even next year, but they I believe that there's going to be a gradual erosion of this market position that SpaceX has.

Steve Davenport 24:09

Okay, I think that's a great point to leave it on. And , I guess I would ask anybody to say, look and learn what you're doing when you're investing, because not everything is exactly like the other. You could think that their structure is just going to be like everybody else's, but it isn't. You could think of their cash flow and how they operate is just like others. It's not. And then you look at you know the idea of them absorbing Tesla and putting that control under even more because now the combined entity would have his 88% share total. So I think that um there's a lot of things that can happen in the next year, two years, three years, and my opinion may change. But right now I would say give it some time, let's see how, let's see how it survives September. And then I think you can say maybe it's gotten to a price level and some of the earnings future has been clarified, and we can look at it again. But this is our second time talking about SpaceX, and I guess I would say I'm I'm surprised at some of the things that were done. You know, not many people. I saw one person from the New York State teachers who opposed owning it because of the structure with Musk and control. I I think there are a few people out there who are raising their voices. Clem and I are raising our voices and skeptics guide to investing. I hope that you listen and learn because I think that's what a good investor does. Thanks everybody for listening, and please share, follow, and let us know what you think.