Latest / The Chiro Money Show / 036 | The SpaceX IPO: Why We're Not Buying the Hype
Transcript
- Chris: Welcome back to the Cairo Money Show, where we're helping chiropractors make better financial decisions so they can build stability in their finances and a lifestyle that they love. We're your hosts, Chris Scheel and Scott Campbell, financial planners with Align Wealth. Scott: The day is nearly here, Christopher. SpaceX, IPO. Happening. Yeah. And and you I I feel like it's something that you just won't shut up about. Like y it's been months and months and months of like this, IPO date this, like valuation, like ⁓ just can't stop talking about it, Chris. So I'm like, we should just have an episode and talk about SpaceX and IPOs and whatever you have to get off your chest and share with the world, you can. Chris: What day that? wow. ⁓ I know. Yeah. Right. It's gonna be such a long episode. I'm glad you brought this up, Scott. Yeah. I'm I'm so passionate about about IPOs. Scott: Yeah. Yes. SpaceX. Well why why don't we start it by talking about what SpaceX is, right? Chris: Can we make sure everyone knows that I'm being sarcastic first? is like pulling teeth. Like you you basically had to force me to be here to talk about this. Scott: ⁓ ⁓ No, w w ⁓ we we guided you into the conversation. You you're here. Y you wanted you wanted to be here. Yeah. So Chris: Guided. Guided. Okay. That's nice. That's more gentle. I want to be here talking to our listeners, but I Scott: about SpaceX. Well ⁓ it's sometimes you have to have a timely timely timely podcast about current events and there's a big current event happening as as of we're recording this on June tenth and SpaceX IPO is June twelfth. So every once in a while we have to do something with current events. You know, I kn I've I've heard about SpaceX for for a number of years. I had to ask Claude, our our AI friend here, what a good ten second version summary of what SpaceX is. If you're not familiar with SpaceX is, Elon Musk's rocket company. It launches things into space. There's few more sentences, but I'm just gonna leave it right there. I think that's that's good enough, right? It launches things into space. ⁓ Chris: It's a great summary. Love that. Yeah. Scott: And currently, currently, as of today, estimated valuation of this company that's not publicly listed yet to trade, you can't just go buy SpaceX right now. Currently set to launch at a valuation of approximately 1.75 or 1.8 trillion dollars. Chris: Right up there in space. Scott: Launching things into space. So some context in terms of that dollar amount. If it does launch at the valuation of one point eight trillion, it be launching ⁓ a twenty percent higher than the current valuation of Meta or Facebook. And they've been around for fourteen years and absolutely crushing it of course. Chris: Yeah. Scott: That's a that's a pretty high bar to start things off. Would you agree? Yeah. Chris: Yeah. Yeah. So this must be a great company ⁓ if its valuation is so high. let's explain thing one one more thing here. SpaceX has been around for a while. This IPO, what this me initial public offering, what this means is that it's it's essentially being available for a public investor to invest in for the first time. Scott: Yeah. That's right. Yeah. Chris: Previously it was just private, like you can't access it unless you're a board member or someone special. You weren't able to access it. Private equity, yeah. So now it's public, anyone, theoretically, anyone can buy it once it's becomes listed ⁓ stock exchange. Scott: Yep. Private equity, right? Private. Yeah. Yeah. That's right. And I guess the the question as to why we're having an episode on this today is there's some of you out there that are curious or have heard about SpaceX ⁓ initial public offering. ⁓ I be should I be ⁓ Should I be should be lining up in the queue to to buy a little piece of this right now when it launches? That's the question, right? That's ⁓ Chris: No. Episode Episode over. Scott: Alright, Christopher's going right to the point here. I don't know why I'm calling it Christopher today, but we're just rolling with it. But yeah, the short answer is probably no, but we're gonna have to obviously back this up with why why we're not r buying into the hype this IPO IPOs in general, really. Chris: I love it. That's great. Yeah. Really, yeah. Have you ever have you ever lined up to to get a piece of an IPO, Scott? Scott: Never no. Chris: Me hither. Scott: Never been interested, I've also maybe just like, it happened? ⁓ cool. Great. ⁓ wasn't aware. I like to be fair, I don't think most are as hyped up and that the whole world knows that there's gonna be this initial public offering of this ⁓ company Elon Musk is behind. ⁓ Most are you know, there's n they're not in the headlines. People don't know that it's happening and when unless you're in tune with that kind of thing, but right? But Chris: Yeah, that's right. For sure. There's some big ones over the years that maybe people remember, like Facebook maybe. but yeah, more often than not these things are happening where companies are going public, but it's not as big a deal. And it's kinda how it should be probably. ⁓ Scott: Yep. Yeah, for sure. Chris: ⁓ why the why the hype, Scott? Like I know Elon is is Elon and, you know, popularity or whatever people think about him and he's with Tesla and like ⁓ Starlink and bunch of ⁓ things like there there's some track record there, but is SpaceX profitable? Is it a good company to invest in? Scott: the moment no. Like they they haven't had a profitable quarter as far as I understand in terms of their their track record so far. Don't don't quote me on that, but they're what's interesting about the current valuation is that they're the the share price that I believe that they're planning on launching at is about a hundred and thirty-five dollars per share. ⁓ if I'm not mistaken. I again that this could change here between now and when we're when this is actually published, but that's the that's the estimate estimation. It's apparently somewhere in the tune of like ninety-two times projected sal like basically ninety-two times the projected sales ⁓ ⁓ what the current sales are. Like basically in terms of what they're actually bringing in in revenue by a wa ⁓ a large margin. Right. And for for context, Nvidia's currently trading about twenty two times somewhere in that range, which is also fairly high in terms of expected earnings, expected future cash flows essentially. Like you're y it's if there's anything in terms of like buying at the top or buying the hype bit, this is a perfect ⁓ casing example of of what that is. ⁓ Chris: Yeah. And so with that share price, like the IPO target, like the valuation you mentioned, one point seven five trillion dollars what basically the value ⁓ of SpaceX is projected to be. But that's ⁓ not like the fair market value based on a few weeks ago, the calculation of what the like the perceived market value is, right? Scott: Yeah. Yeah. That's right. Yeah. Yeah, the Chris: Isn't that like half of it? Scott: I don't ⁓ exactly sure how what process looks like in terms of ⁓ of on that valuation point of ⁓ a and thirty five dollars per share, but like just in ⁓ back in of twenty twenty five the valuation was closer to eight hundred billion, which s s is still an enormous number, but it's ⁓ I don't what that multiple is, but almost double, right? ⁓ In very period time. Chris: Yeah, crazy. Yeah. Yeah. And th for a company that's not currently profitable, has not had a profitable quarter. So you gotta think what is the valuation based on? Is it based on economic or like ⁓ fundamental like Scott: Yeah. Chris: Reasons or is it based on speculation and people's feelings about the company? Scott: Yeah. I would say the latter, likely. Right? Yeah. Like maybe maybe the general consensus is that people have seen what has done and like yeah, whatever your opinion is on Elon Musk, like all all like personal feelings aside, like what he's done in business is quite remarkable over the years, like what he's done with Tesla, like Chris: Yeah. Hundred percent. Scott: if you're if you're banking on him repeating what he's done historically with like t say Tesla, then maybe that's why the hype is so large. It's like, well if he did that with Tesla, imagine what he's gonna do with SpaceX. Right? Again, launching things into space Chris: Right. kinda like picking. ⁓ man. I wish there was like Scott: And to and and we had the we have to pause here, Chris, but there's a real there's a real scenario that w you know, in I don't know, what, a decade from now, that we listen back to this episode and we're laughing at us for for laughing at the at the at at a at a company for for launching things into space. Like that could be very common in ten years from. Who knows? Chris: Yeah. Yeah, I mean, doesn't the prospectus, like the the the detailed like offer offer package for this IPO s like clearly stipulate that like one of Elon Musk's like KPIs or like one of his goals is to have a million inhabitants on planet Mars and if he reaches that goal he is rewarded with hundreds of millions of dollars of bonus. Like Scott: Yes. It's wild. Yeah. Chris: That's crazy, right? So I mean, we have no idea if we're gonna inhabit Mars one day or like what that's gonna look like. Maybe and maybe we look like idiots, but at the end of the day, this IPO is just noise. just this big ⁓ up thing ⁓ people get excited about it. But Scott: Yeah. Yeah it's just Chris: The reality is a lot of us are gonna end up owning a fractional percentage of o of SpaceX through our balanced and diversified portfolio in a pretty timely manner. Isn't that right, Scott? Scott: Yep. Yeah, it depends on what your definition of t of timely is. Maybe leads to the point that we should make on maybe maybe a maybe a broad assumption that given the size, like if, you know it's fair to say that most people would assume that Meta is high up in terms of one of the largest companies in the United States. They're part of the magnificent seven in the S P five hundred. Some might think that just because they're valued at one point eight million or one point eight trillion I should say, sorry, that they would be included in the S P five hundred fairly quickly, right? But that's not the case and you could probably share why that's why that's the case. Chris: Uh-huh. Yeah, so for the S P S P they have rules about what kind of characteristics a company need to needs to meet in order to essentially qualify to be added to the S P five hundred. It's not just the biggest five hundred companies. You can have a very big a a company that's has a big valuation and is one of the biggest, if it doesn't have two ⁓ quarters ⁓ a row, it doesn't meet the criteria to be added. And that's that's kind of the main one here. Scott: Yeah. Chris: That's holding SpaceX back from being added at this point. There is more criteria that the SP uses that I'm not super familiar with, but it's interesting that, yeah, you would think that, okay, well, I'll just own it through the SP 500. Well, you might one day, but it's not going to be immediately once this thing goes public. Scott: Yeah. That's right. Yeah. Chris: However, there are other indices that have different rules, ⁓ you own those, ⁓ you have exposure fairly quickly in a matter of like five to fifteen days. So like Russell, NASDAQ, MSCI, companies, different index companies have different rules about adding adding. Scott: Yeah. Yep. Chris: funds, companies to their to their ⁓ index and so yeah, the Russell FTSE Russell index probably be adding SpaceX within a matter of five days. Some kind of some position, right? ⁓ Scott: Yep. That's the something. Yep. Yep. the S P that could be maybe mid twenty twenty seven, at the maybe at the earliest. That still needs to have ⁓ what I think it's two you think you said two quarters. Might even be four, I'm not sure. Somewhere in that range of like you need to have those repetitive quarters of profitability before you're before you're considered that being added to the S P five hundred. Chris: Yeah. Scott: But with all that said, even if it was to the S P five hundred and you had that had that exposure, the question is like, are are IPOs ⁓ worth hype? Like is are they actually going to give you give you the return that you're expecting it to give you? Right? There's some interesting interesting data that we dug up ⁓ Chris: Yeah. Yeah, what does that what does that show, Scott? Is it is it worth it to get to get in line for the IPO? What's gonna happen? Scott: We looked at this this study, we can put the source in the in the show notes. this this study was done apparently from nineteen eighty to twenty twenty-four. Median IPO, first aid pop. So like when it becomes public and accessible, ⁓ first aid pop eighteen point eight percent. But generally speaking, like it happened with Facebook, it happened with ⁓ Beyond Meat ⁓ and Rubyan had their IPO in 2021, is that there is a really big pop and then things come back down to earth once it gets opened up to retail investors. ⁓ And like we talked about on previous episodes, if you believe market efficiency the global market is gonna tell us fairly soon what they think of SpaceX in terms of what the valuation is. Right? And it's going to take a little while to get to where they truly believe the value should be, but there's going to be likely a lot of volatility in the short term with SpaceX. But what the study is is showing is that the average three-year return of IPOs from 1980 to 2024, negative 20.5%. That's just the average. Right? Chris: Sure. Scott: And roughly apparently roughly over two thirds lose more than half their value in that three year period of time. Chris: Well, not surprised. ⁓ IPO thing is it's all hype. It's all about, you know, marketing your your company. Right. And it's always based on the fundamentals, it's ⁓ often on on the hype. So ⁓ I in no way surprised about this. Scott: Yeah. Yeah. Yeah. Yeah. Mm-hmm. it's it it's interesting. I think at at the end of the day, like we're I'm obviously fascinated to see where what happens with SpaceX. ⁓ think it's very cool that Elon Musk is launching things into space and he has this goal of ⁓ a million people on Mars at some point. All fascinating. ⁓ ultimately if ⁓ SpaceX into the next Nvidia or Meta or Apple and becomes this like part of the Mag Magnificent Seven if you want to put them in that category at some point. We will all you'll reap the benefits of that long term in a globally div globally diversified portfolio, But having that exposure early on especially a large exposure to SpaceX, the the data would support that these hyp these IPOs are just way overhyped and the return that you think you might get just won't be there. If you want to s if you were really gonna say, Hey, I believe in SpaceX. I I I wanna have some exposure. I wanna take some my play money and buy a little SpaceX, I don't know. Just just my thoughts is like don't do it at the IPO. ⁓ give maybe give it a year or two before you before you buy in. ⁓ Chris: No. Even even a month or two is gonna tell you a lot. Right. Like like to go back to the Facebook example, like we all know what Facebook slash meta has become and it's you know, one of the Mag Seven, it's a giant company and it's been a great company to be invested in over the years. when ⁓ it went public in twenty twelve, it had like a fifty percent drop within the first four months. Scott: Yep, for sure. Yep. Yeah. Chris: And it took over over a year after that for it to recover back to the initial IPO price. So if you invested, I mean assuming assuming, you know, when we look when we say investing, we're always talking about long-term investing, because that's all that really matters. We're not talking about trading and trying to time the market, because we know that's all BS, right? We're talking about investing for the long term to fund your your financial independence one day. So 20, 30, 40 year time frames. Scott: Yeah. Yeah. Chris: If you invested in Facebook on day one and held it all the way through to now, you've had a great run. reality is ⁓ people have not had that great of a return because they've traded it along the way. It hasn't been a buy and a hold. However, you access Scott: Yeah. Chris: Facebook or have exposure to Facebook through one of the funds like a index fund or mutual fund that you that you own that you've held the whole the whole way along this ride, you've had a great journey and great results and exposure to Facebook. I would I would guess that if SpaceX going be a future Mag 7 type company. Scott: Yeah. Yeah. Chris: it's gonna be a very similar story to what happened to Facebook. That's my that's my prediction that I never make. Scott: Yeah. Mm-hmm. Yeah, we don't make too many predictions on the direction of any one company, but we wanna just own them all and focus on what we can control at the end the day. Yeah. For sure. right, Christopher. Chris: Yeah. Scott: Did you everything you needed to get off your chest when it comes to the SpaceX IPO after it's been months now, but have you said what you had to say about it? Any final takeaways? Chris: Yeah. It's just noise. Yeah, exactly. Yeah. This is way too sexy. we shouldn't be talking about it. Scott: Investing should be boring, right? Investing should be boring. ⁓ It's more exotic than we than it needs to be. Yeah. Chris: It is. Yeah. This is not this is not long term, know, true investing. This is speculating, it's gambling, it's it's trying to predict the future, exactly ⁓ opposite of what we feel true long term investing is. So Scott: Yeah. Chris: ⁓ I guess you you know our take. We're not we're not lining up for the IPO. We don't care about the IPO. We haven't been following it other than with this element of curiosity of like what is gonna happen, 'cause this is interesting, but we're not we're not putting any money into this and we kind of Scott: Yeah. Interesting. Yeah. No. We'll we'll have exposure to it in our portfolio when the time comes, in a very small small waiting towards it and we'll carry on. But eve like e even to your point of being a gambler, if I was a gambler and a stock picker, then it's also like well look at the data, look at what the evidence shows about the history of these IPOs over the last forty, fifty years. It hasn't been a it hasn't been a positive experience even for gamblers. ⁓ Chris: Yeah. Yeah. Yeah. Yeah. Yeah. ⁓ Scott: Doesn't seem like a good gamble to be makin making in the first place, if you were that. Yeah. I know that was ⁓ I know Chris hit it off with the the short answer here is no, but yeah, we thought we'd thought just have a fun conversation and talk about it because I think it's natural for most of us to have curiosity, especially when something like this is in the headlines and I maybe we're naive to think that it's in everyone's headlines, Chris. It's certainly in ours, but it might not be in everyone, so maybe you weren't even aware that SpaceX was ⁓ its IPO ⁓ this June twelfth of of the year. But now you're aware. Now you know what's going on. You know our take on it. Yep. Chris: You if you were not aware, go on ⁓ your oblivious life and enjoying that. That is absolutely appropriate. ⁓ not missing out on anything. ⁓ Scott: Carry on. Yeah. Yeah, for sure. Yeah. High five. Carry on. That's right. Yeah. right. Let's ⁓ let's wrap it there, Chris. Good conversation. Thanks as always. All right. ⁓ Chris: Thanks for thanks for bringing up SpaceX. Love it. Scott: Yeah. Yeah. All right everyone. We'll see you again next week for another episode of the Chiro Money Show. We'll see you then.