IPOs have been making headlines recently, with several well-known private companies announcing their plans to go public. The spotlight has been on Elon Musk’s aerospace company SpaceX, which is expected to have a groundbreaking IPO on the Nasdaq this Friday. Additionally, there is great anticipation surrounding artificial intelligence startups Anthropic and OpenAI as they prepare to enter the public market in the coming months.
The attention on these IPOs is significant, driven by the unprecedented sizes of these offerings. SpaceX has set its share price at $135 US, which would value the company at $1.8 trillion US, potentially making it the largest IPO ever. Anthropic and OpenAI are also eyeing valuations close to $1 trillion US each.
These companies operate in sectors such as rockets, satellites, and artificial intelligence, fueling investor interest in their potential to revolutionize the global economy. However, some analysts have expressed concerns. Research firm Morningstar suggested that SpaceX may be “significantly overvalued” and valued the company at $63 US per share, well below the IPO’s offering price. SpaceX itself admitted to a history of net losses and uncertainty regarding future profitability.
Stephen Foerster, a finance professor at the Ivey Business School, highlighted that Elon Musk’s significant control over SpaceX gives him full authority over the company’s direction. This unique governance structure places a heavy reliance on Musk for the company’s success.
When a company goes public, the primary beneficiaries are the founders, with Musk holding nearly half of SpaceX shares. Venture capitalists, private equity firms, employees holding shares, and investment banks involved in the IPO also stand to gain substantially.
Individual investors typically face challenges accessing IPO shares at the initial offering price, but recent trends have shown increased opportunities for retail investors. SpaceX allocated a significant portion of IPO shares to retail investors, a departure from the norm. Online brokerages like Wealthsimple are facilitating Canadian clients’ requests for SpaceX IPO shares.
Following an IPO, shares become available for trading on exchanges, allowing individual investors to participate. Moreover, even without directly investing in an IPO, owning shares indirectly through index funds is possible due to relaxed listing rules.
Investors in IPOs encounter risks, including high volatility during initial trading, price fluctuations driven by demand, and lock-up periods for major shareholders. Foerster cautioned that investing in SpaceX carries risks due to its newness as an IPO, unproven technology, and current lack of profitability.
Reflecting on past major IPOs, companies like Tesla and Groupon have experienced varying performance trajectories following their public debuts. Tesla’s shares have seen substantial growth since its 2010 IPO, while Groupon’s stock, despite an initial surge, faced significant declines in subsequent years.
