SpaceX share falls below its issue price after 911 million papers came free

The share of SpaceX has fallen below its issue price of 135 dollars and traded towards 110 dollars. Two events within a few days triggered that move, and they have nothing to do with each other.

On 4 August the company presented its first quarterly report as a listed group. On 6 August a lock up period for around 911 million shares expired.

Since the first listing the paper has lost around one trillion dollars in market value according to an American business broadcaster.

The short version

• The share fell below its issue price of 135 dollars and traded towards 110 dollars.
• On 4 August the company presented its first quarterly report, and on 6 August a lock up for around 911 million shares expired.
• Revenue rose 92 percent to 7.81 billion dollars, and investment reached 18.4 billion dollars.

Why a lock up works so strongly

At a listing, existing shareholders, employees and early investors undertake not to sell their holdings for a set period. Without that commitment a large quantity would come to market immediately after the first listing and the price would collapse.

When the period expires, the freely tradable quantity grows abruptly. In the case of SpaceX it could potentially have tripled.

What matters is not how many of those entitled actually sell. The possibility alone is enough, because market participants know the date and adjust their positions beforehand. The price pressure therefore arises in advance and not on the day itself.

The figures were better than expected

It is notable that the quarterly report clearly beat expectations. Revenue rose 92 percent to 7.81 billion dollars, where 6.93 billion had been expected.

The net loss narrowed from around one billion dollars to 541 million dollars. Per share that was nine cents, while analysts had reckoned with a burden of 23 to 26 cents. Adjusted earnings before interest, tax, depreciation and amortisation rose 191 percent to 3.5 billion dollars.

The share nevertheless fell around eight percent after the close. Even before the report it stood 16 percent below the opening price of 12 June.

The investment is the reason

The trigger for the reaction sits further back in the report. Investment reached 18.4 billion dollars in the quarter and was therefore around two and a half times quarterly revenue.

At a company that has been listed for only a few weeks, investors lack the experience to place such spending. There is no series of earlier reports from which it could be read whether comparable investment has paid off in the past.

As long as that history is missing, every large number is read as a risk and not as a growth signal.

Connectivity carries the business

Operationally one area runs clearly better than the rest. Revenue from satellite internet and related services rose 66 percent, and operating profit in that area 79 percent. The number of subscribers doubled.

That profit grows faster than revenue describes a business that becomes more profitable with scale.

The area for artificial intelligence gained 247 percent. After a single published quarter no trend can be drawn from that.

Also named were contracted revenue of 14.1 billion dollars from agreements on cloud services as well as more than six billion dollars of multi year government contracts for a satellite programme. Two test flights of the third version of the large rocket system took place in the reporting period.

Bonds worth 25 billion dollars

The shares have traded under the ticker SPCX on the Nasdaq Global Select Market and on Nasdaq Texas since 12 June. The issue price was 135 dollars and the first quote 150 dollars. It was the largest listing in history up to that point, and beforehand a targeted valuation of around 1.5 trillion dollars had been reported.

In June the company issued investment grade bonds worth 25 billion dollars in five tranches with maturities between 2031 and 2056. The weighted average coupon is 5.855 percent, which corresponds to an annual interest burden of around 1.5 billion dollars.

The judgement of creditors and of shareholders therefore points in opposite directions. The bonds found buyers in the investment grade segment, while the share fell below its issue price.

The finance chief named a target of 100 billion dollars in annualised recurring revenue by the end of the year. In the first weeks of the current quarter additional cloud revenue of 6.7 billion dollars was contracted, starting from October.

Among the holders is Nvidia with 122.8 million shares. Their value fell from around 21 billion dollars at the time of the listing to about 17.2 billion dollars on 14 August. The Norwegian sovereign fund also holds a stake of around 0.05 percent worth about 1.22 billion dollars.

Frequently asked questions

Why does a lock up period work so strongly

At a listing, existing shareholders, employees and early investors undertake not to sell for a set period. When it expires, the freely tradable quantity grows abruptly. What matters is not how many actually sell but that market participants know the date.

Were the quarterly figures bad

No. Revenue rose 92 percent to 7.81 billion dollars, where 6.93 billion had been expected. The net loss narrowed from around one billion dollars to 541 million dollars. The trigger for the reaction was investment of 18.4 billion dollars in the quarter.

Which area carries the business

Revenue from satellite internet and related services rose 66 percent, operating profit in that area 79 percent, and the number of subscribers doubled. That profit grows faster than revenue describes a business that becomes more profitable with scale.

This analysis is for information only and is not investment advice.