SpaceX chief executive Elon Musk is stuffing his IPO pitch with the same promises that made affordable robots and Mars trips vanish into mist.
According to the Observer, in more than 300 pages of filings released, Musk tells investors SpaceX will pursue a $28.5 trillion “addressable market in human history.” To put that daft number into some perspective, it is roughly the size of US GDP.
More than 90 per cent of that fantasy pile is supposed to come from AI infrastructure and enterprise applications. SpaceX currently makes nearly all its revenue from space services and Starlink, rather than magic server farms in the sky.
The company’s AI segment lost $6.4bn last year and is seen as behind the pack in building compute capacity. That has not stopped Musk from flogging the dream like another imminent Mars colony.
QuotedData co-founder James Carthew said: “The SpaceX valuation feels absurdly high So many wild claims are needed to support the mooted $1.75tn valuation number that I’m struggling to envisage where the upside will be.”
The second number is 85, the percentage of voting control Musk holds at SpaceX. In practice, Musk’s control looks absolute. SpaceX, apparently, does not exist without him, unless one counts SpaceX president Gwynne Shotwell, who runs the day-to-day outfit.
One governance expert familiar with the company said: “There is the right for the B-class shareholders, in essence, Musk, to appoint 51 per cent plus of the board forever, as long as there is a single B-class share in existence anywhere. Even if he’s sold down to no holding whatsoever… Elon just needs to hold on to one share to have absolute control.”
The traditional point of a public float is to raise a shedload of cash and accept more investor scrutiny. Musk appears to prefer the first bit and bin the second.
The SpaceX prospectus structure is a corporate governance nightmare. One-vote shareholders must pursue legal grievances through private arbitration instead of the courts. Independent members to board committees are gone and the company’s chief executive, chief technology officer and chair is apparently unfireable.
Musk is in line for a compensation package potentially worth $1tn, tied to the delivery of a million extraterrestrial data centres. SpaceX currently has none.
His loyal retail investors may not care. They have been rewarded with an unprecedented 30 per cent allotment of the first public shares. Retail participation in the US stock market has risen from 15 per cent of daily US equity trading volume in 2020 to 37 per cent now. Dual-class share structures have grown alongside it, allowing founders to retain control after selling stock to the public.
Glasgow University professor of commercial law Iain MacNeil said: “Retail investors are looking at the success of these tech bros and they’re saying, that’s what I want to be, so I’m going to tolerate a more autocratic system.”
Institutional investors in the UK still have to decide how much stink they can ignore. Scottish Mortgage, the UK’s largest investment trust and a FTSE 100 member managed by Baillie Gifford, is already aboard.
Between 2018 and 2021, it bought $200m of SpaceX shares. At the suggested IPO valuation, that stake carries a paper value of nearly £3bn, about €3.6bn. That could be a fat win for hundreds of thousands of ISA investors. To realise it, the trust will need to sell before the market remembers gravity exists.
If SpaceX insiders can sell immediately through a waiver on the usual 180-day lock-up period, the timing looks especially spicy. Institutional investors such as Scottish Mortgage may not get the same escape hatch.
The governance expert told the Observer: “They’re not going to pay a dividend, certainly not in the foreseeable future. So the only reason you buy this as an investor is that you think you’ll be able to sell for more in future. You are entirely dependent on the “bigger fool theory.”
