SpaceX is making headlines as it aims for a staggering $2 trillion valuation in its forthcoming IPO this summer, which could result in the company raising an unprecedented $75 billion. If successful, this offering would mark the largest public debut in market history, prompting investors to analyze historical trends of record-setting IPOs.
Past IPOs provide a revealing perspective on how Day 1 shareholders fared. The five largest IPOs to date, adjusted for inflation, include Saudi Aramco, NTT DoCoMo, Alibaba, Enel, and Visa. Each of these companies raised substantial capital but showcased a variety of performance metrics over multiple timeframes.
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Saudi Aramco (2019): Raised $38 billion, resulting in returns of -21% over three months and a slight recovery to a -5% return in one year. Over five years, it fell further to -9%.
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NTT DoCoMo (1998): Secured $37 billion, with an initial three-month return of 19%. However, the company saw significant declines over one and five years, ending with a remarkable -51% return and a total drop to -150% since its IPO. (Note: NTT DoCoMo went private in 2020.)
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Enel (1999): Raised $37 billion, but its returns tell a less favorable story. Three months post-IPO, it saw a -5% return, which slightly improved to 3% and 5% over one and five years, respectively.
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Alibaba (2014): Obtained $35 billion, achieving a promising 20% return in the first three months. However, investors faced disappointing outcomes in subsequent years, finishing with a -37% return after one year, and a modest 48% improvement over five years.
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Visa (2008): Gathered $28 billion and emerged as a standout performer. It initially returned 14% in three months and dealt with an 18% decline after one year but soared to a remarkable 1,912% return over the long term.
A discernible trend emerges from these figures: while many companies provide initial success, a significant number underperform over the long haul due to inflated expectations at their IPOs. Only Visa achieved exceptional growth, while Saudi Aramco and others have not met market performances over time.
Considering the implications for SpaceX, this historical pattern suggests that unusually high valuation expectations often coincide with a lack of feasible growth potential. At a proposed $2 trillion valuation, SpaceX would launch at a level comparable to Aramco, despite generating only a fraction of its revenue. This indicates that a large portion of anticipated future growth may already be factored into the IPO price.
For potential investors, the lesson drawn from past IPOs is clear: it might be prudent to wait out any post-IPO price corrections if SpaceX’s shares are priced near the projected $2 trillion. While historic trends are not definitive predictions, they serve as crucial reminders of the risks associated with investing in high-valuation public offerings.
