SpaceX passes first lockup expiry test with US$500 billion rally

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Or sign-in if you have an account.Elon Musk’s space, satellite and artificial intelligence company has had a wild ride in the stock market since pricing its record US$86 billion IPO on June 11. Photo by Nikolas Kokovlis/NurPhoto via Getty ImagesSince SpaceX went public in June, Wall Street had been dreading Aug. 6, when the first lockup preventing early investors from selling the stock expired and millions of shares were set to flood the market.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThey needn’t have worried.SpaceX shares have been on a tear since the lockup ended, soaring 35 per cent in just five sessions, adding roughly US$500 billion in market capitalization, and vaulting back over their US$135 initial public offering price. The surge bucked concerns about an impending wave of selling and gave investors optimism that future expirations won’t be as painful as feared.“We’ve gotten through the big hurdle, which was the unknown,” said Andrew Plum, managing partner and investment committee head at Loxahatchee Capital, which holds SpaceX shares. “It’s like the market discounts a negative event, maybe too much, as it’s waiting for that information to come to pass. And then it’s usually not as bad as what was discounted or as expected.”Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againElon Musk’s space, satellite and artificial intelligence company has had a wild ride in the stock market since pricing its record US$86 billion IPO on June 11. The shares took off in their first days of trading before reversing direction and shedding more than US$1 trillion in market value through early August. The lockup expiration was supposed to be another hazard, but it turned out to be a blip.“If the stock was US$225, I would guess that it would have succumbed to the trend,” said Gene Munster, managing partner at Deepwater Asset Management, which holds SpaceX shares. He described his firm as in “brace mode” leading up to the expiration as they waited to see what transpired.The process for unlocking SpaceX shares is different than what usually happens after an IPO, where insiders are generally restricted from selling for 180 days. Considering the company’s size and its potential ability to shock the market, SpaceX’s management and bankers spread out the expirations with a nine-stage structure.This lockup was the biggest one, with 911.5 million shares coming available, more than were sold in the IPO. The next expiration is on Aug. 20, triggering the release of as many as 319 million shares, or seven per cent of the total amount of stock subject to selling restrictions. Similar seven per cent blocks will become available over the next few months before Musk’s 6.4 billion shares are unlocked in June 2027.SpaceX shares plunged 14 per cent on the day before the expiration, but the culprit actually appears to be the company’s first earnings report, and specifically its higher-than-expected capital expenditures for artificial intelligence. However, the results also contained some good news, including a large beat in revenue and a better-than-expected loss per share. Those figures were likely another catalyst in the stock’s runup since then.“Once investors realized after that first day that it’s not going to go into free fall, then they realized they could kind of go back and reassess what happened in the quarter and realize that things are moving along,” Munster said.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Musk, as he so often does, also offered some bold predictions on the earnings call. In particular, he said he expects SpaceX’s revenue to reach a more than US$100 billion annual run rate by the end of the year and US$1 trillion in revenue by 2030 or possibly 2029.“The earnings release was pretty surprising to the upside, and I think that’s the antidote to shares coming on the market,” Plum said. “You can have very good financial news coming from the company that’s going to attract new buyers at these levels, which will allow those shares to exit at a reasonable price and not to put too much pressure on the stock.”Some investors weren’t particularly surprised that SpaceX shares behaved differently than other stocks after the lockup expiration. While these events generally pressure the shares involved, Musk’s popularity may have changed the game.“I would assume that the initial early base of space investors are not loyal to market fundamentals, they’re loyal to Elon and his dream,” said David Wagner, a portfolio manager at Aptus Capital Advisors, which owns SpaceX shares. “This investor base may be stickier than what you would assume because it’s a bet on Elon and not a bet on fundamental earnings, execution and free cash flow execution over short periods of time.”That the stock was trading well below the IPO price heading into the lockup expiration might’ve also helped, according to Munster. He anticipates a similar trading pattern to possibly emerge around future lockup expirations — with shares falling ahead of the release, then gaining after — as long as insiders don’t rush to unload their stakes.The bottom line for SpaceX investors is expect the stock to experience some big swings as more shares reach the market and the narrative surrounding the company evolves.“I expect this stock to be volatile and go between fear of a story that is promising but is several years out in terms of cash flow, and greed when investors get excited about (Musk’s) vision and the stunning promise,” said Rhys Williams, chief strategist at Wayve Capital Management. “Bulls can dream the dream. And bears will focus on a stunning amount of capex.”—With assistance from Subrat Patnaik, David Watkins, Kelly Li and Charlie Zhu.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.