The Pipeline: M&A and IPO Insights | S.4 Ep. 6 - Breaking down SpaceX's historic public offering, post-IPO funding priorities

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Joe Mantone

Welcome to another edition of The Pipeline, an S&P Global Market Intelligence podcast that dives deep into the world of M&A and IPOs. I'm your host, Joe Mantone. And on today's episode, we are bringing you a conversation from our Tech Media and Telecom colleagues who recently discussed the historic SpaceX IPO on the MediaTalk podcast.

MediaTalk podcast is hosted by Mike Reynolds, a senior reporter at S&P Global Market Intelligence. And on the episode, he spoke with John Fletcher, a principal research analyst at S&P Global Market Intelligence Kagan and also Iuri Struta, a tech capital Markets reporter for Market Intelligence.

The conversation breaks down the early trading days following SpaceX's IPO, and it connects SpaceX's valuation metrics to lessons learned from past IPO booms, including the dot-com era. The discussion also unpacks how today's AI story is reshaping market appetite across sectors. We hope you enjoy the conversation from our TMT colleagues.

Mike Reynolds

Hi. I'm Mike Reynolds, senior reporter covering the media industry with S&P Global Market Intelligence Tech, Media and Telecom News team. Welcome to MediaTalk, a podcast hosted by S&P Global Market Intelligence, where the news and research staff explore issues in the ever-changing media landscape. Today, we're going to take a look at the early days of the historic Space Exploration Technologies IPO, better known as SpaceX on the NASDAQ.

It's a follow-up of sorts from a recent episode of MediaTalk that was based on a series of stories under the heading SpaceTech, entering a new orbit. Those articles and others about SpaceX can be found on our Cap IQ Pro website. To discuss the June 12 SpaceX IPO, I'm joined by 2 guests. John Fletcher, senior research analyst with Kagan, where he leads the Americas research teams for broadband, multichannel video and mobile tower.

John is in California, keeps tabs on the evolving video subscription landscape, closing the U.S. broadband digital divide and tracking global mobile infrastructure. John, how are we doing today?

John Fletcher

Great. Thanks, Mike.

Mike Reynolds

All right. We're also joined by my TMT colleague, Iuri Struta, our tech capital markets reporter. Iuri covers development and M&A activity as well as AI and data centers and more recently, sports team valuations, among other things. Iuri, how's things in London today?

Iuri Struta

Yes. Thanks, Mike. Things are kicking up here in London.

Mike Reynolds

All right. Going back to June 12, John, the IPO lived up to the hype and took Elon Musk to a whole new level of wealth. Just a few bucks made that day, right?

John Fletcher

Yes. That was one of the most anticipated days on Wall Street that I can remember. And you remember at the Kagan Media Summit that we had, I asked my panelists on the broadband panel, they were going to buy SpaceX on Friday, and they were no fun. They said, no, but I would have bought them if I could. It would have been fun.

And it reminds me of a lot less hype, but the Facebook IPO, that, well, kind of petered out right away, but we've definitely seen some volatility with the SpaceX share price. But yes, it was like 50-50. It's like half people thought it was going to top and then the other half thought it was going to decline. It's like everyone is right at this point.

Mike Reynolds

Got you. What were your expectations for SpaceX IPO came out of the gate very strong.

Iuri Struta

Yes, I did expect it to come out of the gate strong because of a few things that happened before the IPO. First, most IPOs experienced what investors call an IPO bump. You have a lot of traders piling on, on the IPO, expecting a bump, and then they sell after the bump has happened. And seemingly, this is what happened in SpaceX, too. The stock rose in the following days to a high, if I'm not mistaken, around 210. Now it's down to around 156. And we've had this with recent IPOs as well, like Klarna and Figma, they had an IPO bump. Now both of them trade below their IPO prices.

And this is the first thing like expecting this IPO bump. But secondly, I think the marketing for this IPO was very well made and it involved retail traders, brokers who were sending messages to their retail customers if they want to participate in the IPO. As a personal anecdote, I can say that my wife who doesn't care much about the stock markets called me and said if she should invest in the SpaceX IPO. So you imagine the hype around the IPO that has been made. And this was definitely not the case for other IPOs.

Mike Reynolds

I got you. And I'm in the same boat, Iuri. I was contemplating up to the end and wasn't allowed to get out of the IPO, but it's caught everybody's attention or most people's attention. John, you wrote a piece ahead of the IPO that looked back at some of the dot-com IPOs relative to valuations. And there was a key metric you looked at. Can you tell us about that?

John Fletcher

Yes, it was pretty bubblicious. Remind me of, heyday of the dot-com IPOs. And just looking at the revenue multiple attached to SpaceX, which everyone was very excited about was right around 100x revenue. I look back and there is definitely some precedent for that level of valuation. Akamai was at about 600x revenue and Webvan, which was basically Instacart 25 years ago, they launched at about 30x revenue.

So the difference is the volume of revenue, right? Those dot-com IPOs, a lot of them were they had $0.15 in revenue or they are even pre-revenue. So there was no -- it wasn't even possible to do a revenue multiple. The difference with SpaceX is they counted revenue in the billions. They had $18 billion in revenue trailing 12 months, which I think all the dot-com IPOs combined probably didn't even get close to that. So -- it was an interesting exercise to look into the time machine at the dot-com era.

Mike Reynolds

John, OpenAI and Anthropic. Supposedly, they're in the IPO market. Are those things going to happen?

John Fletcher

Yes. As far as I know, they're going to IPO this year at some point, and I think the timing is pretty good. I think that the AI story is set to win out of everything on Wall Street, and I think there's a lot more appetite for it. As I was looking back at the dot-com bubble 20 years ago, someone 20 years from now is going to be looking back at this and they're going to go '26 was the year of the AI IPO. I got you.

Mike Reynolds

Iuri, you agree on that?

Iuri Struta

I don't see how they don't go public if current market conditions continue to stay favorable. So they reached levels where it's becoming very hard to raise money in private markets. And as a result, they need to tap equity markets and the market loves an AI story, and they're probably going to take advantage of the favorable market conditions.

Mike Reynolds

Okay. So both of you guys, it's the year of AI. So we'll see how that goes. Iuri, as you mentioned, $210, $220 range at the high for SpaceX. As we discussed this here, the last we look before we got on this recording about $156. The stock began to take a hit on June 16, which I guess is several days after the IPO relative to the announcement that SpaceX was going to acquire Anysphere.

Iuri Struta

Yes. So you talk about the Anysphere, which is also known as Cursor. If I look at the Cursor acquisition as is, I think it is probably a smart acquisition first because the acquisition is made with stock. There is no cash involved. And SpaceX stock is expensive from any way you look, which is great for the acquirer, not great for the acquisition target.

We still have to see where the stock will land at the time of the acquisition because from what we understand, it's $60 billion stock and the stock is going to be on the stock price that's going to be in at the time of the completion of the acquisition. So if the stock is going to be lower than it is now, then probably have to hand more shares to Cursor make up.

Mike Reynolds

That makes total sense.

Iuri Struta

Yes. But if you look at the SpaceX, it has 3 business lines. One is space launches, where they are a noncontestable leader and they're probably going to be that way for quite some time. They have the satellite business, which is also a leader and has little competition there, too. And then they have the AI and social media business, which is mostly AI business now.

And this is where they are behind leaders like Anthropic, OpenAI and even maybe Google. So what they're doing, they're boosting that business with product and talent and they're paying what they hope to be still very expensive stock.

Mike Reynolds

John, what did you make of the Cursor situation?

John Fletcher

I think Iuri nailed it. I think I would just mention that this is their first acquisition as a public company, and it's definitely going to help boost their AI division, which is still -- a lot of people perceive the stock as an AI play in terms of their revenue, it's still a fairly small part of their revenues. This will definitely boost that division and play more into the AI story.

Mike Reynolds

Yes. Clearly, John, it's a satellite company, right? Isn't that where most of the money is?

John Fletcher

If you look at the S-1 and you quantify where the revenue is coming from and you put it into the distinct buckets for each of their 3 divisions, 60% of the revenue right now is coming from the satellite broadband business, which, as I said, it's an AI story stock, but the majority of the business is, like you said, it's satellite broadband.

You're basically buying an ISP at this point. But Wall Street and anyone who buys the stock doesn't buy a company for what they did last year. They're buying it for what's going to happen in the future. And I think it's the expectations around AI that people are buying into right now.

Mike Reynolds

What about from the space perspective? You see the word multiplanetary around that. And okay, so the moon, Mars, I don't know. Pluto, I guess that's not a plan anymore. But anyway, Elton John says Mars is not the kind of place to raise your kid, but what do you make of SpaceX in the space business? And I think during the last MediaTalk, I mean, there's a lot of investment going into that realm as well.

Iuri Struta

Yes. I think the market has had a very favorable view of space companies, not only SpaceX, but other space companies as well. Rocket Labs springs to mind is one trading at dizzying valuations, even though they're not -- in terms of launches in the entire space business, they're nowhere near the level of SpaceX. But generally, the market view has been very favorable. And I struggle to think if we have any companies in any sector right now that trade at such high multiples. not even some of the AI companies or semiconductors, they don't trade at such multiples.

And I think the favorable market conditions are because of -- I can list a few things. First, demand for space launch is very good. People, businesses, governments, they want to launch and they don't have capacity and they have to wait in line at SpaceX or other smaller space launch companies. So there is a supply crunch, which makes the stocks highly attractive. Supply is limited, demand is very high. So basically, the demand is outpacing supply right now. you have this new space race between China and the U.S., but also Europe is looking at getting involved.

I think pretty much everyone, the Europeans and the Russians, and they were stunned at the dual-use benefits of SpaceX Starlink following the Russia-Ukraine war. And obviously, a lot of see something similar like Starlink or to have something similar Starlink as a strategic advantage. So there is demand for satellite launches. And now everyone basically wants to launch something satellites in space or to experiment.

And third is -- and this is falling into the speculative realm space companies, not only Elon Musk, but other space executives as well, they have cultivated this idea that we're just at the beginning of space exploration and the big benefits and use cases haven't yet been discovered. And this is where you see the idea about data centers in space. We've had some production of medication or medicines in space and so on.

And it's not just Elon Musk that has been hyping this up, but other space executives as well, maybe not in such a flamboyant manner. But yes, there is definitely a lot of hype coming from everyone. And this combination of things inflate stock prices.

Mike Reynolds

Again, the data centers, John, this is like an incredible figure. Is this right? I've read something that SpaceX plans to launch close to 1 million satellites to help data center growth. Is that possible?

John Fletcher

It's just a little ambitious. I think they have regulatory approval to launch 42,000, but either way. It's a phenomenal amount of satellites. I think up until Starlink started launching these things, there was only a couple of thousand satellites in the sky. And now just Starlink alone has about 10,000 of them up there. So it's pretty wild.

And like Iuri was saying, if you have a space race, not only between the countries, but between the 2 big billionaires out there, there's potential for a lot of low earth orbit satellites to be out there. And I think the longer-term challenge and no one talks about is if one of them bumps into each other and it creates this domino effect of destruction that I don't really want to spend too much time talking about.

Mike Reynolds

John, you just referenced the other billionaire -- are you talking about Mr. Bezos?

John Fletcher

Yes. At this point, to me, it seems like a billionaire space race. So they're just fighting for market share. If you're a legacy broadband provider in the U.S., I couldn't think of worse competitors entering the field. You got the 2 richest guys in the world. They're okay to not run a profit for a long time if Amazon's first couple of decades are any indication. So they got deep pockets, they're okay to run like a start-up for a couple of decades.

And as Starlink showed us last year, they're going to compete on price to get market share. Now Amazon's LEO has been started off as Kuiper a few years ago, several delays in their launch. They're supposed to launch this summer. As you guys know, they had a problem recently with one of their launches.

I just finished our broadband projections, and it does assume an Amazon LEO launch this year. So I'm hoping for the best. But going back to the Kagan Media Summit, a couple of my panelists were very concerned that Amazon's launch -- their commercial launch rather, was not going to happen this year. This is literally rocket science. So it's not easy.

Mike Reynolds

All right. Gentlemen and fellows, busy day on Monday, June 22 for SpaceX. You're there preparing for a $20 billion bond sale?

Iuri Struta

Yes. I think that was probably what again put some pressure on the stock. Investors don't like when companies raise money. They usually don't like when they raise in stock. They're more okay with bond raisings. But this is definitely not helping because what this means SpaceX is preparing for some massive capital outlays. And because of that, people might be worried that the benefits of those capital expenditures might not translate fairly soon or at all in this case into return on investment basically. So yes, I think the market reaction is foreseeable in this case...

Mike Reynolds

Got you. John, they also did -- they signed a computing power deal with open-source AI start-up Reflection. What's that all about?

John Fletcher

That's definitely a move to help boost their AI top line. And I think definitely dovetails into that AI story part of the stock that investors are really interested in. So it's a nice boost to their business. I think it was going to be -- several billion dollars over the next few years in revenue for SpaceX. Yes. So that was an interesting move to see them make this so soon after the acquisition.

Mike Reynolds

Okay. Iuri, what's your outlook for the rest of the year for the SpaceX stock?

Iuri Struta

Yes, that's a good question. I think we'll have to wait for the stock to settle a little bit from the IPO hype. It's going to be a few volatile I believe. But as with any Elon Musk company, I see it trading at a big premium just like Tesla has always traded. What is unclear now is how big the premium is going to be. And this is why we'll have to wait a few months to see where the market is settling on the SpaceX story. The company is now worth what, like around $2 trillion market cap.

And even $1 trillion, I think, would be a big premium to the revenues that they have now and no profits. It also, I think, very much depends on the execution on how the company delivers on revenue growth. It seems like in the AI space, they're willing to play more of an infrastructure player that rather than an application layer, they have a lot of GPUs that are sitting there unused because there is no much demand for their applications, and they're willing to rent them out until they figure out the application layer. And also very important, I think it's going to be the progress with the Starship. If they pull it off, then this is going to be a massive boom for the stock.

Mike Reynolds

John, how about you? There's a lot of dynamics in play.

John Fletcher

Absolutely. I've got my eye on 4 things in terms of SpaceX future. What they do with the IPO raise and the bond. You got to think about every time they launch a rocket, it costs about $10 million. Each of these satellites cost about $1 million. So the CapEx behind this is pretty hefty. Once it's there, OpEx isn't that bad, right?

I guess you got them pretty much solar powered. But watching their launch cadence is going to be interesting, especially relative to Amazon. And then the second thing is EBITDA. You know I'm a cash flow guy. I love to take a look at what's going on with the cash flow in these companies. And the AI division -- it looks like a start-up. They're not really generating a lot of meaningful cash flow.

So seeing how those acquisitions impact EBITDA of the AI division. The other thing is more market dynamics and the competition on the run-up to the IPO, they launched some $30 promotional rates for broadband, which is less than half the going rate for broadband in the U.S. at least. So was that just a temporary thing to boost some growth? Or is that more of a permanent thing? I'm curious to see what happens with that. And then finally, I think there's lessons to be learned from what happened with the fixed wireless expansion that came out about 6 years ago, not a lot of expectations.

And then the initial expectation was, okay, we'll be a rural broadband play. This is perfect for rural broadband, which is true. But in the last few years, we've seen fixed wireless creep into the suburbs and even urban areas. So is Starlink going to do the same thing? Are they going to start as a rural play and then start to creep into the suburbs and urban areas? That's something I'm curious to keep an eye on as well.

Mike Reynolds

That concludes this episode of MediaTalk. I want to thank our guests, John and Iuri for sharing their insights and perspectives on the SpaceX business and the early trading days following the biggest IPO in history. Thank you, guys.

Iuri Struta

Thanks.

John Fletcher

Thanks, Mike.

Mike Reynolds

All right. And this is Mike Reynolds. I want to thank all of you for listening. We'll catch up soon on the next installment of media.