SpaceX IPO: How our reporters assess the sky-high valuation and potential economic impact

Three of the world’s biggest technology and artificial intelligence companies — SpaceX, OpenAI, and Anthropic — may go public this year, all in a blockbuster deal. Leading out of the gate is SpaceX, the rocket and satellite company led by Elon Musk. The company’s offer on Friday will shake up the markets, and the world’s richest man could become the first billionaire.

Mike Isaac, who reports on technology companies for The Times, and Ryan Mac, who has covered Musk for years, review the financial results. They joined their editor Pui-Wing Tam before Friday’s opening bell to talk with me about what’s involved in covering the IPO and the mercurial billionaire with baggage.

We also discussed how they make sense of staggering valuations and break big promises trying to explain it all to the average investor. This interview has been edited and condensed.

SpaceX is preparing for the world’s largest initial public offering. What’s the most interesting thing about this IPO—and Elon Musk—that people might not know?

MIKE ISAAC: A lot of people are (rightly) amazed at the astronomical valuations that Musk’s bankers are proposing, which run into the trillions. I’m more intrigued by the products they claim SpaceX will build to get them there.

It feels like something out of a Philip K. Dick novel: Asteroid Mining. Unlimited energy to power data centers. And these data centers, mind you, will not be located on earth, but rather in low orbit. And last but not least, become the first hotelier to be in charge of your vacation on the moon.

All of this is built into this company’s forward-looking revenue projections. This seems irrationally exuberant even for Musk, who is practically defined by rattling off things that are ridiculous to even contemplate.

This year seems to be a particularly big one for IPOs. How do you decide which ones to cover and why?

CHICKEN WING THERE: We cover IPOs of companies that are the largest in size and likely to have the most impact. SpaceX, Anthropic and OpenAI are now really household names to match this.

MICROPHONE: Compared to 30 years ago, far fewer companies are going public. This is partly because companies can stay private longer; it is easy for them to get money. But even when the market picks up, we tend to pay the most attention to so-called megacap companies—the companies with the highest valuations based on the number of shares available.

RYAN MAC: The offering is a milestone for Musk and SpaceX to raise a staggering amount of money. There’s added excitement and perhaps nervousness as the market also waits to see what happens with SpaceX, as Anthropic and OpenAI also consider going public this year. If that happens, we could see three companies worth nearly a trillion dollars go public in quick succession. That’s unheard of.

SpaceX set a price of $135 per share, which would value it at $1.77 trillion. It’s hard to wrap your head around a character like that. How do they arrive at that price?

Ryan: The company has an idea of ​​the amount of money it wants to raise and consults with bankers. Bankers go out and meet potential investors and gauge interest in the stock. They ended up setting a price range for the stock a few days before the IPO and then agreed on the price and sold their shares.

IPO pricing is something of an art Companies want to raise as much money as possible while experiencing a “pop,” or increase in stock value, on the first day of public trading.

However, Musk and SpaceX seem to be taking shortcuts. The company chose to ignore issuing a price range for its IPO stock, instead saying it expects to sell for $135 a share, take it or leave it. It’s one of many examples of why this isn’t your typical IPO.

Thus, IPOs appear to reward company founders, bankers and select investors. There is something for average investor or a worker with a 401(k)?

MICROPHONE: Something that people have to reckon with is how different companies going public today are than companies that went public 30 years ago. Valuations have risen enormously because private investors have piled so much money into companies ahead of their IPOs, which may mean that much of the growth spurt may already be taken off the table and go to private investors before everyday investors see a dime.

This is also why you see Musk and his bankers touting these high trillions of dollars for what is called the total addressable market, or TAM. Retail investors need to believe that the stock will rise if they’re going to buy it, and Musk needs to convince them that we’re in early trade. But the company’s filing shows it’s losing money and spending a lot.

Ryan: If believe in Musk’s vision, then you might think the $1.77 trillion valuation is a lot, as SpaceX will eventually control orbital AI data centers, factories on the moon, and a human colony on Mars. But Musk has a history of promises and understatements.

How to separate hype from concrete data?

Ryan: Much of what Musk says he or his companies will do simply doesn’t come to pass. Our colleagues recently tracked some of his promises over the years and how they fared. On the other hand, some successes—the mainstreaming of Tesla’s electric vehicles or the development of partially reusable rockets by SpaceX—have developed or shifted industries.

Take Starlink, SpaceX’s satellite Internet service. Before Starlink, similar services existed, but they were dirty and expensive. SpaceX has built a successful business around Starlink and is now, by the numbers, the company’s main revenue driver.

Investors aren’t necessarily invested in current business results, but rather in Musk’s promises of what the company will do. And that’s why IPOs and future stock performance are incredibly hard to predict.

After the IPO, Musk will have to answer to his public shareholders, who can sell their shares if they are unhappy with the company’s direction. Those shareholders may be unhappy if SpaceX is unable to achieve lofty goals.

Some readers say our coverage is biased against Musk. Musk himself says that The Times is unfair to him. The dynamic between reporters and the people they’re talking about can be adversarial—is that unusual?

Ryan: I’ve covered Musk for more than a decade and started covering him as his distrust of reporters and the media grew. You can’t take it personally. I have interacted with him several times over the years, and I expected that one of his first instincts would be to undermine or challenge our reporting.

He is the richest man in the world and one of the most powerful people in the world. Usually these people don’t appreciate control. His ownership of X allows him to shape public opinion and amplify the voices he identifies with—and yes, he did temporarily ban me from the platform—but I wasn’t going to be deterred from my work because he posted something about my coverage or The Times.

Switchgear: What are the biggest differences between private and public company coverage?

PUI-WING: Disclosure! Public companies report their performance to shareholders every quarter, so there is more transparency. Private companies have no obligation to provide information, so it’s opaque — which suited Musk, who has complained about disclosure in the past.

MICROPHONE: There are few things that excite my reporter brain more than when a company finally goes public because of the vast amount of information it is legally required to release.

That said, there are ways even public companies can legally hide their situation, even when providing the required information. Lawyers and CFOs, it turns out, are good at playing word games. Our job is to comb through the files and try to decipher the puns.

Ryan: I join the chorus here. SpaceX has been private for more than two decades, and its financial performance is pretty opaque. Interestingly, though, Musk has said over the years that he despises some of the burdens that come with running a publicly traded company. In 2018, he famously tried to take Tesla, his electric car market, private because he felt the pressure that came from the scrutiny of public investors. However, Tesla remained public and experienced a stock boom.

How do we assess the health of a company when valuations can be in the stratosphere?

MICROPHONE: For me it’s simple: Look at the basics, the books, the numbers.

That’s why I’m very skeptical of the hype around this whole process for SpaceX. There are one or two good businesses; Starlink, for example, posted $4.4 billion in revenue last year. Earlier this year, however, Musk grafted on xAI, his artificial intelligence lab, which is losing money at a staggering rate. And the whole premise of SpaceX’s stock rally is ultimately based on the idea that this cash-burning business will one day be hugely profitable. That’s wishful thinking for me, not an investment thesis based on what’s in front of us in the prospectus.

That’s why the IPO is so important: Instead of having to take Musk’s word for it, we can look at the business. And the trade I’m looking at isn’t one-sidedly incredible, nor is it a complete dog. Through these revelations we can gain a sobering perspective.

What kinds of documents do we check?

PUI-WING: The main document is known as an investment prospectus, nicknamed the S-1. It usually includes the company’s mission statement and a letter to potential shareholders, as well as disclosing revenue, profit or loss, who the largest holders of its stock are, and other information. This helps us assess the financial health of the company.

The Times has investment rules for journalists participates in business coverage. Pui-Wing, why does it matter?

PUI-WING: We never want to buy and sell shares of the companies we cover. This could distort the motivation by putting us in a position where we can make money from what we write about. To maintain fairness and accuracy, we approach coverage without these monetary strings attached.

As you mentioned Mike, the potential IPOs of SpaceX, OpenAI and Anthropic “could have created a tsunami of investment and employee wealth” and a whole new kind of market. What will you all be watching as the fallout reverberates through Wall Street and beyond?

MICROPHONE: The influx of new wealth will change what the Bay Area looks like, from home ownership to nightlife to the next wave of companies that will be created in the coming years. We’ve seen this tape before: Google in 2004. Facebook in 2012. Uber and Airbnb in 2019 and 2020. And now we’ll see what happens in the world after the SpaceX IPO.

PUI-WING: Money! And the power and influence it creates.

Ryan: I will continue to cover Musk. One of the big lines around the IPO is that it could help turn Musk into the world’s first billionaire. It’s an incredible milestone that not only illustrates his power, but also the widening wealth gap around the world. Musk has already used his wealth to buy entire companies and influence the 2024 presidential election, after which he was worth around $350 billion. Since then, he has almost tripled his net worth. This wealth will provide him with a source of strength to draw upon for years to come.