The New York Times: SpaceX’s bumpy ride on the stock market may get bumpier

The shackles are soon coming off SpaceX’s stock.

On Thursday, the first “lockup” on shares of Elon Musk’s rocket company is set to expire, which means employees and other company insiders who were prevented from trading the stock after SpaceX’s initial public offering in June will be able to do so.

Lockups are put in place after an offering to prevent shares from flooding the market and driving down their price.

SpaceX employees and early investors will now have the opportunity to cash in on millions of dollars in gains from their company stock. But for everyone else, the end of the lockup comes at a delicate time.

In the seven weeks since SpaceX went public, its stock briefly soared before falling nearly 50 per cent from its high, dropping well below its $135 public offering price.

Once the lockup ends, 912 million shares will become available — more than double the current supply that can be traded — which may further depress the price.

“There are reasons to be concerned that the expiration of the lockup will introduce more price volatility,” said Patrick Corrigan, a law professor at the University of Notre Dame, who has studied IPOs.

On average, he added, the end of lockups leads to a 1.5 per cent drop in stock prices because of increased selling.

How SpaceX’s stock fares after the expiration of its various lockups is likely to serve as a benchmark for other major tech companies that may go public in the next 12 months, including artificial intelligence start-ups Anthropic and OpenAI.

In June, Musk’s company held the world’s biggest IPO, raising $85.7 billion and rising nearly 20 per cent on its first day of trading to be worth more than $2 trillion.

The event turned Musk, who controls more than 80 per cent of SpaceX’s shareholder votes, into the world’s first trillionaire and seemed to signal investor appetite for more technology IPOs.

But SpaceX’s volatile stock performance since then is a reminder that going public is no easy feat.

The company, which has a market value of $1.428 trillion, has been buffeted by investor scepticism and a growing number of “short” sellers, who borrow shares to bet on a stock’s decline.

Any price swings could be magnified by SpaceX’s relatively small percentage of shares, or “float,” that can be traded on the public market, said Jay Ritter, director for the IPO Initiative at the University of Florida.

SpaceX’s float, currently below 5 per cent of the total number of shares, will increase to more than 12 per cent after the first lockup expires.

On the social platform X, Musk, who became a mere multibillionaire as SpaceX’s stock price fell, has cracked jokes about losing his trillionaire status. But he also warned those who bet against him that they were wrong to not believe in the company.

“I said SpaceX will be worth more than Earth if we achieve our goals,” Musk posted on social media last month. His net worth is now around $684 billion, according to the Bloomberg Billionaires Index.

Musk and a SpaceX spokesperson did not respond to requests for comment.

SpaceX is scheduled to report its first earnings as a public company Tuesday.

While newly public companies traditionally prevent insiders from trading for the first 180 days after the IPO, SpaceX has staggered its lockup period so that early employees and investors will be able to sell tranches of shares over the next 10 months.

The largest tranche, 1.3 billion shares, will be unlocked after the company reports its financial results in the fall. Musk, SpaceX’s largest shareholder, who controls more than 6.4 billion shares, will not be able to transact on the bulk of that stake until next June.

Current and former SpaceX employees have been watching the recent stock gyrations closely. With the first lockup ending, some former employees have taken to Facebook groups to crowdsource strategies about what to do with their shares, according to posts shared with The New York Times.

In one group, someone estimated that the 1200 members collectively had at least “a billion dollars’ worth of shares”.

“I’m not comfortable having so much of my net worth concentrated in a single stock, so my goal is to diversify,” one former SpaceX engineer wrote. In response, commenters told him to hold on to his shares and borrow against them if he needed cash.

In a recent note to investors, Adam Jonas, an analyst at Morgan Stanley, which worked on SpaceX’s IPO, said the company’s shares could “realistically” fall to $100.

He said he was optimistic about SpaceX’s future and calculated the company was worth $300 a share, but noted there was a “current disconnect” and “increasingly bearish investor sentiment”.

Jonas ascribed the disconnect to “no major fundamental changes”.

Instead, he said, those who were positive about SpaceX and those who were negative had dug in their heels.

Plenty of investors are betting against the company. Nearly $25 billion of SpaceX’s tradable stock, or 34 per cent of its float, is held by short sellers, according to S3 Partners, a financial data company.

SpaceX is the eighth most shorted stock in the United States and the most shorted stock over the last 30 days, based on S3 data.

Matt Kennedy, a senior strategist at Renaissance Capital, which tracks IPOs, said SpaceX was “a cautionary tale” for investors looking for short-term gains.

Among other US companies that went public this year and raised at least $50 million, SpaceX is in the bottom third for stock performance, he said.

The stocks of large tech companies, including Facebook and Uber, also declined after their public offerings, but they weathered the storm, Kennedy noted. Given SpaceX’s lockup expiration, he expected more turbulence for the stock in the days ahead.

“Nobody wants to catch a falling knife,” he said.