SpaceX investors, with their heads in the clouds after afirst-quarter earningscall that included trillion-dollar AI-fueledrevenue projections, have to come back to Earth to deal with more mundane matters, such as trading technicalities.
A huge lump of SpaceX stock is unlocking, which will likely create even more volatility for shares of Elon Musk’s rocket and AI company.
SpaceX stock dropped 12% on Wednesday after reporting a very solid inaugural quarter as a publicly traded company. Sales were $7.8 billion, above the $6.8 billion Wall Street projected. The AI division also generated a surprise profit, reporting $1.1 billion in earnings before interest, taxes, depreciation, and amortization, or Ebitda. Analysts projected a small Ebitda loss.
Still, the stock flopped. But the reaction is understandable.
For starters, SpaceX stock rallied almost 16% on Monday and Tuesday ahead of earnings. Entering Thursday trading, shares were down just 10 cents for the week. The stock pointed 3.1% higher in morning trading.
The early-week rally was likely driven by bearish traders adjusting positions ahead of the quarterly report. A lot of SpaceX has been borrowed and sold short by investors betting on price declines. There are any number of reasons to short a stock, but for SpaceX shares one main reason is the IPO overhang.
A lot of stock held by insiders and early investors will become available to trade in the coming weeks. Some of that stock will be sold for cash. And that wave of selling could pressure shares. No one wants to buy something today if the price will be lower tomorrow. That psychology can keep a lid on any stock, even one run by Elon Musk, who suggested SpaceX could hit $1 trillion in annual sales by 2029. (Wall Street projects a still impressive $284 billion in 2029 revenue.)
The process starts on Thursday when “up to” 911.5 million shares unlock, according to the company’s amended prospectus. That’s more than 140% of the stock available to trade after the IPO.
What impact the new stock will have on trading is hard to say. The stock market is forward-looking, so stocks tend to react ahead of known events. SpaceX stock was up 3.7% in premarket trading at $112.22, while S&P 500 futures were up 0.1%.
But Thursday’s shares are just the start. Another 319 million shares can unlock on Aug. 12, the 70th day after the date of the amended prospectus. Another 319 million shares can unlock 20 days after that. By the end of the year, more than 4 billion shares will be available to trade.
Elon Musk’s 6.4 billion shares (including stock options) are freely tradable in June 2027. (He’s unlikely to sell.)
Investors will have to watch the lockup issue for weeks if not months. Eventually the IPO overhang will end, and SpaceX stock will be more in line with its fundamentals. Of course, bulls and bears will vociferously debate those fundamentals.
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