Only 4% of SpaceX Shares Trade Right Now. By December, That Number Could Be 40%. Here's What That Supply Boost Means for Investors
Key Points
With $86 billion raised out of a $2.1 trillion valuation, only a small percentage of SpaceX stock is trading right now.
SpaceX has a staggered lockup plan that releases about 36% of insider stock by day 180 post-IPO.
That huge new supply could flood the market, sending prices down.
Space Exploration Technologies (NASDAQ: SPCX), also known as SpaceX, had the biggest initial public offering (IPO) ever last month, raising more than $86 billion. But the company is worth $2.1 trillion today, which means only 4% of the stock is currently trading on the market.
Let's check out what that means, why it's soon going to change, and how much SpaceX stock will be on the market before the year is up.
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Insiders and outsiders
Any stock's total value includes shares available for trading on the open market as well as shares held by company insiders. When people talk about someone's "net worth," much of it is often tied up in company stock. SpaceX founder Elon Musk, for example, has a net worth of just under $1 trillion right now. That fluctuates depending on the price of SpaceX stock, since he owns a lot of it and, with class B shares, has more than 80% voting rights. Under the company's lockup rules, he can't sell any stock for 366 days after the IPO, so even if he does sell, it won't be until next June.
The remaining stock after the 4% on the market and Musk's shares is locked up with SpaceX insiders, and there's a staggered lockup period before they can sell their stock.
The first period ends the day after the second-quarter earnings release, which is likely to be sometime at the end of July or early August for the period ended June 30. Up to 20% of shares can be sold at that point, or 911 million shares. Another unusual rule is that if the stock is trading at a 30% premium to the IPO for five out of 10 trading days after the release, 458 million shares can be sold.
After that, there are various lockup periods from the 70th day post-IPO through the 366th day, and by December, about 180 days in, most of the lockup shares can be sold. What's left are Musk's shares and those of other insiders, who are subject to an "extended lockup."
The total insider shares that can be sold by day 180 are about 4.7 billion, which, at today's prices, accounts for about 36% of the total company value.
Supply shock for investors
The purpose of any lockup period is to stabilize the stock after its IPO. The reason, presumably, for the staggered lockup periods here is the high volatility associated with the massive IPO and valuation. If it went from 4% to 40% in a day, it could wreak havoc on the market.
The 36% of shares eligible for sale by day 180 won't all be sold, so it's unlikely to zoom from 4% to 40% in six months. However, the increase in shares could still send the price down as the law of supply and demand still holds true.
In any IPO, it's prudent to wait until after the lockup period to invest, and with SpaceX, it might be even more important.
Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.