Valuation expert Aswath Damodaran believes SpaceX could achieve the most valuable IPO ever, potentially reaching trillion-dollar status. He highlights the company's real futuristic offerings, Elon Musk's compelling narrative-spinning abilities, and its impressive growth despite financial uncertainties. However, Damodaran warns investors about SpaceX's "shape-shifting" nature, which may frustrate those seeking predictable corporate paths.

Aswath Damodaran says Musk's SpaceX will frustrate investors after most valuable IPO in history, here's why

Amid buzz over Elon Musk's SpaceX marching toward its mega initial public offering (IPO), veteran valuation expert Aswath Damodaran feels that the rocket and satellite-maker can deliver the most valuable IPO of all time, joining the esteemed list of trillion-dollar companies after listing, although it can frustrate investors due to its “shape shifting” nature.

While attempting to value SpaceX IPO, Damodaran was reminded of the computer HAL’s dialogue in the movie '2001: A Space Odyssey' which was released back in 1968. In the movie, the sentient supercomputer HAL 9,000 is sent to Jupiter along with astronauts to investigate an alien monolith. Speaking about a malfunction, the computer famously says, “It can only be attributable to human error.”

In a long blog post, Damodaran said he was reminded of his human fallibility repeatedly as he tried to value SpaceX ahead of its IPO, a market debut that is shaping up as a barn-burner for three reasons. The first factor according to the valuation expert is that in a market where there are many young companies, all of whom are trying to claim to be futuristic in their offerings, SpaceX clearly stands out as the real thing, housing rockets, satellites and AI under its corporate umbrella.

'Love him or hate him, Musk is not boring'

The second reason is its founder Elon Musk, the world's richest person who has upended one legacy business (Tesla), bought a social media company (Twitter) as a soapbox and made his presence felt on the political stage, Damodaran said. "Love him or hate him, Musk is definitely not boring, and his capacity to spin business narratives that seem outlandish at first hearing. but it became conventional wisdom later, clearly adds to the allure of SpaceX," he added

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Thirdly, Damodaran feels that SpaceX could very well become the most valuable IPO of all time, joining the rarefied list of trillion-dollar companies post listing, if private market pricing feeds into the public offering.

History of Musk’s SpaceX

The professor of Finance at the Stern School of Business at New York University, said many investors may be surprised to know that SpaceX was founded in 2002 in California, making it older than the popular automaker Tesla. He explained how the company jumped wagons, or in this case rockets, and emerged stronger every time. At its founding, Musk aimed at travelling to Mars, but was viewed as having little chance of success by the space establishment, composed then of government agencies (NASA) and a few defense firms.

SpaceX applied the lessons of modular engineering from the software business and launched Falcon 1, its first space launch vehicle in September 2008, which led to a NASA contract for $1.6 billion, and rescued the company from near bankruptcy. In 2013, SpaceX launched its first mission for a private customer, and quickly secured a dominant market share of commercial launch contract market.

Damodaran highlighted that SpaceX had a slow start financially, as its initial years were spent developing the Falcon 1 rocket. Even after that development, the dependence on US government and commercial satellite launchers resulted in revenues growing much more slowly than they did at Tesla, Musk's other high-profile creation.

SpaceX valuation

The valuation expert noted that it is almost impossible to value SpaceX using the traditional methods as there are no publicly available financials, history or even true competitors. “In fact, it is likely that even if the financial statements are made public in a prospectus, most will continue to avoid valuing the company, using uncertainty about the future as an excuse,” he said.

“I have long argued that you can estimate the value of young companies with minimal data, as long as you build a valuation around a business narrative, and accept that this valuation will change, as circumstances do, and with SpaceX, I will get a chance to put this argument into practice,” according to Damodaran.

Taking several metrics into account, Damodaran values SpaceX at $1.22 trillion, about 10% below the private market pricing and about a third below the expected IPO pricing, but still astonishingly high for a company with $15.5 billion in revenues in the most recent year, and a host of question marks about corporate governance. “The SpaceX story not only has many moving parts, but is fraught with uncertainty, and without full financials, it does not have a good starting point. That said, as the story plays out, we will get more clarity, and the story will need to be reworked, with the value consequences unclear,” he added.

'SpaceX will likely be a shape shifting entity, frustrating investors'

Damodaran went on to call SpaceX an “engineering marvel that has shown its naysayers, which included almost every luminary in the space community, to be wrong”. However, he noted that investors should take lessons from Musk’s leadership of Tesla. Similar to all of Musk’s other companies, SpaceX will likely be a “shape shifting entity, frustrating investors who expect companies to follow linear paths in the corporate life cycle, going from young growth to maturity; it will shift from one narrative to another, often with no advance warning, causing whiplash for investors”, Damodaran said.

“I bought Tesla in 2019, after its stock had taken a beating, I described the company as my corporate teenager, and with Musk in full control, SpaceX is likely to follow the same unpredictable path. That makes it a difficult company to buy, but it makes it an even more dangerous company to sell short, as Tesla short sellers have discovered in the last two decades. With all that said, SpaceX is a unique company with immense competitive advantages, and while I would not be interested in buying at the rumored IPO pricing of $1.75 trillion, it is one big correction away from being fairly priced or even cheap. If that happens, I will be a buyer, but will do so with the recognition that this company comes packaged with a founder who is both uniquely gifted and deeply flawed, and complaining about the parts of Musk you do not like, while enjoying the fruits of the aspects that you do, is unfair,” the valuation expert concluded.

Buzz around SpaceX IPO

SpaceX is reportedly targeting a valuation of about $1.75 trillion, which would make it the largest IPO ever, surpassing previous debuts by major tech firms. Financial disclosures reviewed by Reuters indicate that SpaceX generated more than $18.6 billion in revenue last year but recorded a loss of nearly $5 billion. Despite these losses, the growth narrative remains compelling. SpaceX’s Starlink satellite internet business is widely seen as a transformative opportunity, even as the company invests heavily in artificial intelligence ventures and advanced rocket development.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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