The Hidden Risks of Buying Into Mega-IPOs Like SpaceX

**Shiva Pillay** (0:00)
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**SPEAKER_2** (0:06)
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**Miriam Gottfried** (0:17)
Hi, Telis.

**Telis Demos** (0:18)
Hi, Miriam.

**Miriam Gottfried** (0:19)
So this is a really exciting day. It's SpaceX IPO Day when we are recording right now. The shares priced at $135, and they opened at $150. So we got an 11% pop right out of the gate. And as of this recording, they were continuing to surge higher.

**Telis Demos** (0:37)
I would argue that that's exactly what they were probably aiming for. Let's look at the long-term averages for IPOs. If you take IPOs going all the way back to 1980, and this is, of course, thanks to Jay Ritter at the University of Florida's data. He's the benchmark guru of IPO data. The average pop across all IPOs is about 19%.
So, you know, if SpaceX ends up there at the end of the trading day, that would be totally on average across all IPOs. And in fact, it would be better than big IPOs. Big IPOs, companies with larger kind of annual sales when they go public, they tend to have smaller pops, right? The number for companies with over $500 million in inflation adjusted kind of annual sales, the average pop is about 10%.

**Miriam Gottfried** (1:23)
And this is a big IPO. This is the biggest IPO ever.

**Telis Demos** (1:26)
And you would have expected maybe because it floated such a relatively small amount of its stock in the deal, less than 5%, at least in the initial sale, we'll see where it ends up after the banks exercise their green shoe, which look it up, it gets kind of technical, but that could end up issuing more stock.
You might have expected a lower float IPO to have a bigger pop because there was such scarcity. But I would say that maybe that was not the right expectation just because we're obviously talking about such enormous dollar amounts here, right? $75 billion is what they raised in the IPO. Even if there was 2X that demand, I mean, that's just so much money.

**Miriam Gottfried** (2:01)
And 20% from retail investors who are usually the ones who are driving the shares higher after the shares open.

**Telis Demos** (2:08)
Yeah, Miriam, with what you read about these days, you're really close to that.
What do you think? Are retail investors happy with that? Do you think a lot of people, a lot of individual investors walked away saying, hey, I got in the deal?

**Miriam Gottfried** (2:19)
Well, yeah, I talked to a Morgan Stanley advisor earlier today who said that his clients actually got their full request or almost their full request. He was pretty shocked by that, but he also heard about other people within Morgan Stanley who didn't get it. So it was kind of a little bit all over the map. But I think all bets were off. He wasn't really expecting to get that much because he doesn't have a high index, which is this way that you rank advisors in terms of whether they have a long track record of buying IPOs and their clients have a long track record.

**Telis Demos** (2:53)
As we've talked about a lot, you don't just get, you don't just show up and get an IPO. You got to buy all the, as we put it the other day, I think you got to kiss all the frogs before you get the prints of IPOs. You got to buy every deal whether they're hot or not.

**Miriam Gottfried** (3:04)
Yeah. So I think more people were getting more shares allocated than they expected in general.

**Telis Demos** (3:10)
Now that's interesting because that's typically in the past been a bad sign for IPOs, right? Like the, as you might imagine, listeners, if you're cynical, that they don't save the very best IPOs for the very smallest investors, that oftentimes the IPOs that end up with larger retail allocations are ones that maybe had trouble selling it to institutional investors at the price they wanted. And when people are surprised by the amount of stock they got, which is something that did happen back with Facebook's IPO, way back in a previous generation of IPO manias.

**Miriam Gottfried** (3:42)
That's historically been a red flag.

**Telis Demos** (3:43)
Yeah, and Facebook's IPO, now we know the stock later did just fine. But at least in the short term, aftermath of the IPO, it didn't do so hot, because people were just like, oh, I got more than I wanted.