The SpaceX IPO Could Make Thousands of Employees Millionaires -- but Should Retail Investors Buy In?

The initial public offering (IPO) of Elon Musk's SpaceX (NASDAQ: SPCX) may be the most widely followed in history. To some degree, it makes sense, given its leadership in satellite launches, government-led space initiatives, Starlink's satellite internet constellation, and xAI's compute power.

The hype over the SpaceX IPO is only matched by the expected valuation. At an estimated $1.8 trillion market cap, the company, at the time of its IPO, would be worth 20% more than Meta Platforms (NASDAQ: META), 14 years after that company went public as Facebook. While that enormous valuation will likely make thousands of SpaceX employees who own stock options millionaires, retail investors need to decide whether to try to get in on the IPO or buy shares on the open market.

The Facebook IPO and its subsequent life as a public company are a good case study for investors considering buying SpaceX stock at the IPO price or later.

Image source: The Motley Fool.

A focus on small investors

The SpaceX IPO isn't just unique because of its record size. SpaceX founder and CEO Elon Musk reportedly wants up to 30% of the 555.5 million shares offered in the IPO allocated to retail investors. Also, according to Bloomberg, over 1,000 current and former SpaceX employees have come together to negotiate improved pricing and access to advanced tax-saving financial products in anticipation of the IPO, which is expected to transform many of them into multimillionaires.

Those reports likely stoke demand, prompting many retail investors to worry about missing out on SpaceX shares. But even if one sees tons of potential for the company, the question is whether retail investors should want to get in at the start at the estimated $135 share price.

A look at the progression of the former Facebook stock after its IPO provides a telling story.

Remembering Facebook

Facebook went public at $38 a share, giving it an initial valuation of about $104 billion. The company's revenue was $5.1 billion in 2012, the year it went public. That was a 37% increase over 2011. SpaceX generated $18.7 billion in revenue last year, up about 33% from 2024.

So the companies were growing sales at approximately the same rate at the time of their respective IPOs. Yet Facebook launched at a price-to-sales (P/S) ratio of about 20, while SpaceX is looking to begin trading with a P/S of about 95.

And small investors didn't miss out if they didn't get in on the Facebook IPO. Shares dropped by more than 50% to below $18 per share in the months following the start of trading, ending 2012 at $26.

Of course, even Facebook (now Meta) investors who bought at the $38 IPO price have done very well over the long term if they held onto the stock. Shares have risen by more than 1,400% over the 14 years since the IPO.

But those who waited could have done much, much better with less risk built in. That's how I believe SpaceX shares will go, and I'm willing to wait for the excitement to settle before making SpaceX a long-term position in my portfolio.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.