SpaceX Lockup Expiration: Will Insider Selling Sink the Stock?

Space Exploration Technologies (NASDAQ: SPCX) has not only been the biggest IPO in stock market history, but it's also broken a number of the conventional rules about going public.

• Rather than set its listing price through the typical IPO price discovery process, the company made a top-down decision to set a price of $135.
• The company enlisted the help of bankers like JPMorgan Chase CEO Jamie Dimon to help sell the stock.
• It asked S&P Global to make an exception and add it to the S&P 500. After considering the request, S&P Global declined to "fast-track" SpaceX. '
• The Nasdaq 100, on the other hand, did revise its methodology for adding new stocks at SpaceX's request. It shortened the waiting period from three months to just 15 trading days for mega-cap IPOs like SpaceX to be added. That means SpaceX will join the high-profile tech index and the Invesco QQQ Trust by early July.

However, the most impactful of SpaceX's unconventional public offerings is yet to come.

Image source: SpaceX.

What SpaceX is doing with its lockup period

Most newly public companies set a single expiration date for the "lockup period" during which insiders can't sell their shares. Typically, this period lasts 180 days.

The end of the lockup period can put downward pressure on a stock, both because investors expect the stock price to go down and because of the additional shares going on sale, which increases the float and dilutes existing demand.

To avoid this risk, SpaceX is staggering its lockup periods, with several stages of lockup expirations over the year following the IPO. The idea seems to be that having several of them means there won't be a single point at which inside investors flood the market with new shares. It also gives some insiders the ability to sell some of their shares ahead of the typical 180-day deadline.

Following the IPO, there are roughly 13 billion shares outstanding in SpaceX, and the company sold 555,555,555 shares in the offering, raising about $75 billion. The earliest that insiders would be eligible to sell the stock would be after the first earnings report, but the stock would need to close above $175 in the first five of its first ten trading days. So far, it's reached that level four times, but the stock tumbled 17% to $154.60 on Monday, and it may struggle to get above $175 over the rest of the week, meaning it would fulfill that target.

After the first earnings report, there are 15 lockup expirations based on the number of days from the filing date, ranging from 70 days after the IPO date to the second day after the release of its Q2 2027 results, which is likely next August.

The biggest expiration will come on June 14, 2027, when 6.4 billion shares will be eligible for sale, including those held by CEO Elon Musk. Most of the other expirations allow about 328 million shares to be sold, or more than half of the IPO allotment.

What it means for investors

For investors, the staggered lockups should diminish the blow from any single expiration, but they're also likely to extend the negative pressure on the stock over the next year.

Based on its price-to-sales ratio, SpaceX trades at a higher valuation than any S&P 500 stock, yet the company is losing money.

Even without the headwinds from the lock-up expirations, this is a high-risk stock to own, and the post-IPO hype seems to be fading quickly. After the stock surged as much as 67% in its first three trading days, it has since given up most of those gains, falling 16% on Monday.

Keep an eye on the stock movements following its first earnings report. After the reaction to the numbers, we should get a sense of the impact of the lockup expiration.

If SpaceX shares are trading below the IPO price, however, the lockup will be less of a factor. The higher the share price, the more the lockup expirations are likely to push the stock lower.

JPMorgan Chase is an advertising partner of Motley Fool Money. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and S&P Global. The Motley Fool has a disclosure policy.