More than 900 million SpaceX shares are scheduled to unlock Thursday, resulting in a more than twofold increase in the publicly available stock of Elon Musk’s space and AI enterprise, which has faced challenges since its record-setting IPO just weeks prior. The scheduled lockup expiry will allow certain employees and early investors who acquired shares pre-IPO to divest, potentially exerting downward pressure on the share price from its current all-time low. The stock sank almost 14% Wednesday – its second worst day on record – and closed at $108.27 a share. The company’s Tuesday earnings report revealed larger-than-expected capital expenditures on artificial intelligence, while investors also prepared for the lockup expiry. “You have a few different things triggering volatile action in the name, all happening at the same time,” Ryan Lee told. SpaceX on June 12 executed the largest IPO in history, yet it entered the public market with fewer than 5% of its total shares accessible for trading. Thursday’s scheduled unlocking of up to 911.5 million shares will significantly increase the available number, more than doubling it. It marks the initial event in a succession of lockup expirations anticipated over the forthcoming year.
Increased availability of shares positions SpaceX for a greater representation in stock indices such as the Nasdaq 100, which it became a part of earlier this summer. The larger a company’s weighting, the greater its influence on the performance of the index. The Nasdaq 100 assigns weights to stocks according to their market capitalisation and the volume of shares that are publicly tradable. The index undergoes a rebalancing process every three months, with the next adjustment scheduled for September, reflecting the latest levels of publicly available SpaceX shares. Following the IPO, the limited availability of shares, combined with heightened demand from retail investors, propelled the stock to new heights. However, the stock has since experienced a significant decline, falling approximately 50% from its peak on June 16 and down 20% from the initial public offering target price of $135 per share. Employees who have held shares for some time may have acquired them when the price was significantly lower than its present trading range.
According to Lee at Direxion, those holders may be experiencing substantial gains in light of recent volatility, which could motivate them to consider selling at this juncture. “With these employee share unlocks, you’re going to have natural sellers entering the market,” Lee told. “These are people who’ve (held the stock) far before it was printing at $135 on the IPO.” Employees and early investors with unlocked shares may opt to retain their stocks. When a company goes public, it frequently refrains from releasing the entirety of its shares for public trading simultaneously. Some shares are held by executives, while others are owned by funds and individual investors who gained access during the company’s private phase. Pre-IPO shares may be subject to lockup periods. Typically, a company will implement a 180-day lockup period before pre-IPO shares are permitted to trade. SpaceX, however, is adopting a relatively unconventional approach. SpaceX has implemented a staggered, tiered schedule for the release of its shares for public trading. SpaceX possesses 7.571 billion Class A shares, predominantly owned by employees and investors, alongside nearly 6 billion Class B shares, primarily held by Musk and executives.
Following the lockup expiry on Thursday, a succession of additional unlocks this year may introduce over 5 billion of those Class A shares into the market. In 2027, the extended lockup periods for company executives are set to commence their expiration. Musk’s shares, representing over 40% of the company’s value, are restricted until one year following the IPO. In the Nasdaq 100, SpaceX presently holds a weighting of approximately 1%. At its current stock price, with 911.5 million shares unlocking Thursday, SpaceX’s influence in the Nasdaq 100 may exceed 3.5% following the index’s rebalancing in September, as per TD Securities. However, it all hinges on the performance of the equity. “An influx of new shares can weigh on any stock in the short term, but that doesn’t change the underlying picture,” Justus Parmar said. “What matters most is the strength of the business and Musk’s ability to keep executing on the long-term vision.”