How SpaceX’s IPO frenzy compares with previous FOMO investments and how they turned out

We do not know how SpaceX will fare the rest of this year, but we do know it is expensive, even before any IPO pop after listing. Photo by Adam Gray/Bloomberg

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Having been in the investment business now for 41 years and having bought my first stock 52 years ago (Mitel Corp.), I feel safe in saying I have seen a few things in my time.

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But I am not sure if I have ever seen the level of “fear of missing out” (FOMO) that has surrounded the recent initial public offering (IPO) of Space Exploration Technologies Corp. (SpaceX). At 5i Research, we received hundreds of questions on whether investors should buy shares, and what they should sell to fund a purchase. We will discuss SpaceX and the FOMO surrounding it and we also thought we would take a look at some other instances where investors went gaga, and how things turned out for them. Let’s start with SpaceX.

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SpaceX

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Brokers have reported that the demand from institutional investors was for “several times” the available shares in the IPO. Experts have called it a once-in-a-generation listing with intense retail demand and FOMO. The Elon Musk brand, the “coolness” of a space company, the sheer size of the deal and the historical performance of his electric vehicle company Tesla Inc. (up 2,878 per cent in the past decade, according to Bloomberg) have all contributed to the excitement surrounding the listing. Stock market indexes are considering changing their listing rules so SpaceX could go into them without the usual waiting period. Fund managers have predicted up to a US$14 trillion projected market opportunity for the company. How will this all work out? Well, at time of publication the stock will have barely started trading. FOMO typically results in high valuations and although SpaceX is not profitable now so a price-to-earnings ratio can’t be calculated, it has a price-to-sales ratio of about 100 times. We do not know how SpaceX will fare the rest of this year, but we do know it is expensive, even before any IPO pop after listing.

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Dot-com bubble

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In 1998 to 2000, investors flocked to any technology or internet company, fearing they would miss out on the new era of online commerce. Companies added a simple “.com” to their corporate name and saw their valuations sometimes double overnight. Investors bid up any company that had anything to do with the internet. The Nasdaq Composite index rose about 21 per cent in 1997, 40 per cent in 1998 and 86 per cent in 1999. How did this FOMO turn out? Well, the Nasdaq fell 78 per cent in the next three years. Most dot-coms went bankrupt, or were acquired at fractions of their former valuations. A few, such as Amazon.com Inc. and Microsoft Corp., survived and prospered. But the Nasdaq market did not regain its former peak until 2015.

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Gamestop Corp.

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Gamestop shares soared more than 2,000 per cent in early 2021 as users in social media platform Redditt’s high-risk trading forum, WallStreetBets, executed a near-perfect short squeeze on the stock. Interested investors can watch the movie Dumb Money for more details. Millionaires were made overnight (on paper only for some), some funds that were shorting the stock actually shut down and FOMO was high as the stock went to about US$87 briefly from a low of 70 cents U.S. the prior year (prices adjusted for stock splits). The aftermath? Following the short squeeze, Gamestop stock collapsed about 90 per cent in the following weeks and FOMO investors suffered large losses. The stock is down about 60 per cent over the past five years.