Last month, one of the most anticipated financial events of the decade unfolded: the long-awaited SpaceX IPO. Driven by massive demand, the stock rapidly vaulted past a $2 trillion valuation before pulling back.
While watching a high-profile stock skyrocket and then drop can be unnerving, historical data shows that this volatile behavior is entirely normal.
Going Public is No Guarantee of Success
Enthusiasm for the IPO was amplified because SpaceX made an unusually high percentage of its shares available to retail investors, allowing individuals to buy at the IPO price before trading on the exchange began - an opportunity typically reserved for large institutions.
When a prominent company goes public, early performance is often driven by short-term sentiment rather than company fundamentals. Data from First Trust shows that over the past 20 years, the top 10 U.S. IPOs averaged a 1-year gain of over 120%, while the bottom 10 averaged a 1-year loss of 78%. This massive disparity demonstrates that IPO investors face the exact same selection challenges as investors in established stocks.
Furthermore, historical data reveals that the median IPO not only underperformed the broader market after its first year of trading, but actually produced negative returns for investors across its first five years as a public company.
Large IPOs Are No Different
SpaceX garnered immense attention because of its staggering valuation. While it may seem that mega-cap companies should be insulated from severe swings, historical data says otherwise.
When looking at the ten largest U.S. IPOs by market cap since 2006 (which includes giants like Meta, Airbnb, Visa, Uber, and General Motors), the first year on the public market is historically a very bumpy ride. Eight of the ten largest IPOs posted negative returns 12 months after going public, yielding a bleak median return of -26.2%. Additionally, half of these ultra-large companies experienced a maximum drawdown of at least -53% during their first year.
The Supply Factor
A primary catalyst for SpaceX's initial volatility is its restricted "float" - the number of shares available for public trading. At listing, only about 4% of shares were available. This tiny supply put upward pressure on the stock price as investors chased a limited number of shares.
However, investors should expect continued volatility as a structured "lock-up" schedule releases waves of new shares over the next 180 days. This rolling influx of supply - triggered by upcoming quarterly earnings reports and specific post-IPO day milestones - will naturally test the market's depth as early investors gradually gain the freedom to sell.
The Bottom Line
While the data shows that IPOs are highly volatile, it doesn't mean these companies are bad investments. It simply means that evaluating them requires the same discipline as any other asset: understanding what you own, what you are paying for, and having the patience to sit through inevitable rough patches. True wealth creation happens over years, not weeks.
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The material has been gathered from sources believed to be reliable, however Bedel Financial Consulting, Inc. cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through Bedel Financial Consulting, Inc. Advisory services are only offered where Bedel Financial Consulting, Inc. and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place.
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