- SpaceX has a small free float or portion of shares available for trading.
- This could lead to more price volatility once the stock makes its market debut.
- SpaceX will start trading on Nasdaq on June 12
Elon Musk's rocket company SpaceX is set for its initial public offering (IPO) later this week. Ahead of the SpaceX public issue, expectations are sky-high for the company's debut on the stock market.
Seen as the biggest IPO ever, SpaceX will start trading on Nasdaq on June 12. The rocket maker is expected to raise $75 billion, with shares expected to be priced at $135 apiece.
However, concerns still remain about the public issue. One detail that caught attention? SpaceX's small “free float” or the portion of shares available for trading.
There are some questions whether early trade could see intense volatility since SpaceX has a relatively lower number of shares on the market, Business Insider reported.
Most firms that trade on major indexes have almost 80% of their shares available for sale, as per Nasdaq.
SpaceX's free float is much lower, at roughly 4% or 5%. The majority of shares will remain with executive insiders, employees and early investors.
Recent public issues before the rocket maker have also trended a smaller segment of their shares. Almost one-third of companies that went public last year had a free float of less than 30%.
Usually, a stock with a higher float offers more liquidity, leading to increased pricing stability. Lower floats can face more volatile moves. As fewer shares are available for trading, even moderate buying or selling can lead to large price movements.
This can prevent long-term investors like pension funds and mutual funds.
As for SpaceX, the firm has made efforts to encourage participation by retail investors. It allocated a larger-than-normal section of shares to retail, leading brokerage Fidelity to lower its IPO eligibility requirements.
Another factor for investors to consider is index inclusion. The Nasdaq 100 changed its minimum float requirements and incorporated a fast entry rule for mega cap companies to join the index sooner. This makes SpaceX eligible to join the index after only 15 trading days.
This will increase SpaceX's exposure to popular exchange-traded funds that mirror the index. When price-insensitive ETFs buy shares, it leaves even less stock available to trade, increasing volatility.
Investors are also looking into SpaceX's plans for orbital AI data centres, which are a key element of the rocket maker's long-term growth narrative, Reuters reported.
SpaceX chief Elon Musk said on Monday that building orbital AI data centres was not a difficult project. The billionaire claimed that much of the technology required for the initiative already existed in its current Starlink satellite network.
