For the past few years, we’ve seen a lot of buzz over the prospects for a public stock offering of SpaceX, a spacefaring venture that makes and launches the Dragon spacecraft and Falcon launch vehicles to transport cargo and deliver satellites for clients including NASA, the US Military and private sector companies.
However, perhaps the reason most people want to see a SpaceX IPO is because it’s one of the many brainchildren of Tesla (TSLA) CEO Elon Musk, who has consistently made huge returns for stock investors since the late 1990s.
The Power of Musk
A bit of background: Early in his career, Elon Musk built Zip2, one of the first Internet-based city guides, which he later sold for roughly $340 million in cash and options to Compaq. He then launched X.com and merged it with PayPal, which then became the top player in online payments space and was sold to eBay (EBAY) for $1.5 billion.
With a net worth near $200 million, Musk was in a position to fund even grander ideas. One was SolarCity (SCTY), focused on revolutionizing the solar installation market.
And of course, Elon Musk is perhaps most famous for creating Tesla Motors, which was the first successful auto startup in 90 years, has revolutionized the electric-vehicle market and that currently sits at a market value of roughly $30 billion.
Is it any wonder that Wall Street is salivating for a SpaceX IPO?
SpaceX – To Infinity … But What About the Public Markets?
On one hand, this is a seemingly outlandish goal that normally would serve as a red flag for any SpaceX IPO. But Elon Musk thrives on proving people wrong, and has done so in the past via his companies.
SpaceX itself actually is a pretty solid business. One of Musk’s tasks has been to find ways to significantly reduce space travel costs, and one way he has accomplished this is by creating a vertically integrated manufacturing system, which means less reliance on high-cost vendors and contractors. SpaceX not only develops its rocket engines, but also the thrusters, rocket stages, avionics systems and software.
Another key savings has come via reusable vehicles, which goes against the grain of the U.S. space program. But, Musk retorts, “Imagine if you built a new 747 for every flight.”
There are also lots of potential money-making opportunities, which could easily support a SpaceX IPO. Consider that NASA needs to rely on foreign countries or private operators for its own needs, such as the supplying of the International Space Station (SpaceX currently has a $1.6 billion contract out with NASA to service ISS). But SpaceX could also make tidy sums from handling flights for satellites or even civilian tour trips into space.
Despite the very real prospects, investors would be taking a substantial risk buying into a SpaceX IPO, should it ever see the light of day.
Space travel is extremely dangerous — the company’s first three launches failed, and because the company wants to pull off manned flights, the stakes will be even higher. (You’d be amazed how quickly bears will pounce if your primary product explodes and kills a couple pilots.)
Musk himself has said he’s not in a rush to execute a SpaceX IPO — in fact, not until the Mars Colonial Transporter is up and running. And there’s no need, either — Musk has access to huge amounts of capital.
But make no mistake — if SpaceX does go public, Musk probably won’t be hurting for investors.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.