Retail investors will get access to SpaceX's IPO—here's what to know before buying
Retail investors can expect access to this summer's most anticipated initial public offering — and possibly the largest ever. But you may not be able
Retail investors can expect access to this summer's most anticipated initial public offering — and possibly the largest ever. But you may not be able to buy all the shares you want, experts say, and it's not a smart move for all investors. Elon Musk's rocket and satellite company SpaceX said that a portion of its shares in its offering would be sold directly through online brokerages, including Robinhood, Fidelity and Charles Schwab, according to a prospectus released Wednesday by the Securities and Exchange Commission. The firm is reportedly looking to raise up to $75 billion in a June offering, which would make it by far the largest U.S. debut of all time, a title currently held by Alibaba's $22 billion offering in 2014. In general, investors have reason to be enthusiastic about getting in on the proverbial ground floor of a newly public company. From 1980 through 2025, stocks have popped by an average of 19% from their offering price on the first day of trading, according to data from Jay Ritter, director of the IPO initiative at the University of Florida.
Offering-priced shares aren't typically available to retail investors, though, Ritter says, particularly for "hot" IPOs where he estimates 95% of shares go to institutional investors, such as major Wall Street banks. Across all IPOs, Fidelity pegs the split between institutional and retail investors at 90/10. The filing this week indicates SpaceX may be planning to buck this trend. The company may make as much as 30% of shares available to retail investors, according to a March report from Reuters. Under certain circumstances, experts say, there is short-term money to be made investing at the very beginning of an IPO. But because of the potential for volatility, longer-term investors should tread carefully, and may want to take a more cautious tack. "We've always taken a wait-and-see approach to that market," Josef Schuster, founder of IPOX Schuster, an investment and research firm focused on IPOs, told CNBC Make It in April.
If you want to get in on SpaceX, or any IPO, you'd be wise to do some homework on how these stocks tend to behave, Schuster and other experts say. Here's what they say you need to know. How retail investors get access to IPOs If SpaceX ends up bringing more retail investors into the fold than usual, it might be for a couple of reasons, Ritter says. For one thing, he says, SpaceX's sister company Tesla has a large share of its outstanding shares held by retail investors, and Musk may want to repeat that model with SpaceX. For another, "an investor in a stock is more likely to purchase the company's products, in this case subscribing to Starlink or using X," Ritter says. "Thus, a large retail allocation can improve the company's cash flows as a result of more users of the products." If you want to purchase offering-priced shares through your online brokerage, you'll likely have to put in a request to buy shares, Ritter says.
And given the buzz surrounding SpaceX, expect some competition, he adds. "A client of Schwab or Fidelity who asks for 500 shares... will [likely] receive fewer shares than requested," he says. If you're unable to get shares at the offering price, you'll have to buy them once they're publicly available. And once shares hit the market, there's no telling how any given IPO stock will behave, Ritter says: "On average, the open-to-close return is about zero." What to consider before investing in an IPO stock
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