All eyes have been on Space Exploration Technologies (SPCX -4.15%) over the past few months -- from the moment the company announced that it would go public at a trillion-dollar valuation to the stock's early and most recent trading. It's been a rollercoaster ride. SpaceX jumped more than 60% from its offer price of $135 to a high on June 16, then in recent days stumbled, even falling well below $135.
Investors have been enthusiastic about SpaceX's big goals and progress to get there, but at the same time, they've worried about the company's capital expenditures, which last year exceeded revenue and drove SpaceX to a net loss. We'll get a close look at the latest here when SpaceX reports earnings on Aug. 4. But Aug. 6 actually may be an even bigger day for the stock. In fact, my prediction is that it may be a decisive day for SpaceX. Let's find out why.
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SpaceX's growth businesses
So, first, let's take a closer look at SpaceX to understand why the general investment community has been so interested in this particular stock. SpaceX operates in three growth areas that are particularly exciting: rocket launches, satellite-based internet services, and artificial intelligence (AI). These businesses each have the potential to change the way many things are done -- and generate tremendous growth for SpaceX and its shareholders.
SpaceX aims to drastically cut the costs of rocket launches and use its reusable rockets to further its businesses -- for example, these SpaceX rockets may transport equipment the AI unit needs to establish data centers in space (that's one of SpaceX's goals). All of this results in great efficiency for the company. SpaceX also has seen its internet service grow in leaps and bounds, with subscribers climbing from 2.3 million three years ago to more than 10 million this year.
But, as I mentioned earlier, to support the technology needed for these high-growth businesses, SpaceX must invest heavily. And so far, that's weighed on earnings. Investors are eagerly awaiting the Aug. 4 earnings report to monitor the spending situation and the pace of revenue growth. The report could trigger movement in the stock, of course, depending on whether investors are pleased or disappointed with SpaceX's progress.
NASDAQ: SPCX
Key Data Points
Early SpaceX investors
My prediction, though, is that Aug. 6 actually will be the decisive day for the company, and here's why. It may offer us a clue about early SpaceX investors' thoughts. This is because, as of this day, the second full trading day after the company's earnings report, early SpaceX shareholders may sell as much as 20% of their holdings. This is as the first lockup date expires.
Why do IPO companies set up lockup periods? They're meant to favor stability. Even if an early investor truly believes in a company, that investor still might be tempted to sell a few shares on IPO day to lock in a profit. If every early investor did so, that could create downward pressure on the stock. So companies establish dates that allow these longtime investors to sell farther down the road.
In this case, SpaceX used a tiered approach, with several expiration dates. The first, as mentioned, happens on Aug. 6.
A warning sign?
Does this mean that a flurry of selling on Aug. 6 should serve as a warning sign for investors? Not necessarily. Some investors, those who have backed SpaceX for quite some time, may decide to sell a few shares to benefit from their gains so far. They may be interested in reallocating the funds into a new growth opportunity, for example, or further diversifying their portfolios. So the movement isn't necessarily bad news for SpaceX.
Still, it's important to monitor the direction of the stock on Aug. 6 and the days to follow. A significant level of downward pressure could suggest that shareholders -- early as well as new -- are focusing more on SpaceX's risks and that may hurt the stock's performance in the weeks to come. That said, if the stock doesn't fall much around this lockup expiry, we may see this as a sign of confidence among early investors, as it shows they aim to hold onto every SpaceX share.
In any case, my prediction is that Aug. 6 will be decisive for SpaceX, setting the tone for the stock in the weeks to follow.
