On June 12, Elon Musk's Space Exploration Technologies (SpaceX) (NASDAQ:SPCX) burst onto the scene with the largest initial public offering (IPO) in Wall Street's storied history. SpaceX priced its shares at $135, giving the company an initial valuation of $1.77 trillion, and raised a record $85.7 billion from its IPO, including the underwriters' overallotment.
Nearly three months later, SpaceX is set to make history yet again -- albeit the dubious kind.
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When private companies go public, they announce a lockup period that prevents their insiders, consisting of high-ranking executives, board members, and early investors, from selling shares shortly after the IPO and capitalizing on IPO/retail investor buzz. Commonly, insiders are prohibited from selling their shares for the first 180 calendar days after the IPO.
Space Exploration Technologies avoided convention throughout the IPO process, including its announced share unlock schedule. Although CEO Musk can't sell any shares until 366 calendar days after SpaceX's debut, early release-eligible insider shares are available for sale much earlier than the traditional 180 calendar days.
SpaceX's lengthy prospectus outlined a staggered and accelerated share unlock schedule that began two trading days after the company's first quarterly report as a public company on Aug. 4. As of Aug. 6, approximately 911.5 million insider shares were available for sale.
The company's prospectus also outlines several time-based milestones that allow early release-eligible insiders to cash out. These milestones occur on calendar days 70, 90, 105, 120, 135, and 180 after the IPO, respectively.
Today, Sept. 9, marks the 90-calendar-day milestone. Approximately 7% of early release-eligible insider shares (roughly 319 million shares) are eligible for sale today, representing up to $47.2 billion in potential insider selling pressure, based on SpaceX's closing share price of nearly $148 on Sept. 4.
Although the prospect of insider selling is something all newly public companies eventually deal with, Space Exploration Technologies' situation is also unique with regard to its initial float (i.e., tradable shares).
When SpaceX priced its IPO, the company only sold roughly 555.6 million shares. While this might sound like a large number, it represents less than 5% of SpaceX's outstanding shares. Most private companies going public will sell between 10% and 25% of their outstanding shares.
Purposely keeping the number of tradable shares historically low provided an artificial boost to SpaceX's share price in the early going. Fast-track entry into the Nasdaq-100, Russell 1000, and Russell 3000 meant a significant chunk of these shares were gobbled up by passive funds.
But with each successive share unlock event, SpaceX's float can quickly expand and let the proverbial air out of the company's sails.
These early release-eligible unlock events are also occurring amid steep losses for Musk's company. Although SpaceX has landed a handful of lucrative, multiyear artificial intelligence (AI) data center compute contracts since May, the company's AI and space infrastructure segments are burning through a lot of cash.
In other words, the puzzle pieces remain in place for SpaceX's insiders to effectively fleece retail investors.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Wake Up, SpaceX Shareholders: Up to $47 Billion in Insider Selling Pressure Is Set to Hit the Tape Today, Sept. 9 was originally published by The Motley Fool