The mystery of SpaceX shares

Posted in Financials, Operators, SpaceX at 4:31 pm by timfarrar

There’s been a lot of breathless commentary over the last year about SpaceX’s ever-increasing valuation, which reportedly nearly tripled between spring 2020 and October 2021, with the share price rising from $220 to $560 and the valuation increasing from $36B to $100B.

However, there is a distinct inconsistency between what SpaceX has been telling the FCC about Elon Musk’s stake in the company and the amount of dilution implied by sales of new shares at these prices. Specifically, SpaceX told the FCC in November 2016 that Musk owned 54% of the company, which declined to 50.5% in November 2018, 47.4% in April 2020 and finally 43.61% in August 2021.

Over this period, SpaceX reported selling a total of $5.31B in equity, based on its Form D submissions to the SEC. Using the public reports on the share price for the transactions through April 2021 (before last week’s equity raise of $345M), I calculate that this represents approximately 22.4M shares, which increased the share count from a little over 154M shares to just under 177M shares.

However, if the valuations and share prices quoted to financial reporters are accurate, Musk’s stated ownership percentage over the same period would have equated to 83.4M shares in November 2016, 80.3M shares in November 2018, 78.9M shares in April 2020 and 77.2M shares in August 2021. Did Musk really dispose of his SpaceX shares on a regular basis over this period? That seems unlikely, especially given that he had minimal taxable income in 2017 and 2018.

Or is SpaceX reporting a fully diluted share count to the FCC, including options or restricted shares granted to employees, but not mentioning those to the financial press and investing public? If Musk didn’t sell any of the 83.4M shares corresponding to his 54% stake in November 2016, then in order to dilute his stake to 43.61% over the following four and a half years, the company would have needed to issue an extra 14M shares, over and above those sold and reported via Form D to the SEC.

If that’s the case, then SpaceX would appear to have granted shares or options worth up to $8B at the current $560 share price to employees (although the exercise price for any options would presumably be somewhere between 20% and 40% of this amount and it is possible some of these shares might have been used to acquire technology or incentivize suppliers). Are SpaceX investors aware that the shares they bought might be diluted by about 7%? Does this mean that senior SpaceX executives are now extremely rich and some are perhaps even paper billionaires? That certainly could help to explain a number of recent retirements.

In addition, the most recent (October 2021) reported valuation of $100.3B at a $560 share price appears to reflect an increase of around 2.1M shares since spring 2021. How much of that amount (worth $1.2B at this valuation) represents the shares used to acquire Swarm in August 2021? Although part of this increase might represent conversion of some of the options noted above (since SpaceX was selling 1.35M existing shares), it seems very plausible that a significant proportion of these shares went to Swarm’s owners, which would represent a very high valuation (many hundreds of millions of dollars) for a company that had barely begun to offer commercial services.

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