The $60B technology acquisition marks the beginning of SpaceX’s aggressive post-IPO capital strategy.
Space Exploration Technologies Corp. — commonly known as SpaceX — isn’t letting the proceeds from the largest initial public offering in history sit on the launchpad, raising the Street’s curiosity over its cash management strategy.
The day after the settlement of its IPO trades, the company, which added about $75 billion to its roughly $15.85 billion pre-IPO cash position, announced plans to acquire AI coding company Cursor in a $60 billion all-stock deal that is expected to close in the third quarter, according to a filing with the U.S. Securities and Exchange Commission.
SpaceX first announced it had secured the rights to buy Cursor in April, but put it on hold due to the upcoming IPO, Bloomberg News reported.
The company did not respond to a request for comment.
The rocket-launched, connectivity, artificial intelligence (AI), and social media company’s IPO placed it among the top 10 US-listed companies by market capitalization, valued at approximately $2.1 trillion. This placed it fifth among US companies with the largest cash position. It trails only Berkshire Hathaway Inc. ($397.38 billion), Amazon.com Inc. ($145.97 billion), Alphabet Inc. ($126.84 billion) and Interactive Brokers Group Inc. ($100.39 billion), according to TradingView data.
Cash Management and IPO Proceeds
The company did not elaborate on whether it plans to use the newfound capital to fund growth, reduce risk, repay debt or preserve option value. With a $2.1 trillion market cap and almost guaranteed inclusion in marquee stock indices, does it really matter?
“What SpaceX does with cash and its capital structure is create errors in its valuation,” Ashwath Damodaran of New York University’s Stern School of Business told Global Finance.
However, the Treasury still has an important role to play, said John Graham, a finance professor at Duke University’s Fuqua School of Business.
“There are examples of companies that grew very quickly,” he said. “They were on a positive path with their strategies, but they did not manage their cash properly and went bankrupt.”
Graham said he was not aware of SpaceX’s capital allocation plans, but generally said there are two specific uses of IPO proceeds depending on the company’s maturity.
Startups often use their new cash to fuel their drive for profitability while keeping the lights on. Profitable companies use their windfall profits to funnel a little money to founders, early investors, and employees.
“In this case both of those things are probably happening on a large scale,” he said.
neither fish nor chicken
Investors may view SpaceX as having a mix of mature and startup business lines. According to the prospectus, the company’s Starlink satellite-based internet connectivity unit is currently the only unit making a profit on revenues of about $11.39 billion.
Whether this, combined with its IPO proceeds, is enough to subsidize its AI and other businesses remains to be seen, and it raises a broader question about how SpaceX and the ‘Elon Premium’ will test the market logic.
“In today’s situation, investors are essentially buying a company whose core business is launching satellites, which remains its largest source of revenue,” said Ismael García Puente, deputy director of investment strategy at Spanish investment manager Mapfre AM. “Its technology and AI-related businesses are still loss-making. We need to see how these segments develop before assessing their long-term profitability.”
Contact the author: rdaly@gfmag.com