The $60B technology acquisition marks an aggressive start to SpaceX's post-IPO strategy.
Space Exploration Technologies Corp. – better known as SpaceX – is not allowing the money from the largest public donation in history to stay at the launch, and it raises the curiosity of the street in its money management strategy.
A day after its IPO trade settled, the company, which added about $75 billion to its estimated $15.85 billion pre-IPO capitalization, announced plans to acquire AI coding company Cursor in a $60 billion deal expected to close in the third quarter, according to a US Securities and Exchange Commission filing.
SpaceX initially announced it had acquired the right to buy Cursor in April but folded because of its upcoming IPO, Bloomberg News reported.
The company did not respond to a request for comment.
The launch of the rocket, communications, artificial intelligence (AI), and social media company's IPO put it in the top 10 US listed companies by market capitalization, estimated at $2.1 trillion. It also placed it in fifth place among US companies with the largest cash positions. 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.
Fund Management and IPO Benefits
The company has not specified whether it plans to use the new capital to fund growth, reduce risk, pay down debt, or preserve option value. With a market cap of $2.1 trillion and a near-certainty to be included in marquee stock indexes, does it really matter?
“What SpaceX is doing with money and its capital structure are compounding errors in its valuation,” Aswath Damodaran, of New York University's Stern School of Business, told Global Finance.
However, the treasury still has an important role to play, says John Graham, professor of finance at Duke University's Fuqua School of Business.
“There are examples of companies that have grown quickly,” he said. “They were on the right track with their strategy, but they didn't manage their money properly and they went bankrupt.”
Graham noted that he was not aware of SpaceX's dividend plans, but generally sees two common uses for IPO proceeds, depending on the maturity of the company.
Startups often use their new capital to drive profits while keeping the lights on. Profitable companies often use their windfalls to allow founders, early investors, and employees to cash out slowly.
“Both of these may be happening in this case, to a large extent,” he said.
Not Fish or Birds
Investors can view SpaceX as a mix of mature and early-stage business lines. The company's satellite-based Internet communications unit Starlink was the only profitable unit with revenue of $11.39 billion, according to its report.
Whether that, combined with the IPO proceeds, is enough to fund its AI and other businesses remains to be seen, and raises a broader question about how SpaceX and the 'Elon Premium' will test the market mind.
“As things stand today, investors are actually buying a company whose main business is launching satellites, which remains its main source of income,” said Ismael García Puente, Deputy Director of Investment Strategy at Spanish investment manager Mapfre AM. “Its technology and AI-related businesses are still operating at a loss. We need to see how these segments evolve before we can assess their long-term profitability.”
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