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SpaceX trying to get into indexes sooner than usual
Advisers for the company, which recently merged with xAI, have reached out to major index providers, including Nasdaq, to discuss how SpaceX and this year’s other hot startups might join key indexes sooner than normal, according to people familiar with the matter.
Companies typically must wait several months or a year after their public debut before gaining inclusion in a major index such as the S&P 500 or the Nasdaq 100. Inclusion unlocks access to retail and institutional capital from funds, particularly those mimicking the performance of indexes that have to hold the companies in the index.
The traditional waiting period is intended to give the companies time to demonstrate that they are stable and liquid enough to handle extensive buying from index funds.
SpaceX hopes to skirt traditional rules in an effort to bring liquidity to its shareholders sooner as part of its planned IPO. SpaceX advisers have sought index policy changes that would fast-track its entry into major indexes for the company and benefit other highly-valued private companies, the people said.
Since musk seems to be giving up on tesla this strikes me as simply musk manipulation to save his failing enterprise. He can't say we didn't warn him. Follow procedures you whiny baby.
Only SP500 has a firm "4-quarters of profitability" rule for initial joining. For other indexes, rules are fuzzy and malleable. Elon MUSK probably remembers how long it took Tesla/TSLA to join SP500.
Only SP500 has a firm "4-quarters of profitability" rule for initial joining. For other indexes, rules are fuzzy and malleable. Elon MUSK probably remembers how long it took Tesla/TSLA to join SP500.
The cynic in me thinks that he probably figures that with a trillion-dollar-plus valuation, suddenly his company becomes even more 'important' because if their share price drops, so goes the index they're in, and everyone gets hurt since if they're in an index, there's a built-in put on their price since the stock must be owned.
But seriously, I think it's a bad idea. Prove yourself as a public company before being added to market-moving indices.
Is Elon Musk Giving Index Funds FOMO - Spencer Jakab, WSJ
"Membership Has Its Privileges
Buying and holding index funds is one of the smartest things investors can do, but it’s hard. It’s even harder if they fear they’re missing out.
Owning pieces of America’s largest companies via an S&P 500 fund isn’t exactly the same thing as owning “the market” because some rising stars haven’t qualified for membership yet. When it looks like they’re about to join, those shares can get a turbo boost right before index funds are forced to buy. Those rallies often cool after inclusion.
It’s a small, invisible drag on returns most of the time because those rising stars usually aren’t huge weights in the index. Occasionally one is by the time it qualifies.
With Elon Musk’s SpaceX preparing for the biggest initial public offering in history, The Wall Street Journal reported this week that its advisers are pushing to fast-track the index-inclusion process. The popular Nasdaq-100 Index might be amenable. The big prize would be using index-provider FOMO to get the S&P 500 to tweak its rules.
The index companies wouldn’t be doing passive investors a favor, but they could be doing Musk and other insiders one. Inclusion would make it easier to sell the IPO and insider shares to the public at a potentially robust price.
Musk’s existing big public company, Tesla, is a classic example of forgone gains. It had a market capitalization of about $2 billion at the time of its 2010 IPO, yet failed to qualify for the S&P 500 until 2020 when it could show enough profits.
Tesla was the largest-ever addition to the index at the time, at about $600 billion. But investors had anticipated the wave of buying that would result and bid the stock up 250% in the six months before its S&P 500 inclusion. Then the shares fell 10% during their first six months as one of the top weights in the world’s most widely owned index funds.
A similar pattern has repeated for other hot companies. Google (now Alphabet) returned seven times as much in the six months prior to inclusion as during the following six. Netflix’s return was double.
Recent additions Robinhood and AppLovin rallied 182% and 105% before joining the S&P 500 in September, respectively. Each is down by 42% since then.
Why push to fast-track the process for SpaceX? Because membership has its privileges when you need to sell huge quantities of stock.
It could spare index-fund investors the frustration of watching SpaceX rally before they own it, but that won’t make it any cheaper once they do.
And, with the typical insider seller being restricted from selling stock for a number of months, the end of their “lockup period” might coincide with the shares already being owned by index funds. Eager sellers and forced buyers who don’t even read the company’s financial statements are a bad combination.
SpaceX could boldly go where no stock has gone before. Getting there at warp speed isn’t really necessary."
SpaceX will be excluded from the S&P 500 until it meets the Index Committee's profitability criteria. SpaceX must report positive earnings in the most recent quarter and the sum of its earnings in the prior four quarters must be positive.
Comments
Elon MUSK probably remembers how long it took Tesla/TSLA to join SP500.
But seriously, I think it's a bad idea. Prove yourself as a public company before being added to market-moving indices.
"Membership Has Its Privileges
Buying and holding index funds is one of the smartest things investors can do, but it’s hard. It’s even harder if they fear they’re missing out.
Owning pieces of America’s largest companies via an S&P 500 fund isn’t exactly the same thing as owning “the market” because some rising stars haven’t qualified for membership yet. When it looks like they’re about to join, those shares can get a turbo boost right before index funds are forced to buy. Those rallies often cool after inclusion.
It’s a small, invisible drag on returns most of the time because those rising stars usually aren’t huge weights in the index. Occasionally one is by the time it qualifies.
With Elon Musk’s SpaceX preparing for the biggest initial public offering in history, The Wall Street Journal reported this week that its advisers are pushing to fast-track the index-inclusion process. The popular Nasdaq-100 Index might be amenable. The big prize would be using index-provider FOMO to get the S&P 500 to tweak its rules.
The index companies wouldn’t be doing passive investors a favor, but they could be doing Musk and other insiders one. Inclusion would make it easier to sell the IPO and insider shares to the public at a potentially robust price.
Musk’s existing big public company, Tesla, is a classic example of forgone gains. It had a market capitalization of about $2 billion at the time of its 2010 IPO, yet failed to qualify for the S&P 500 until 2020 when it could show enough profits.
Tesla was the largest-ever addition to the index at the time, at about $600 billion. But investors had anticipated the wave of buying that would result and bid the stock up 250% in the six months before its S&P 500 inclusion. Then the shares fell 10% during their first six months as one of the top weights in the world’s most widely owned index funds.
A similar pattern has repeated for other hot companies. Google (now Alphabet) returned seven times as much in the six months prior to inclusion as during the following six. Netflix’s return was double.
Recent additions Robinhood and AppLovin rallied 182% and 105% before joining the S&P 500 in September, respectively. Each is down by 42% since then.
Why push to fast-track the process for SpaceX? Because membership has its privileges when you need to sell huge quantities of stock.
It could spare index-fund investors the frustration of watching SpaceX rally before they own it, but that won’t make it any cheaper once they do.
And, with the typical insider seller being restricted from selling stock for a number of months, the end of their “lockup period” might coincide with the shares already being owned by index funds. Eager sellers and forced buyers who don’t even read the company’s financial statements are a bad combination.
SpaceX could boldly go where no stock has gone before. Getting there at warp speed isn’t really necessary."
SpaceX must report positive earnings in the most recent quarter
and the sum of its earnings in the prior four quarters must be positive.