In 2015, Alphabet (GOOG +0.26%) (GOOGL +0.44%) invested about $1 billion in Space Exploration Technologies (SPCX -1.81%), better known as SpaceX. As of the end of the second quarter, its stake was worth $94.1 billion, according to Alphabet’s second-quarter earnings release.
A lot has changed at the rocket company over the decade-plus since Alphabet’s initial investment, ultimately culminating in its IPO last quarter. While Alphabet’s share in the company may have been diluted, the capital gains it has made are quite astounding.
SpaceX’s stock price has slipped lower since June, but Alphabet’s stake is still worth about $65.6 billion as of this writing. Here’s what that massive gain means for both Alphabet and SpaceX investors.
Image source: The Motley Fool.
One of SpaceX’s biggest shareholders
Alphabet’s $65.6 billion stake in SpaceX represents about 4.2% of the entire company. That makes it one of SpaceX’s largest outside shareholders, which means it could have a significant impact on the stock price if it decides to liquidate its shares.
That said, Alphabet faces some additional restrictions on its shares above and beyond the normal lockup period for the IPO. The company has agreed to an extended lockup period for some of its shares. Management disclosed that $80 billion of its shares are subject to the normal short-term restrictions on the ability to sell. What’s more, $14.1 billion of its shares are subject to long-term restrictions that prevent it from selling until 2027.
But Alphabet could move to liquidate its shares as it seeks to raise capital to fund its artificial intelligence build-out. The company plans to spend about $200 billion on capital expenditures this year, and that number will climb in 2027, management says. It has already raised capital by issuing its own stock and tapping the bond market this year. And with negative free cash flow in the second quarter, Alphabet will likely need to raise additional capital next year.
Space Exploration Technologies
Today’s Change
(-1.81%) $-2.05
Current Price
$111.45
Key Data Points
Market Cap
Day’s Range
$107.02 – $111.54
52wk Range
$107.02 – $225.64
Volume
691.3K
Avg Vol
122.4M
On the other hand, Alphabet could retain shares as a strategic investment. The two companies have increased their ties to one another with a recent agreement for Alphabet to rent compute capacity from SpaceX. The two are also in talks to use SpaceX’s launch services for Alphabet’s orbital data center project, an area of development for SpaceX as well. Maintaining a strategic investment in one of its service providers could offset some of the costs it incurs. It can also use the position to bolster its balance sheet and take on more debt to raise capital instead of selling the stock.
If Alphabet sells its shares, it could put pressure on SpaceX’s stock price. The company will seek to avoid harming the value of its shares, but it’ll likely liquidate most of its stake in the business eventually and raise additional capital.
Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
