Key facts
- David Einhorn's Greenlight Capital criticized SpaceX's IPO valuation in its second-quarter letter.
- The letter described the IPO as a sign that a speculative market top is near.
- Einhorn questioned the IPO process, including early inclusion by index providers.
- Greenlight Capital's macro book suffered losses due to bets on gold and interest rates.
- The fund added Comcast, Fortune Brands Innovations, Primo Brands, PayPal, and Versigent to its equity holdings.
- Greenlight sold stakes in Public Power Corp, Weatherford International, and Victoria's Secret.
David Einhorn, founder of Greenlight Capital, has sharply criticized the valuation of Elon Musk's SpaceX in the firm's latest quarterly letter to investors. Einhorn, a prominent value investor, referred to the rocket company's initial public offering as a sign that a "speculative top is near" and questioned the massive valuation at which it went public.
The letter, dated early August, also expressed skepticism about the IPO process, including the early inclusion of SpaceX by several index providers despite the company floating less than 5% of its shares. Einhorn suggested the situation could be described as the "meme-ification of the market at scale" or a "manipulation of the IPO process."
Greenlight Capital itself experienced a difficult second quarter, losing money and posting a year-to-date return of just 1.9% through June. This underperformance was attributed to losses in the firm's macro book, which was negatively impacted by incorrect bets on gold and U.S. interest rates, falling short of the average hedge fund's performance of over 7% during the same period.
Einhorn's criticism of SpaceX's valuation is not new, as he was previously a vocal skeptic of Tesla, another of Musk's ventures. In the SpaceX letter, Einhorn recounted a conversation with an unnamed SpaceX investor who claimed the company would generate $1 trillion in high-margin revenue. When pressed for support, the investor reportedly pivoted to a rant about short sellers, a response Einhorn attributed to repeating Elon Musk's forecast.
The letter also highlighted concerns regarding rating agencies, stating they exhibited "questionable behavior" by awarding SpaceX an investment-grade rating despite its forecast of negative free cash flow and lack of historical cash flow generation. Einhorn stated he could not find other examples of such ratings being given to companies with similar financial profiles.
In terms of portfolio changes, Greenlight Capital added five new equity positions last quarter: Comcast, building products company Fortune Brands Innovations, water parent Primo Brands, PayPal, and auto parts maker Versigent. The fund also divested its stakes in Greek utility Public Power Corp, oilfield equipment company Weatherford International, and Victoria's Secret.