By on November 10, 2021

While no one around this neck of the woods would call themselves experts in finer points of the stock market, we do know how to add. Talking heads at the Wall Street Journal are reporting Rivian has set an initial share price of $78 for its IPO, a heady sum to be sure. What drives this story to another dimension is they’ve allegedly sold 153 million shares at this price.

For those keeping track, that means they raised nearly $12 billion – making RIVN the biggest listing so far in 2021.

Beyond that basic math, however, your author will suggest readers point their browsers to the WSJ for further financial analysis. Suffice it to say that Bloomberg apparently values Rivian at something close to $75 billion, up three-fold from earlier this calendar year. An influx of interest in one’s company, plus actual production of a vehicle, tends to be a net positive. Rivian shares will trade on the Nasdaq.

Here’s the part where this writer’s head starts to spin. Despite these massive valuations, the company lost almost a billion bucks through the first half of 2021 and is on track to lose at least that much again in Q3 due to costs associated with beginning production of the all-electric R1T pickup truck. Being a profitable enterprise yet being worth billions (on paper) is a phenomenon unique to planet Earth, surely. And maybe Ferenginar but only after the Grand Nagus has recited all Rules of Acquisition.

Alert readers and market watchers have been down this road before, of course. Tesla was a money-losing outfit for ages despite attracting investors like flies to honey. It remains an attractive stock for many, even after experiencing a plummet this week following Elon’s bright idea to poll Twitter asking for consensus on divesting some of his stock. With companies like Rivian and Tesla, it appears the lines between automaker and tech company are very blurry – at least to investors.

Rivian has also been in the news lately for other reasons, including allegations of a toxic work culture in which key executives felt they were shut out of certain decision-making processes. The exec has apparently filed suit in California plus taken matters to the American Arbitration Association.

Back on the Wall Street trading floor, those whose job it is to report on such matters are today speculating the Rivian IPO will immediately jump to around $120 at open, boosting its implied valuation to over a hundred billion dollars. For perspective, GM and Ford, companies that’ve been producing vehicles for over a century, have roughly the same valuation. Combined.

Head spinning, indeed.

[Image: Rivian]

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25 Comments on “Rivian Sets IPO at $78, Stonks to the Moon...”

  • avatar

    And Wall Street continues to be treated as though they know what they’re doing. The world would be a better place were they to use the street for its original purpose and wall them in, without recourse.

  • avatar

    Re: Tesla

    I have it on good authority that this song is in heavy rotation on Elon Musk’s personal playlist this week:

  • avatar

    Wall Street 101 (Elementary level, possibly 30% accurate or more):

    To value a company like Rivian or Ford, an Attractive Youngster (from a Good Family; the Attractive Youngsters who are Hungry work in Trading) fires up the spreadsheet and starts dropping numbers into columns. Each column represents a future year on our home planet – the planet which Al Gore told us in 2006 (15 short years ago) was warming at an alarming rate. (But that’s not important right now and you can ask Bill Ford if you don’t believe me.)

    In the rows of said spreadsheet we see Revenue near the top and some other fiddly details and then Net Income near the bottom and then we make various adjustments to Net Income to arrive at Cash Flow – again year-by-year as a future projection. In the typical case Cash Flows are negative in the early years (cf. Amazon) and then turn positive (we hope – cf. and then sometimes turn Really Positive (cf. Apple).

    All the negative and positive Cash Flows in all the columns get discounted back to Today’s Dollars and summed up and that is our estimate (rough estimate, possibly very very rough estimate) of the total value of the company right now. We call this a Discounted Cash Flow analysis and we have some Smart People review it and then we have Smart And Attractive People present it so that we show ourselves in the best possible light.

    Key points:
    I) The final answer is highly [highly highly] dependent on the projected growth rate
    II) The final answer is highly dependent on the discount rate used [and interest rates are Kind of Whacked Out™ right now]

    In the case of Ford, we look at Ford’s historical growth rate in Revenue and Ford’s historical Profit Margins and maybe talk to some other Smart People who have an off-the-shelf SWOT analysis for Ford which suggests that perhaps Ford Motor Company will face some Important Challenges in the Future. (If we try to skate by with a high growth rate for Ford we are going to get shot down by our Smart Leaders who have had their eyes open for the past 20 years of human history – possibly even more if they are Old Smart People – because our firm has some of those too.)

    In the case of Rivian, there is no history so it’s all projections and estimates and triangulation and studies.

    Not saying that the valuations are correct (the probability of a point estimate in any normal distribution being ‘correct’ is exactly zero), but this is roughly how the process works and [very] roughly how we can see such wildly different valuations.

    • 0 avatar

      Pretty accurate. If we don’t know how a company will do the potential is unlimited (it’s actually not and we know it’s not and we could average together other IPOs to figure that out) like you said once in a while one hits and that justifies all the stupid stuff between.
      Plus you get companies with a decade of past sales (Tesla) that would need to increase profits 40% a year for the next 5 years in order for their valuation to make sense.

  • avatar
    el scotto

    @ToolGuy Sir, scarily true. Worse, the Old Smart People have seen enough of these shenanigans they know just one in a hundred has to hit. They’ll take the bet every time because the Great Big Stockbankerage can resell the losers to other suckers who think they’ll hit some day.

    Meanwhile back in the rich, green leafy suburbs the Old Smart Person’s Au pair mysteriously quits. The Old Smart Person then has to decide to keep wife number three or make Au pair wife four or keep things the way they are. Morals have nothing do to do with either stock pricing or how much the ex-Au pairs mid-town walk-up apartment costs. It’s just how they do business.

    • 0 avatar

      el scotto, your tale of the au pairs reminds me of the days not very long ago when I was involved in physician hiring decisions for a large health system.

      Some of these specialties were very big-ticket, and one of the first questions we learned to research before evaluating contract demands and staying power was: “How many ex-wives?”

      • 0 avatar

        “How many ex-wives?” I take it that drives up the cost of hiring? It could show devotion to work over family or an egotistical azz or all of the above.
        One mainstay of recruiting is selling the wife on the perks of moving to the city of employment. I see that occur rather often. A specialist likes the job offer and town but the wife hates it.

  • avatar
    el scotto

    p.s. you ever get stuck at Dulles, I’m buying you beers.

  • avatar

    Investors project into future not past. They know everything they need to know about Ford, GM and Chrysler, that every 10-20 years they will be on the brink of bankruptcy. On the other hand it is proven that new startups who survived long enough to start selling revolutionary products promise and deliver fantastic ROI in the same period of time.

  • avatar
    Art Vandelay

    Wow. I may need to sell some of my Netscape and the globe .com stock and get into that.

  • avatar
    Master Baiter

    My natural instinct is to be skeptical.

    I was skeptical about Tesla and Amazon too, and look what those stocks have done…

  • avatar

    How many trucks has this company sold. It sounds like Nokola all over again.

  • avatar

    How many trucks has this company sold. It sounds like Nokola all over again.

  • avatar

    I wish them nothing but good fortune.

  • avatar

    They were the first automaker to build a truck, they’re way ahead of GM. Ford should be set up good when they begin selling the F150 lightning early next year.

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