In its quarterly report, Google quantified for the first time what SpaceX's stock market debut means for the company. The shares it holds in Musk's company are worth $94.1 billion, corresponding to roughly six percent of the company. However, Alphabet cannot readily sell most of this stake.
Of the total $94.1 billion, roughly $80 billion is subject to short-term selling restrictions. Another $14.1 billion is locked up for the long term, until the third quarter of next year. Such conditions are not unusual and are commonly imposed on shareholders who acquire a stake around the time a company goes public.
The SpaceX stake appeared under non-marketable equity securities, whose carrying value reached $124.3 billion at the end of June. Google also stated that it remeasured holdings worth $87.9 billion at fair value in the second quarter.
The largest stock market debut in history
SpaceX went public on June 12 under the ticker SPCX. Nasdaq described the listing as the largest in its history. The shares gained 19 percent on their debut day, pushing the company's market value to $2.1 trillion.
But the euphoria did not last. The share price declined over the following month, and by the time Google released its report, the stock was trading at around $112. SpaceX's market value thus fell back to roughly $1.5 trillion. This is the valuation used to calculate that Google owns approximately six percent of the company. Google is a long-standing investor in Musk's rocket company, and the disclosed stake is the result of investments made over many years.
Paper gains eclipsed the core business itself
The impact of the revaluation on Alphabet's financial results is hard to overlook. The company reported net other income of $98 billion for the second quarter, primarily due to unrealized gains on equity investments. By comparison, Alphabet's total operating income for the same period was just under $41 billion.
The gain on equity holdings alone reached $99 billion. As a result, its tax expense increased by $21.9 billion, net income by $77.1 billion, and earnings per share by $6.26. The resulting picture is as follows: net income attributable to shareholders rose to $112.1 billion, an increase of 298 percent, while earnings per share climbed to $9.11.
Alphabet itself cautions in the report that the value of its investments fluctuates with market sentiment and that similar swings could also cause volatility in its financial results in future periods. The decline in SpaceX's share price from its June highs is a clear illustration of this.
Rockets for data centers in orbit
The ties between Google and SpaceX extend beyond accounting. According to the Wall Street Journal, the two companies discussed a rocket launch agreement in May that would help build data centers in orbit.
Google is pursuing this direction more rapidly as it increasingly relies on artificial intelligence and requires ever greater computing power to support it. Elon Musk has repeatedly made it clear that he is interested in the possibility of building data centers in space, even though it is a technology that no one has yet tested in practice.
Sources: bloomberg.com and theinformation.com
