STARTUPS

You Can Now Buy Private Companies Like SpaceX and OpenAI On the Stock Market — With A Catch

SpaceX — the company that monopolized the space market (barring any extraterrestrial conglomerates) — was rumored to be raising a funding round in December that would value Elon Musk’s spacefaring startup at over $175B. That would make it the world’s second most valuable private company, alongside S&P 500 stars like Intel ($INTC), Uber ($UBER), and American Express ($AXP).

Beyond launching satellites and astronauts into orbit, SpaceX is developing its satellite internet network and building a rocket to go to Mars. And who wouldn’t want to invest in that? But as a public market investor, getting your hands on shares in this rapidly growing space enterprise is nearly impossible. Not anymore.

Startup stock: Last week, the Destiny Tech100 ($DXYZ) debuted as the first publicly listed US fund dedicated to holding private companies. This exposes investors to America’s most valuable private firms, including SpaceX, which makes up 35% of its holdings.

• In its initial two trading days, the ETF surged over 177% due to skyrocketing demand.

• Besides SpaceX, the fund includes 22 other companies in its portfolio — with plans to expand to over 100 companies.

Private-to-public pipeline

Dozens of global private companies are also in the fund, including Epic Games, Chime, and Stripe, which are all reportedly considering going public in 2024 or 2025.

• Other familiar names include Axiom Space (9.7%), Boom Supersonic (4.6%), and OpenAI (3.8%).

• Unlike mainstream ETFs like the Vanguard S&P 500 ETF, this fund is actively managed and comes with a steep 2.5% annual management fee.

But there’s a catch… The fund may sometimes trade at a premium, potentially resulting in investors paying more than the startup’s actual value. Between May 12, 2022, and Dec. 31, 2023, Destiny’s net asset value fell 23%, coinciding with a sharp drop in startup valuations. While SpaceX’s values rose by nearly 30%, the values of its Stripe and Epic Games holdings dropped over 60%. If startup funding difficulties persist, investors in Destiny might feel the pinch (regardless of whether it’s reflected in $DXYZ’s price), even if SpaceX powers on.

PARTNERED WITH MASTERWORKS

Explained: How Masterworks distributed $55 million proceeds back to investors

How has the art investing platform Masterworks been able to realize a profit for investors with each of its 21 exits to date? Here are two success stories:

1/ Banksy: An exited Banksy was internally appraised at $1.03M after acquisition. As Banksy’s market took off, Masterworks received an offer of $1.5 million from a private collector, 31% over the internal appraisal. Resulted in 32% net annualized gain for investors in the offering.

2/ Joan Mitchell: Another exited work, a Joan Mitchell, was initially offered to investors at $5M. With emerging demand for women artists in the auction sector contributing, the value of the painting rose $2.4 million in less than two years. Investors in the offering realized an 18% net annualized gain.

Overall, their exits have delivered median returns of 14.6%, 16.4%, and 17.6%.

How can you get involved in Masterworks' next offering? It's easy, just use this exclusive link to unlock VIP access.

LARGECAP RECAP

🔨 Home Depot is making a $18.25B bet on pros and contractors

Home improvement giant Home Depot ($HD) has witnessed a nearly doubled stock value over the last five years, thanks to a boost in revenue from bored homeowners looking to fix up their homes. But with the DIY bump ending, Home Depot hopes to fuel its next phase of growth by targeting professionals — and to capture their spending, the company is embarking on its biggest acquisition to date.

• Home Depot will buy SRS Distribution — a specialized supplier catering to professional roofers, landscapers, and pool businesses — for $18.25B.

• This strategic move is expected to broaden Home Depot’s customer base to include professionals working on larger projects, an effort CEO Ted Decker believes will expand its addressable market by $50B to $1T.

Going pro: Decker views the acquisition as a “complementary accelerator” for the company’s professional segment, which already represents half of its business. With SRS on board, Home Depot will pick up a salesforce dedicated to big buyers, along with 760 unique branches and over 4K delivery trucks, which will supercharge the company’s growing network of distribution centers.

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Markets & Economy

Fed-up House members mull retirement: Roughly two dozen members, evenly split between parties, are heading for the exits as they grow weary of recent political chaos — with particular scorn aimed at bombastic colleagues who seem more concerned with their media profile than with governance. [Read]

Biden admin extends $1.5B to restart Michigan nuclear plant: The loan — a product of Inflation Reduction Act funds — marks the first instance of the US restarting a nuclear power plant. After years out of favor, atomic energy has become popular among clean energy advocates seeking carbon-free electricity. [Read]

NY Transit Authority approves $15 toll to drive into Manhattan: A congestion pricing program has been discussed in New York for decades in hopes of convincing motorists to ditch their cars for public transit. The effort could reduce Manhattan traffic by 17% — but public transit investments may be needed to support more usage. [Read]

Business & Wealth

Oregon’s new right-to-repair bill cracks down on “parts pairing”: Device manufacturers won’t be able to block replacement parts from working with their software — a repair-restriction practice that leads to waste and frustrated consumers. [Read]

Some New England colleges crack $90K in yearly tuition costs: Students heading to Tufts next year will be paying $96K for their education — and Wellesley, Yale, and BU aren’t much better. The colleges justify the increase by highlighting their generous financial aid packages. [Read]

Former Discover ($DFS) CEO makes the jump to Ally ($ALLY): As Ally’s CEO, Michael Rhodes will lead the digital bank’s “next stage in its evolution,” according to the board — though they were light on specifics and mostly said they’re confident Rhodes will create long-term value for stockholders. [Read]

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DIGIT OF THE DAY

Consumer Companies’ Margins Jump 34%, But Little is Being Passed Down to Consumers

Businesses are benefiting from a slowdown in inflation, known as disinflation, which is translating into higher profits. This means that prices are increasing at a slower rate than before, providing relief for consumer companies across various sectors, including restaurants and retailers.

• In the latest quarter, consumer discretionary and staples firms in the Russell 3000 saw their average gross margin rise to 34%, with firms in the index averaging 40%.

• Companies like Bath & Body Works ($BBWI) and AutoZone ($AZO) attribute their growing profitability to lower freight costs, while Dine Brands ($DIN) credits stabilized labor costs for margin increases (BBG).

Boon for businesses, bane for customers: With disinflation helping companies reduce costs, you’d think things would get cheaper for customers. Spoiler alert: that’s not happening. Instead, executives are channeling those savings into share buybacks. In the fourth quarter, spending on share buybacks by similar companies in the S&P 500 rose 53% and 80%, respectively, surpassing the index's average 18% rise. The only thing dropping faster than prices seems to be our hopes for a discount.

Read: What isn’t dropping? Stocks, and here’s where banks and funds think the market is heading.