Is SpaceX really worth $100 billion?

We knew the unicorns (“unicorns”, in English), nuggets valued more than a billion dollars. Here are now the “centicorn”, unlisted companies valued at more than 100 billion. SpaceX, the world leader in space launches, has just discreetly invited itself to this very exclusive club, alongside the Chinese ByteDance, parent company of the social network TikTok, and the fintech Stripe. Elon Musk’s space group, as revealed by CNBC, reached a valuation of $ 100.3 billion last week, during a resale operation of existing shares by historical shareholders of the group on the secondary market. The shares traded at $560 per unit, 33% higher than the price posted last February ($420).

The explosion in SpaceX’s valuation is impressive. The group was valued at 12 billion in January 2015 when Google and the Fidelity fund entered the capital. The Hawthorne nugget (California) has since experienced stratospheric growth in its valuation: 21 billion in July 2017, 33.3 billion in mid-2019, 46 billion in August 2020, 74 billion during its last fundraising (1, 2 billion dollars) last February and, therefore, 100.3 billion today. In a note published in October 2020, Morgan Stanley analysts had anticipated that the group would one day reach this symbolic bar of 100 billion. But no one thought Elon Musk’s group would hit the number so soon.

Limited Information

Is SpaceX really worth 100 billion? As the group is not listed, financial information on its activity is weak, even non-existent. The Californian champion does not publish his turnover, even less his profitability. Even the launch prices displayed on the site ($62 million for a Falcon 9 launch) are only indicative: SpaceX regularly drops around $40 million per launch, depending on the customer and whether or not the first stage of the launcher. Only public information: the amount of capital raised, and that of contracts with NASA or the US Air Force.

In the absence of direct information, it is still possible to take out the calculator and make estimates. The space economist Pierre Lionnet, director of research at Eurospace (the association that brings together European space industrialists) engaged in the exercise in a fifteen-page research note, published in October, devoted to the economic model of the American group. Its conclusions call into question many received ideas.

First lesson: SpaceX, if it has completely reshuffled the cards of space and administered a monumental blow of bamboo to the competition (especially European), is of much smaller size than is often believed. By crossing the number of SpaceX launches and the estimated price of these, the group’s turnover comes to 1.2 billion dollars in 2020, estimates Pierre Lionnet, an estimate identical to that of analysts at Trefis. This figure, down significantly from the high point of 2017 (1.5 billion), means that SpaceX is roughly the size of its European competitor Arianespace ($1.23 billion in 2020).

SpaceX, twice as small as ArianeGroup

By integrating the entire perimeter of the parent company ArianeGroup (construction and launches of Ariane, military activities on the M51 missile of the French deterrent), the Californian champion is even half the size of ArianeGroup, which generates 2.7 billion euros in sales. It also displays a more modest size than the two European satellite champions, the Franco-Italian Thales Alenia Space (1.85 billion euros in turnover) and Airbus Space Systems, which does not publish its figures but weighs more of 2 billion euros.

This limited size may seem a little counterintuitive for a group that has a record launch rate, with 26 launches in 2021, or one every two weeks. It is explained by two factors: one, SpaceX sells inexpensive launches, which is also a basis of its offer; two, the group launches a lot for its own needs, in this case the putting into orbit of its Starlink constellation. This activity on its behalf does not generate any turnover, and even reduces the shooting slots reserved for external customers, which explains the drop in turnover since 2017.

The second lesson stems from the first: with a valuation of 100 billion dollars for 1.2 billion in sales in 2020, SpaceX is valued… more than 83 times its turnover. Why this monumental ratio? “There is, obviously, a totally irrational aspect in these figures, indicates Pierre Lionnet to Challenges. This valuation is driven by a market enthusiasm for SpaceX quite comparable to that for Tesla, with investors who are above all fans of the Musk story. It reminds a bit of the ultimate fans of Apple in the heyday.” More than just investors, SpaceX shareholders would thus be “ultimate fans” more attracted by Musk’s pharaonic projects than by the prospects for future profitability.

Starship, difficult to value

What more rational arguments could explain the gigantic valuation of SpaceX? Pierre Lionnet rules out the hypothesis of very high profitability. Admittedly, SpaceX is probably posting a positive operating result: the economist estimates it at around 300 million dollars in 2020, after peaking at 700 million in 2017. But the group’s desperate need for cash proves, according to him, that SpaceX does not doesn’t display the huge profitability that Musk or CEO Gwynne Shotwell often talk about. “SpaceX has burned 1 billion dollars of cash per year since 2002”, recalls the economist in the research note, pointing out that the group raised 8.5 billion dollars in all, including 2.5 billion in the year alone 2020. “One wonders why SpaceX displays such an appetite for cash if Falcon 9 generates so much profit”, asks Pierre Lionnet.

Assembling the giant Starship rocket in Boca Chica, Texas (SpaceX photo)

Another hypothesis: the high valuation of SpaceX would be linked to the future commissioning of the giant Starship launcher, currently being tested on the Texas site of SpaceX in Boca Chica. This monumental rocket will be capable, according to the American group, of putting into orbit more than 100 tons in low orbit and 21 tons in geostationary orbit. Completely reusable, with up to 100 launches possible per unit produced, it could allow, SpaceX estimates, to lower the launch price to 2 million dollars, or thirty times less than the current Falcon 9. It will also be used for future Martian missions envisaged by Musk, missions to the Moon, or even links between points on the globe for the transport of freight or passengers. But this new launcher does not seem to drive most of SpaceX’s current valuation: in its October 2020 study, Morgan Stanley only valued the general launcher business at SpaceX at around twenty billion dollars, of which 11, 7 billion for conventional launchers and 8.7 billion for point-to-point terrestrial links.

More than the historical activity of SpaceX launches, it is, it seems, the potential of the Starlink constellation that seems to convince investors. This huge project (12,000 satellites intended to connect the whole world to broadband) is in full swing: SpaceX has already put 1,740 satellites into orbit, and launched a first service at 99 dollars per month already adopted by 100,000 customers. Musk explained in 2020 that Starlink could generate $30 billion in revenue by 2025. Internal figures revealed by the wall street journal in 2017 already gave this order of magnitude: the revenue forecast for SpaceX in 2025 was 35 billion dollars, including 30 for Starlink and only 5 for historical space launch activities.

The Starship launcher assembled on the launch pad in Boca Chica, Texas (SpaceX photo)

Starlink, bet at 30 billion

Is this turnover achievable? At the current price of the Starlink subscription (about 100 dollars per month, or 1,200 dollars per year), it would take 25 million subscribers to reach the famous 30 billion. An extremely ambitious objective, believes Pierre Lionnet. “The technical feasibility of the project is hardly in doubt, but the figure of 25 million subscribers seems difficult to reach, explains the economist. These subscribers would have to be spread over very varied geographical areas, because the system, based on many satellites constantly revolving around the earth, could not serve a clientele too focused on a single area.”

The other big question is that of Starlink’s profitability. The initial investment is enormous: Musk estimates it at between 5 and 10 billion dollars to have a constellation in service, and between 20 and 30 billion euros over the life of the project. Satellites in low orbit having a lifetime of five years, four times less than their counterparts placed in geostationary orbit (36,000 km), they must be replaced regularly, which requires a high and permanent level of investment.

To achieve profitability, SpaceX will also have to recoup the investment in the receiving terminals it provides to its customers. These ground systems, billed at $500 by the group, would in fact cost $2,400 to the group, according to Business Insider, which indicates that the terminals are manufactured by STMicroelectronics. It is therefore necessary that subscribers remain faithful to Starlink for a long time to amortize the difference (1,900 euros).

Musk effect

Under these conditions, the valuation of Starlink at several tens of billions of dollars raises questions. Admittedly, in its October 2020 study, Morgan Stanley estimated that the constellation could represent 80.9 billion dollars out of the 100 billion potential valuation. But a look at the valuation of competitors casts doubt on these figures. OneWeb, the main rival with 348 satellites already in orbit, is only valued at $3.1 billion. More than ever, like Tesla (810 billion dollars in market capitalization), SpaceX seems to escape traditional valuation criteria. A good definition of what could be called the Musk effect.

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