SpaceX, Elon Musk’s brainchild and private aerospace company, has recently seen making waves.
It’s currently trading at a roughly $150 billion valuation on the private markets, making it one of the most valuable private companies in the world.
Since its founding in 2002, SpaceX has inspired many of us. The company has contributed significantly to the sector, creating technology that NASA and other space agencies use. It even launched its spacecraft with reusable vehicles.
But, the mission to help humans become interplanetary could also be profitable. Apple, Google, and others have said SpaceX is one of the biggest untapped markets.
Is Space X the next trillion-dollar business? Read on to find out.
This article was submitted by Nirav H. Shah M.D.
Regardless of how you view Elon Musk, his ability to create value and world-class companies is undeniable.
Peter Thiel, one of his colleagues from his Paypal days, has said numerous times that he’d never bet against Elon, and it’s hard to argue against him. I had the opportunity to invest in Space X in 2020, and it has only grown since.
I have been following the company closely for years. In this post, I’d provide an overview of SpaceX and Starlink and how I’d consider investing in these companies.
Specifically, I will go over whether investing in SpaceX stock would be a wise idea and, if so, how to invest, given it’s still a private company.
PhysicianonFire readers have asked us whether they should invest in SpaceX stock, and my answer is this: it depends on your situation and what you’re looking for. In this article, I’ll provide as much insight as possible for you to make the right choice.
The History of SpaceX
Let’s start with the history of SpaceX, or Space Exploration Technologies Corp.
SpaceX is a private aerospace exploration and engineering company founded in 2002. Since its inception, it has been about developing the technology necessary to send people to Mars and other destinations located throughout the solar system.
To date, SpaceX has either built or contributed to:
- Rockets and other space vehicles
- Manned space exploration missions
- Satellite launches and satellite technology to provide global Internet services
- Defense services to the US and other governments
At the time of this writing, SpaceX has launched 208 spaceflights. Of those, 170 have seen successful landings. Another 143 have been re-flights using reusable rockets developed by SpaceX.
While Elon Musk’s ultimate dream of sending someone to Mars has yet to be realized, public interest in SpaceX is at an all-time high. Furthermore, several successful projects, like the Starlink satellite project, have served as proof of concept victories to drive investor interest.
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SpaceX Revenues and Valuation
While the public tends to focus on the spaceship aspect of its business, SpaceX has a few core business lines:
1) Launching satellites.
3) Other awards from NASA and the Starshield product they’re building.
SpaceX makes most of its revenue from helping commercial businesses launch satellites into orbit. The launch fee per service is $62 million, often higher for complex launches.
It’s estimated that SpaceX makes $5 billion from their launch business, $3 billion on Starlink. This adds up to $8 billion in projected revenue for 2023 which is double 2022 revenues.
At a $150 billion valuation, $8 billion of revenue translates to a 18.75 multiple. However, the company has been scaling very quickly.
Starlink – Satellites for Global Internet
Starlink is a satellite internet constellation operated by SpaceX. The company provides satellite internet access to over 56 countries and aims for global mobile phone service after 2023.
SpaceX started launching Starlink satellites in 2019. As of May 2023, Starlink consists of over 4,000 mass-produced small satellites in low-Earth orbit (LEO), which communicate with designated ground transceivers. In total, Starlink plans to launch nearly 12,000 satellites into space.
Starlink satellites are strategically arranged to provide coverage to most of the globe, providing satellite-based internet connectivity to underserved areas around the globe.
It also offers competitively-priced service in more urbanized areas. In the United States, Starlink charges a one-time hardware fee of $599 for a user terminal and $110 monthly for internet service at a fixed service address location.
Starlink has several advantages over traditional satellite internet providers.
First, Starlink satellites are in LEO, making the latency much lower and ideal for activities requiring low latency, like gaming and video conferencing.
Starlink can also provide internet service to areas that traditional providers do not serve.
I think a third use case will be for people that require internet connectivity for work – like telemedicine physicians – to have Starlink as a failover to support bandwidth if a person’s primary internet is slow.
Starlink now has the largest constellation with over 2,000 satellites. In fact, Starlink alone could provide internet in a new way to remote places otherwise inaccessible. There are reportedly 1.5 million users on Starlink already paying $110/month.
1,500,000 subscribers X $110month X 12 months = ~$1.9Billion per year
More recent reports believe that Starlink is on track for $3 billion in revenue in 2023 – a whole 50% higher than the $1.9 billion outlined above.
Many experts forecast that Starlink will reach $20-25 billion on subscriber growth, with other opportunities expected to add even more value, potentially reaching $30 billion in total revenue in the coming decade.
Will SpaceX (Starlink) IPO soon?
Elon has had some significant capital constraints due to the margin loan he took out to buy Twitter and the drawdown affecting Tesla. It would be easy to imagine, then, that an IPO could give Elon the liquidity and boost in net worth to better tackle those challenges, especially given the demand for SpaceX-Starlink stock.
Lastly, SpaceX did a convenient 10:1 stock split in 2022 from $420 to $690 and then to $69/share (juvenile, I know, but it’s in line with Elon). So, for people on the cap table – like me – that led to speculation it was designed for a Starlink spinoff IPO.
Despite these rumors, Elon was quick to say it would be illegal for him to comment, which is likely related to the issues he faced with the SEC when he was tweeting about taking Tesla private during significant short-sell pressure (also at $420 a share, haha…).
Good Reasons to Invest in SpaceX (Starlink)
SpaceX has become known as one of the most interesting and popular companies for aspiring investors. It’s made several top lists of the most sought-after venture-backed companies. There are lots of reasons why those with spare investment cash are very interested in investing in SpaceX stock. For example:
- SpaceX has massive growth potential in the communications, aerospace, and engineering sectors, particularly compared to other private aerospace companies like Virgin Space (which recently closed down). SpaceX has been the only truly successful private company in this sector, competing directly with government agencies like NASA.
- SpaceX’s projects have seen early success. Its Starship is soon to be tested directly, and the reusable rockets produced by SpaceX have already made waves in the aerospace industry around the world.
- SpaceX is highly effective at drawing capital and investors. This is partially due to the leadership under Elon Musk, but it’s also because the company has a proven record of commitment and eventual success.
- The company is executing on all cylinders with reusable vehicle components working well and Starlink is an incredible revenue growth asset for the company.
Reasons to Not Invest in SpaceX (Starlink)
- Elon is not focused. From Twitter to challenging Mark Zuckerberg to cage matches, it’s hard to believe he can really drive all his projects forward efficiently. Some might argue that Gwynne Shotwell is the real leader of the company, but Elon still poses significant risks to the company, given his public nature.
- Competition is coming. Jeff Bezos’ Blue Origin and others are coming and it’s possible they slowly eat away at SpaceX’s market share over time.
- Regulatory risk. Given the amount of distaste for Elon, it’s easy to imagine regulators putting undue pressure on SpaceX, posing complicated and unforeseen challenges.
Can You Invest in SpaceX Stock via Public Markets?
Unfortunately, it is not yet possible to invest in SpaceX stock via public markets. That means you cannot currently buy SpaceX stock on your Schwab or Fidelity account. There has yet to be an IPO of shares for this company.
For now, SpaceX is owned entirely by Elon Musk, employees, and other initial investors like Valor, who contributed to the beginning of the company’s formation. When the company goes public, you will be able to invest in SpaceX through normal retail platforms and likely a number of ETFs that decide to include it.
When Will You Be Able to Invest in SpaceX Stock on a Retail Exchange?
Musk has gone on record noting the benefits of remaining private, as doing so allows him to retain significant power over the company he helped to found. Given the long-term nature of SpaceX’s business, short-term shareholder interest may conflict with the company’s overall vision and direction.
To date, Musk has not said one way or the other whether he will ever make an initial public offering for his company. However, other sources, such as SpaceX chief operating officer Gwynne Shotwell, have indicated that some of SpaceX’s subsidiary products or services, like Starlink, may come with IPOs soon.
That said, Musk has been known to abruptly change his mind, even with very large decisions like this. As SpaceX grows and its operational expenses become even larger, particularly when Mars missions become more likely, SpaceX may need a lot more money. The best way to get that money could be through the public via an IPO.
If and when that happens, you can rest assured it will be all over the news! If you want to invest in SpaceX stock after an IPO, it should be as simple as setting up an account with a brokerage platform and placing your order for as many shares as you’d like.
How to Directly Invest in SpaceX?
However, accredited investors can currently find SpaceX stock via private vehicles. I got access to Valor’s particular purpose vehicle (SPV) to invest directly.
Recently, there was a tender offer, meaning the company is helping employees sell stock and, as a result, there are opportunities to source stock from a broker or investor.
Entities like Forg Global, Equity Zen, WIlliams Blair, and others have offerings for private investment for accredited investors.
The challenge with these vehicles is that they are high-risk and often include fees.
Remember that this would be a high-risk investment and is generally not advised to be a big part of one’s portfolio. This is what we’ve written about before when we talk about play money.
Ways to Indirectly Invest in SpaceX
In the meantime, there are ways to invest indirectly in SpaceX and the aerospace development industry overall. Essentially, you can look for other companies that may provide exposure to SpaceX. Here are some examples:
- Invest in funds and ETFs/exchange-traded funds that currently invest in the aerospace industry. This is a great way to diversify your funds and invest in aerospace technologies without increasing your risk, as each dollar you invest will be spread across several different stocks or companies. For example, BPTRX has an 8.6% SpaceX holding.
- Invest in public companies that operate in the space tech sector.
- Invest in direct partners or suppliers to SpaceX. In a way, this could help you monetarily contribute to SpaceX and invest in the company’s well-being, even though an IPO has not yet been made.
- Invest in companies that already have interest or ownership in SpaceX. Google (Alphabet) stock is one way to get exposure, as they invested in SpaceX with a 10% ownership stake at a $10 billion valuation in 2015.
That last strategy is the most direct way to invest in SpaceX. For example, you can easily invest in Alphabet, the parent company of Google. Alongside Fidelity (a non-publicly traded company), Alphabet has invested $1 billion in SpaceX at the time of this writing.
If you want to invest in more companies like this, check out this complete breakdown of companies that have invested in SpaceX in the private market.
Path to a Trillion Dollar Market Cap
Now that we’ve discussed SpaceX and Starlink, it’s worth considering a potential outcome over the next decade. In my mind, the main question is, can it support a trillion-dollar market cap?
Here’s a table of a few companies with trillion-dollar market caps that we may want to consider comparing to SpaceX+Starlink:
|Company||Market Cap (USD billions)||Revenue (USD billions)||Profit (USD billions)||Multiple of Profit / Market Cap||Multiple of Revenue / Market Cap||P/E Ratio||5-Year Historical CAGR of Revenue||Average IRR over 5 years|
Relative to most stocks, these companies are trading at fairly high multiples, with an average P:E of approximately 105. In some sense, these companies are viewed as such high-quality investments that they’re treated as safe havens for large amounts of capital to be protected, thereby justifying the higher multiples and market caps.
These companies also tend to trade at 12x multiples of gross revenue and grow 10-25% per year. While SpaceX seems to be growing much faster than this cohort, achieving $200-400Bn in revenue to support a trillion-dollar market capitalization will take decades and be very capital-intensive.
However, the growth, excitement, and interest in this company – much like NVIDIA – could fuel a higher multiple than a company like Saudi Aramco, so touching down on that trillion-dollar milestone could be much sooner if the animal spirits will it to be.
While you can’t invest in SpaceX stock just yet in the public markets, you can buy it on secondary markets. The other liquid options are to pick an ETF with exposure or to buy Alphabet/Google stock, but it’s such a small part of Google’s market capitalization that it’s not likely to be all that valuable or correlated to SpaceX’s performance.
However, it’s very possible that Musk will announce an IPO of Starlink or SpaceX sooner rather than later. In the meantime, you can put your money into similar stocks and ETFs to contribute meaningfully to the modern-day space race and earn significant profits at the same time.
I have SpaceX stock, so I am clearly conflicted. This is not financial advice and is for informational purposes only. Please do not buy or choose not to buy SpaceX stock based on this information. Do your own research to arrive at your own decision.