On Sept. 1, a SpaceX rocket blew up on its launch pad while undergoing routine testing at Cape Canaveral Air Force Station in Florida. SpaceX hasn't launched one single rocket since the disaster, and now says it won't resume launching before January 2017 at the earliest.
If you think this sounds like bad news for SpaceX's business, you're right. In fact, it's probably even worse news than you know.
As a privately held company, SpaceX is not required to file financial disclosures of its revenue, its profits, or its losses with the SEC. Just because it isn't required to tell people how it's doing financially, however, doesn't mean that SpaceX won't voluntarily toot its own horn from time to time.
For example, back when things were going well for SpaceX -- say, circa June 2016 -- the company regularly tweeted out a string of announcements of successful rocket launches, rocket landings, and product improvements to its space fleet.
At the same time, front and center on its website, SpaceX boasted of how well its business was doing. SpaceX had "70 launches on its manifest," and was launching much more often than its rivals at United Launch Alliance (the Boeing (NYSE:BA) - Lockheed Martin (NYSE:LMT) joint venture) or Airbus (NASDAQOTH:EADSY) subsidiary Arianespace. SpaceX was moving steadily toward fulfilling "over $10 billion in contracts" over the next few years, and booking more of them all the time. Best of all, just like Ariane and ULA, SpaceX was "profitable and cash-flow positive."
But a funny thing happened on the way to SpaceX's website update a few months ago. Without warning or explanation, the assertion that SpaceX is "profitable and cash-flow positive" suddenly vanished.
Why so mum, chum?
SpaceX's "About" SpaceX webpage today continues to boast of "70 future missions on its manifest," and still says those missions are worth "over $10 billion." But sometime between 6:25 a.m. on Tuesday, Sept. 20, 2016, and 9:23 a.m. on Sept. 22, the assertion that SpaceX is "profitable and cash-flow positive" was scrubbed from the website.
Why might that be?
We actually discussed this -- and came very close to predicting it -- just last month, when discussing SpaceX's latest plan to launch 4,425 broadband internet satellites into orbit. And it goes like this:
- Since its Sept. 1 blowup, SpaceX has not launched a single rocket in three months of operations. If its next launch takes place in January, as it now hopes, that will be four months without any rocket revenue coming in to the company.
- Prior to Sept. 1, SpaceX had successfully launched nine rockets in the nine months from December 2015 through August 2016.
- Prior to that, though, SpaceX went through another launch drought -- that one eight months long -- following a SpaceXplosion in June 2015.
Add it up, and SpaceX has actually only been launching rockets for about nine months of the past 21. Earning roughly $72 million per launch, it's put together perhaps $650 million in revenue from those launches. But according to Elon Musk himself (from an internal SpaceX email dated June 2013, reprinted in Ashlee Vance's biography of the CEO) the company has expenses of "roughly $800 million to $900 million" a year. Over 21 months, that works out to approximately $650 million in revenue, versus perhaps $1.5 billion in expenses.
Translation: SpaceX is not cash flow positive today. Neither is it profitable.
The upshot for investors
So what does all of this mean for investors in the space industry? Well, if you're an owner of Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) stock -- currently the only way I know of to own a piece of SpaceX, via Alphabet's equity investment in the company -- then right now, that investment is worth a bit less than it was one year ago. But given that Alphabet is a $542 billion company and has put less than $1 billion of its capital to work in SpaceX, the diminution in Alphabet's value is probably pretty small.
But what if you're one of the many, many investors still hoping to invest in SpaceX directly, perhaps via an IPO? Well, now that we know that SpaceX is not profitable, investing in SpaceX probably looks a bit less attractive than it did a few months ago, back when SpaceX was still making its "profitable and cash-flow positive" assertion.
On the other hand, at least SpaceX has fessed up to its change in circumstances. It didn't have to do that -- no one would have been able to check, after all. At the very least, we have to give the company points for honesty in proactively removing the phrase from its website.
So, kudos for that at least, SpaceX.