Investors have been talking about the possibility of a SpaceX IPO for years. Chances are, that's all we're ever going to be able to do: talk about it.
Since recovering from the 2016 SpaceXplosion and resuming operations, SpaceX has successfully launched three dozen rockets without a mishap -- usually capping its success by landing its first-stage boosters for reuse. This is a skill none of SpaceX's rivals have yet managed to master, a fact SpaceX COO Gwynne Shotwell says should reduce the cost of space launch by about 30%, allowing SpaceX to further underprice its adversaries, increase its profit margins -- or both.
As a result, SpaceX has rapidly morphed into the world's most prolific launcher of rockets. The company has launched 18 times already this year. With four more missions left on its manifest, 2018 looks set to be SpaceX's busiest year ever, and with money pouring into its coffers, the pressure for SpaceX to conduct an IPO in order to raise funds has decreased.
It's diminished even further as a result of something that happened just this month.
SpaceX taps the debt markets
Last week, The Wall Street Journal reported that SpaceX has secured a $250 million loan from "a select group of investors," money the company intends to use to fund development of its new "Super Heavy" rocket and "Starship" interplanetary vehicle -- formerly referred to jointly as "BFR."
Historically, SpaceX has funded its operations through a combination of revenue received for launching spacecraft, private funding from founder Elon Musk, and private placements of securities with other investors. The latter dilutes Musk's stake in the company. According to data from S&P Global Market Intelligence, SpaceX has raised a total of $1.5 billion from such private placements over the past decade. Now, however, the company appears to be at a point in its evolution where it's able to access funds through debt markets, so as to not dilute Musk's stake in the company through private placements.
According to media reports, SpaceX contemplated taking out loans for as much as $750 million -- and had bankers lined up, willing to loan it that amount -- but ultimately settled on the smaller sum, which the company will also use to begin building its planned constellation of 4,400 high-low earth orbit (LEO) and 7,500 lower-LEO "Starlink" internet broadband satellites.
On top of that, nearly simultaneously with this news, we learned that SpaceX has received the go-ahead from the Federal Communications Commission to begin putting this Starlink constellation into operation and selling consumers gigabit broadband satellite internet from space.
What Starlink means to SpaceX
Why is this important -- and arguably, even more important than SpaceX's development of the most powerful spaceship ever built? The conjunction of these two events -- receiving permission to build its satellite constellation, and also the money to begin doing so -- suggests SpaceX is moving quickly to put its plan into action. And this could start the ball rolling on a project that will free SpaceX from the need to IPO, or sell equity privately...forever.
To see how, you need to scroll back in time to The Wall Street Journal's expose last year, which reviewed leaked SpaceX internal documents that explain how Starlink is key to Musk's plan to make SpaceX financially self-sufficient, and to generate the profits needed to fund his eventual plan to colonize Mars. To recap, those documents showed that:
- SpaceX hopes to begin putting Starlink satellites into orbit as early as 2019.
- By 2020, revenue from the sale of satellite broadband internet services will equal the revenue SpaceX generates from space launch, with about $3 billion coming from each half of the business. Moreover, SpaceX expects to earn a 33% operating profit margin on its revenue that year, or $2 billion.
- By 2021, satellite internet revenue should dwarf revenue from space launch.
- In 2022, satellite internet will account for 75% of total company revenue.
- From 2023 to 2025, the proportion of revenue from satellite internet will steadily climb -- and SpaceX's profits with it -- providing Musk the capital he needs to build a fleet of spaceships capable of carrying colonists to Mars.
If all goes as planned, at that point, SpaceX should be in a position to self-sustain its operations -- perhaps taking out the odd bridge loan from time to time, but no longer needing to part with additional equity to fulfill Elon Musk's plans for Mars.
And it all starts with a modest $250 million loan from Wall Street and its banks.
Fringe benefits for investors
All of this is of course bittersweet news to investors who, on the one hand, surely hope to see SpaceX succeed as a business -- but on the other, would also love the opportunity to participate in that success by investing in the company.
In that regard, I'd just like to point out that there still is one way to invest in SpaceX indirectly: by buying shares of Alphabet (NASDAQ:GOOGL) which owns a minority interest in SpaceX. And if you do own a piece of SpaceX in this manner, you may be interested to know that, as a result of disclosures SpaceX made when seeking its loan last week, we now have a bit more insight into the company's finances.
According to Bloomberg, SpaceX disclosed to its lenders that while currently GAAP-unprofitable, it had earnings before interest, taxes, depreciation and amortization (EBITDA) of around $270 million in the 12 months ending September 2018. (As recently as 2015, that number was negative.) WSJ further advised that SpaceX earned this money on revenue of about $2.5 billion, resulting in a positive EBITDA margin of 10.8%.
The upshot for investors: SpaceX may not technically be GAAP-profitable yet, but it's moving in that direction, and the faster it gets satellites in orbit, the faster SpaceX's finances will shift from red to black, increasing its value to Alphabet -- and increasing the threat SpaceX poses to incumbent space launch providers.