Do you want to invest in SpaceX?
There are two key things you need to know about SpaceX if you're planning to invest in this privately owned and operated space company, either when SpaceX IPOs (assuming it does) or indirectly through a purchase of Alphabet stock. (Alphabet, you see, owns a piece of SpaceX.)
The first thing is that SpaceX is driving down the price of spaceflight by making its rockets increasingly reusable. First, it's figuring out how to launch and then land its rockets' main engines; second, it's recovering and reusing its cargo modules; and most recently, the company has been "netting" rocket nosecones as they fall back to Earth. The more rocket parts SpaceX is able to recover and reuse, the fewer new rocket parts it needs to manufacture, thus lowering the cost of each subsequent launch.
The second thing you need to know, however, is that lowering prices is not always the best way to earn a profit.
Image source: Getty Images.
How to not make money in space
This second fact became painfully obvious (for SpaceX) back in 2016, when for the first time SpaceX hinted at the fact that it was losing money on its space launch business, which a Wall Street Journal investigation subsequently confirmed.
However, SpaceX seems to have righted that ship, with COO Gwynne Shotwell admitting last year that while SpaceX has lost money in some years, it's also "had many years of profitability." But even so, with the company recently cutting launch prices on its Falcon 9 rockets from their advertised "$62 million" rate to as low as $50 million, you have to figure that profit margins at the company are razor thin.
How to make money from space
SpaceX does have a solution to that, however. Over time, the company plans to leverage its low-cost-provider status as a rocket launcher to create its own network of thousands -- and perhaps tens of thousands -- of orbiting broadband satellites.
Once complete, SpaceX hopes this "Starlink" internet constellation will be able to sell internet service to consumers on Earth, earning operating profit margins for SpaceX on the order of 60%. Thus space launches become a means to an end for SpaceX, and space services will become the company's real profit driver -- eventually earning enough profits to finance a SpaceX-led colonization of Mars.
One hand washes the other
And there you have it: the two keys to understanding SpaceX's business.
Last week, by the way, you could see both of these "keys" at work when, on Monday morning, SpaceX launched its "Starlink L1" mission to orbit. At 9:56 a.m. EST, a SpaceX Falcon 9, Block 5 rocket blasted off out of Cape Canaveral, carrying 60 Starlink internet broadband satellites into orbit. The mission, which appears to have been entirely "nominal" in its performance, roughly doubled the size of SpaceX's Starlink constellation in orbit, from 55 rockets believed to be in orbit and operational previously to 115 today.
At the same time, the mission demonstrated SpaceX's continued progress in driving down the cost of spaceflight. The Falcon 9 first-stage rocket that performed the mission (rocket no. B1048) had already flown three missions previously. After completing its burn, the rocket successfully landed aboard SpaceX's OCISLY landing barge in the Atlantic Ocean -- its fourth successful landing -- and will now be tuned up and readied for another reuse. SpaceX also reused two previously recovered nose cone halves to encapsulate its payload. According to a cost estimate prepared by Ars Technica, this means that "about 80% of the rocket [consisted] of previously flown materials."
Challenges remain, of course. Prior to flying the mission, SpaceX had voiced plans to attempt to recover both halves of the Starlink L1 nose cone in a first-ever simultaneous "netting" of the fairings by two recovery ships. High seas in the recovery area, however, prevented this attempt, and denied SpaceX the approximately $6 million it would have saved on future rocket parts had it succeeded in netting them.
On the plus side, though, this means that once SpaceX perfects the fairing recovery process, there will be even more savings to be had.
