According to news reports, Elon Musk's SpaceX is now worth $74 billion.
That number is based on the company's implied valuation after having recently raised $850 million in new capital from private stock sales. How much the company is really worth, though -- or at least, how much its famous Starlink broadband satellite internet subsidiary is worth -- won't be known until the company IPOs Starlink.
But that could happen sooner than you think.
Image source: Getty Images.
Musk doubles down
SpaceX COO Gwynne Shotwell has been dropping heavy hints about SpaceX's desire to conduct an initial public offering for Starlink for more than a year now. Her boss, Elon Musk, has also backed the idea, telling SpaceX fans on Twitter in September that Starlink would "probably" IPO -- but not for several years.
We will probably IPO Starlink, but only several years in the future when revenue growth is smooth & predictable. Public market does *not* like erratic cash flow haha. I'm a huge fan of small retail investors. Will make sure they get top priority. You can hold me to it.
-- Elon Musk (@elonmusk) September 28, 2020
That timeline changed this month, however, and we got our first clear confirmation from Musk that an IPO will happen, and maybe even soon.
Once we can predict cash flow reasonably well, Starlink will IPO
-- Elon Musk (@elonmusk) February 9, 2021
No beating around the bush there. Musk said it straight out: "Starlink will IPO" (emphasis added). Granted, Musk still isn't stating a date, but he did give us a couple clues: First, that SpaceX wants to get a good idea of how much cash Starlink can produce over time -- probably in order to better gauge how much to sell Starlink stock for at its IPO.
But second, SpaceX will not necessarily wait until cash is actually flowing in great quantities. Simply being able to "predict" future performance will suffice.
How much money does the world's richest man need?
How long might that take? It took Starlink three months to amass its first 10,000 subscribers worldwide. With each paying $99 per month for the service, that works out to less than $12 million in annual revenue. But Starlink is proving immensely popular, and growing fast -- in fact, just earlier this month, Musk opened up Starlink to widespread subscription in the U.S., allowing customers to reserve spots in line to get the service as early as "mid to late 2021."
Image source: Starlink.
As customers flock to Starlink from Canada, the U.K., and the U.S., analysts who've crunched the numbers believe Starlink might need three years -- and 3 million subscribers -- to turn cash-flow positive. The resulting $3.3 billion or so in annual revenue that this would bring in should do the trick. In the meantime, Musk himself admits that Starlink will need to traverse "a deep chasm of negative cash flow" over "the next year or so."
But that doesn't necessarily mean he will wait three full years before announcing an IPO. If he can just glimpse the chasm's edge from the middle and see that he's headed in the right direction, that could suffice.
SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable. Every new satellite constellation in history has gone bankrupt. We hope to be the first that does not.
-- Elon Musk (@elonmusk) February 9, 2021
The upshot for Starlink IPO investors
Long story short, I wouldn't be surprised to see SpaceX announce a date for its Starlink IPO sometime in the next couple of years -- and perhaps even as early as this year. As for how much it will cost you to buy into the IPO, though...
Consider that Musk has repeatedly stated his belief that Starlink could bring in revenue in excess of $30 billion per year. Personally, I have my doubts about that number. But let's take it at face value for the time being, and compare Starlink to an internet provider like Comcast (CMCSA +1.00%). Comcast's internet revenue last year totaled $60 billion, according to data from S&P Global Market Intelligence -- and accounted for just under 60% of the company's total revenue. Apply that percentage to Comcast's market capitalization of $240 billion, and an internet business roughly the size of what Musk plans Starlink to become might be worth in the neighborhood of $72 billion -- nearly as much as private investors are valuing all of SpaceX at today.
What's more, SpaceX is targeting 60% operating profit margins for Starlink -- nearly half again the 42% operating profit margin for Comcast's internet division. So multiply that $72 billion by 1.5, and now we're potentially talking about a $108 billion valuation for Starlink. Add a bit of premium to that price for the "Elon Musk is magic" effect on stock market valuations, and what do you end up with for the final price of Starlink?
Your guess is as good as mine, but one thing's for certain: This IPO will not be cheap. If and when it arrives, don't expect to get a bargain.
