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The Elon Musk IPO You Might Be Overlooking

By Jamal Carnette, CFA - Mar 2, 2021 at 10:54AM

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Elon Musk is planning on taking SpaceX public...sort of. Here's what you need to know.

They're no denying that Elon Musk is the greatest businessman of his generation! In a little over a decade, Musk went from obscurity to among the world's richest due to the growth of Tesla stock, as he's grown the electric car company from a $1.7 billion IPO to an $600 billion giant.

However, Tesla's electric cars are not Elon Musk's craziest idea by a long shot. Musk is also the CEO of SpaceX, the aerospace and space transportation services company with the audacious goal to colonize Mars. Private investors are all in on Musk's vision, recently giving the company a massive $74 billion valuation.

Ironically, a SpaceX IPO might eventually be the best way for investors to own a cheap Musk-led company...but it's not because of space travel.

Satellite hovering over 
planet earth.

Image source: Getty Images

Broadband Internet from space travel?

Musk has three ways to monetize SpaceX. The largest currently is the company's contracts with the NASA to design rockets and to carry payloads to the International Space Station. The second -- commercial space travel -- is the highest profile revenue stream but will likely be the hardest to scale.

While we don't have access to SpaceX's financial statements on account it's a privately held company, all records point to the fact that its space travel has been an unreliable source of income to date. In fact, Musk has been firm on his desires not to take SpaceX public, noting the short-term demands of shareholders conflict with his long-term vision for the company.

However, there's a third way SpaceX makes money: through its broadband satellite internet subsidiary dubbed Starlink. Musk parlayed the idea to create a network of satellites to provide global broadband coverage to a $1 billion investment from Alphabet in 2015 and this could be the cheapest way for investors to own a Musk-led company, once the service goes public.

Starlink could be a cheap Musk-led company

The downside for new investors looking to invest their hard-earned capital with Musk is the "Musk premium." Shares of Tesla are valued at stratospheric levels for an automotive company, trading at price to sales and price to forward earnings ratios of 25 times and 175 times, respectively, versus  a traditional automaker like General Motors that trades at 0.62 times and 10 times, respectively. Investors are pricing in significant growth for Tesla while the company posted only 28% top-line growth this year.

While we don't have much insight into SpaceX's financial information, it's estimated the company made approximately $2 billion in launch revenue in 2018, pre-Starlink monetization, and was valued at $28 billion in January 2019, or approximately 14 times trailing revenue. It's likely these figures have increased since then.

Recently, Musk reported Starlink has grown to nearly 10,000 users at a price of approximately $99/month, or approximately $12 million in annual recurring revenue. Musk himself feels Starlink could produce revenue of $30 billion per year.

My colleague Rich Smith has doubts about Musk's lofty ambitions, but crunched the numbers and found that if Musk succeeds, as he often does, Starlink itself should be worth $72 billion, which is nearly SpaceX's total valuation right now.

When can we expect a Starlink IPO?

Unfortunately, it does not appear like a Starlink IPO will occur in the immediate future but Musk has been forthcoming with his intentions to take the service public. On his favorite medium, Twitter, Musk responded to a follower asking to take SpaceX public:

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.

However, with the service gaining nearly 10,000 subscribers in a beta phase, a Starlink IPO might occur sooner than you think. While there's no guarantee Starlink will file to go public and be successful if it does, I wouldn't bet against Elon Musk as that hasn't been a profitable investment.

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