SpaceX Starlink is slowing down -- and this time, I'm not just talking about connection speeds.
When Starlink opened up to "beta" subscribers in October 2020, Elon Musk's aggressive plan to bring broadband internet service to every person on Earth began with a rush, racking up 10,000 subscribers in its first three months.
At first, adoption was quick, as Starlink racked up rural customers fleeing underpowered, overpriced internet service. From January 2021 through January 2022, Starlink averaged more than 11,000 new subscribers each month, hitting 140,000 subscribers in November and 145,000 subscribers in January as Starlink expanded its market to 25 countries worldwide. At an average $99 monthly subscription fee, times 12 months in a year, that works out to more than $172 million in Starlink annual revenues for SpaceX.
Image source: Getty Images.
Back up. How many subscribers in January did you say?
Starlink had 145,000 subscribers in January. That's just 5,000 subscribers more than in November -- or an average of only 2,500 new subscribers joining, per month, over the last two months.
After setting a blistering pace of growth over its first several months of operation, a rate of growth that seemed to put Starlink on a direct course to an imminent and successful IPO, Starlink hit a pothole on the road to growth late last year. Now, Starlink's growth rate has slowed to a crawl.
What's wrong with Starlink?
Why did this happen? In an email to customers last year, SpaceX apologized for silicon shortages that slowed the expected production rate of the internet terminals used to access Starlink. The global semiconductor shortage is partly to blame for the slowdown in Starlink subscriber growth.
Concerns over Starlink's ability to maintain acceptable internet connection speeds may also be depressing enthusiasm for the service. In the U.S., which appears to have the greatest number of Starlink customers, average download speeds slowed by about 1% over the last six months, according to data from StarlinkStatus.space.
Curiously, in countries where Starlink isn't being used as heavily, speeds have continued to rise, with the global average speed of Starlink connections rising 5% -- about 25% faster than in the crowded U.S. market. This suggests that SpaceX's Starlink constellation may have a saturation point at which adding more customers will result in slower speeds for existing customers. If true, this could discourage new customers from signing up and put a ceiling on how big Starlink can grow in any one country.
What it means for SpaceX and Starlink's IPO prospects
Whatever the reason growth is slowing, the fact is that it is slowing. This calls into question Elon Musk's prediction last summer that Starlink would reach 500,000 global customers by mid-2022. Indeed, even if Starlink were to suddenly resume growing at pre-November 2021 rates, the company would be lucky to hit 200,000 subscribers by July 2022.
Granted, it's remotely possible that Musk's prediction will be proven correct. Given how much faster Starlink operates in unsaturated markets, the company's plan to launch Starlink service in an additional 45 or more new countries by the end of 2022 could mean that Starlink will grow faster outside the U.S. than within it, offsetting slowing U.S. growth -- but this is no sure thing.
What if Starlink's growth comes up short? What does this mean to investors hoping to buy into an eventual Starlink IPO?
Back in 2017, internal SpaceX documents reviewed by The Wall Street Journal showed that SpaceX was hoping to build Starlink into a $30 billion-per-year business by 2025. We're halfway to 2025 already, but Starlink is generating only about $172 million in revenue today. For that matter, even if SpaceX achieved its goal of reaching 500,000 customers by mid-2022, that would still leave the company well short of the $1 billion mark in annual revenue with less than four years to achieve the other $29 billion.
For SpaceX to make $30 billion a year from Starlink, it will need not 145,000, or 200,000, or even 500,000 customers. Making $30 billion a year will require more than 25 million customers worldwide, paying SpaceX $99 per month for broadband internet service.
Right now, SpaceX is less than one-half of 1% toward this ultimate goal. Unless SpaceX can attract a whole lot more customers and add them a whole lot faster than it's been adding them these past two months, SpaceX's target of $30 billion may turn out to be nothing more than a pipe dream. SpaceX's Starlink IPO may turn out to be a pipe dream as well.
