Investors have long wanted a chance to invest in Space Exploration Technologies, Elon Musk's pioneering space company. SpaceX has no plans to IPO itself anytime in the foreseeable future, but ... what about Starlink? If we can't invest in SpaceX, will Musk at least give us a chance to invest in his broadband internet from space subsidiary?
That's an excellent question -- but you may not like the answer.
Image source: SpaceX.
Waiting with anticipation
Remember the old Heinz ketchup commercial "Anticipation"? Waiting for Starlink to IPO is kind of like that. As far back as 2019, Musk confirmed that he was contemplating a Starlink IPO. Back then, the plan was to IPO Starlink in perhaps three years (i.e., 2022). Here we are in 2022, though, and now he's saying that an IPO is still another two or three years away.
This we learned when, last week, Musk told SpaceX employees that he's not sure exactly when Starlink will IPO, "but maybe it will be like -- I don't know, just guessing -- three or four years from now."
Musk has previously confided that he doesn't want to IPO Starlink until "revenue is reasonably predictable." In an audio recording of last week's presentation, obtained by CNBC, he repeated that condition and added that Starlink's business needs to be "smooth sailing" before he opens it for IPO.
Space internet math
How close is Starlink to smooth sailing? At last report, SpaceX had launched some 2,700 Starlink satellites into orbit, of which perhaps 2,300 are believed to be still operational -- roughly one-sixth of the way to its goal of getting 12,000 satellites up there.
In a post on Twitter last week, Musk confirmed that these satellites are currently servicing nearly 500,000 users spread across 32 countries -- including 15,000 Starlink terminals provided to Ukraine. Musk also confirmed that Starlink's next big step will be to produce a "v2.0" version of the communications satellite and deliver it to orbit via a special dispenser mechanism built into a Starship transport rocket -- a vehicle still in development, which has yet to reach orbit.
Deck from SpaceX all-hands update talk I gave last week pic.twitter.com/ApsdPjjukh
-- Elon Musk (@elonmusk) June 5, 2022
Musk has not, however, said much on the subject of how much revenue Starlink is currently pulling down -- but from what we do know about the project, Starlink appears to be behind schedule.
2.2 down, 97.8 to go
Consider this: At SpaceX's recently announced higher subscription price for Starlink service ($110 per month), Starlink is potentially generating as much as $660 million in annual revenue right now.
That sounds like a lot, but consider this, too: SpaceX's initial plan had Starlink generating closer to $12 billion per year in revenue by this point. By 2025 (which, coincidentally, is now the new estimated IPO date for Starlink), Starlink needs to be generating $30 billion in revenue for everything to be on track.
But this means that, three years after launching its first satellites, Starlink is still only 2.2% of the way toward meeting its financial goals -- with only three years remaining to reap the remaining 97.8%.
Granted, SpaceX has taken steps to accelerate revenue growth for the business, including introducing a pricier new premium tier of service for $499 early this year and raising prices across the board just a couple of months later. But it's a generally accepted rule of economics that when you raise prices, demand falls. Potentially, the higher prices SpaceX is now charging for Starlink could end up slowing down the service's revenue growth rather than speeding it up.
The upshot for investors
Granted, it's possible that, even if Starlink ends up generating revenue at levels (far) below what SpaceX initially hoped to see, those revenues would at least be "reasonably predictable," as Elon Musk wishes. The downside, though, is that if revenues are predictable but lower than hoped, this will mean Starlink is worth less -- and will generate less cash for SpaceX via an IPO.
If by "reasonably predictable," however, and capable of "smooth sailing," Musk means generating the $30 billion-plus revenues per year, with 60% operating profit margins, it could be a good long time still before investors get a chance to invest in a Starlink IPO.
