Elon Musk has a problem. He needs his Starlink satellite internet program -- designed to blanket planet Earth in broadband, such that every one of the world's 8 billon inhabitants becomes a potential customer of SpaceX -- to become the growth driver and profit maker for SpaceX for decades to come.

But right now, Starlink is losing money for SpaceX.

A lot of money.

Maybe as much as $20 million a month.

SpaceX Starlink satellite dish on a rooftop in the countryside.

Image source: Getty Images.

Elon Musk's space math

Now, the math around this problem is hard, and it's made even harder by the ambiguity of the SpaceX CEO's public comments on the subject -- and the fact that SpaceX doesn't have a PR department anymore, willing or able to answer questions. Still, investors do know a few things about the economics of Starlink.

What Musk has said

Musk recently spent some time on Twitter (which he now owns, so that makes sense) grousing about the expense of subsidizing Ukraine's access to Starlink during its fight against Russia's invasion. In one tweet, the SpaceX CEO complained that "Starlink is still losing money," and getting little help from the government.

A few days later, he explained that at least part of the reason Starlink remains unprofitable is because SpaceX is losing about $20 per month due to unpaid service. Apparently, various government, organizational, and individual supporters are paying for only about 11,000 of the 25,000 of the Starlink terminals sent to Ukraine.

While sponsors have picked up some of the tab for SpaceX's altruism, the CEO estimates that in total, providing free Starlink service to Ukraine had already cost it $80 million as of October and would top the $100 million mark by year-end.

What other folks are saying

And that cost is growing. Indeed, according to a report from CNN, SpaceX has informed the Pentagon it could cost nearly $400 million to continue providing Starlink service to Ukraine over the course of 2023, including the cost of providing Starlink terminals as well as monthly subscription costs.  

The price of Starlink access for bandwidth-hungry military units reportedly ranges as high as $4,500 a month. For ordinary Starlink users, on the other hand, SpaceX has until now been charging barely half what it charges users in the West -- about $60 a month. But as SpaceX's Starlink losses mount, the company says it won't be able to afford to continue this level of discounting, and will raise rates to $75 per month beginning on Dec. 29.  

No margin for error

Now, SpaceX is a private company, and reveals little about its revenue from Starlink, or the profit margin it earns on that revenue. Every time the company launches another batch of Starlink satellites to orbit, though, it's using up space on a Falcon 9 rocket that it could otherwise sell to private customers at up to $67 million per launch. Considering this cost of creating the Starlink service, you have to figure that the profit margin is pretty slim right now -- or even nonexistent.  

Granted, the 25,000 Starlink terminals operating in Ukraine represent only a small sliver of Starlink's 500,000 customers around the globe. If those 25,000 customers aren't paying -- or even just aren't paying on time and in full -- then you can see how Ukraine alone has the potential to quickly eat up as much as 5% worth of operating profit margin at Starlink.

You can see how Ukraine alone could be enough to render Starlink unprofitable.

Troubles abroad, troubles at home

Now add to all these troubles abroad the fact that Starlink's popularity here in the U.S. may be sagging as its bandwidth maxes out.

According to new data released by Speedtest late last month, average download speeds obtainable by Starlink users in the U.S. and Canada dropped by 17%, and 14%, respectively, between the second and third quarters of 2022. If you recall, way back in 2020 when Starlink first rolled out beta service via its 800 in-orbit satellites, it promised U.S. customers download speeds of from 50 Mbps to 150 Mbps.  

With more than 4 times as many satellites in orbit now, as then, you might expect those numbers to be tracking toward the high end of that range by now. But instead, Speedtest says most U.S. users are lucky just to catch the low end, and scraping by on 50 Mbps. (Canadian users are more fortunate, averaging 65.8 Mbps.)  

Conclusion: As Starlink's user base has grown, the amount of bandwidth it can support has rapidly filled up -- to the extent that Starlink may soon be unable to deliver on its promises of great download speeds. Granted, even 50 Mbps is a big improvement over what many rural internet users were able to obtain pre-Starlink. But as speeds continue to slow, Starlink's user growth is likely to slow as well. And if that happens, it will hurt Starlink's ability to scale its service, spread its costs over more users, and grow its profits -- or even earn a profit at all.

Thanks partly to Russia's war in Ukraine, but also partly to the laws of physics and limited bandwidth, the prospect of a Starlink initial public offering may be as far away today as ever.