My, how time flies when you're having fun -- in space.
It's been less than eight years since I first began writing about SpaceX -- not just as a cool space company, but as a potentially profitable investment for space investors. The catalyst to this line of thinking came with Google's (as Alphabet (GOOG 9.96%) (GOOGL 10.22%) was known at the time) decision to team up with Fidelity to invest $1 billion in Elon Musk's pioneering space company, giving SpaceX a private market valuation of $10 billion at the time.
Eight years later, SpaceX's value has gone up 18-fold.
Image source: Getty Images.
From $10 billion to $180 billion
Reuters reported this surprising number last month, citing a SpaceX plan to allow its employees to sell some of their private shares at $97 apiece, resulting in an immediate 20% jump in valuation on the space stock, from $150 billion (in early December) to $180 billion (at the end of the month).
Viewed in isolation, the fact that SpaceX is currently the world's biggest space company, and easily its most prolific launcher of rockets, makes that $180 billion valuation seem not totally crazy. But have you noticed that United Launch Alliance (ULA) -- the joint venture between Boeing (BA 0.25%) and Lockheed Martin (LMT -0.75%) that is still considered SpaceX's biggest rival in space launch -- is being valued at much, much less than $180 billion?
How much is United Launch Alliance worth?
How much less, you ask? Well personally, I've ballparked United Launch Alliance's value (in an auction that's currently ongoing) at about $5.2 billion. But in an article that came out late last month, The Wall Street Journal quoted investment banker Jefferies & Co. citing a much smaller number -- $3 billion, or even perhaps as little as $2 billion -- as the likely price when the bidding for ULA comes to an end.
And it got me thinking: If Jefferies is right in its calculations, why is it that ULA would be worth so much less than its closest rival SpaceX?
ULA revenue and profits
This question isn't as easy to answer as it perhaps should be, for two reasons: First, SpaceX is a private company, and so it doesn't (and doesn't have to) give regular and accurate data on its revenue, profits, or free cash flow. And second, despite Boeing and Lockheed being public companies, it's not 100% clear how profitable their ULA subsidiary is.
We're not totally in the dark. Lockheed Martin does break out some financial data on its own space business, which includes at least some numbers from ULA. We know from data provided by S&P Global Market Intelligence, for example, that Lockheed's space revenue has grown about 29% over the past five years (so about 5% per year) from $10 billion to $12.9 billion. At the same time, we know that Lockheed's operating profit in space -- $1.06 billion in 2018 -- was only $1.05 billion over the last 12 months.
So Lockheed Martin's space business has actually been getting less profitable over time, and its profit margins have been shrinking as it's been forced to compete with SpaceX. We can't know, but we can presume, the same is true for Boeing's space business as well, and for the ULA joint venture as a whole.
Now, admittedly, ULA just launched its new Vulcan Centaur rocket for the first time. At a price just half what it used to need to charge for its Atlas V launches, there's a chance ULA will be able to reverse these trends and grow faster and more profitably in the future.
SpaceX beats ULA
Still, compare the numbers ULA is putting up today to SpaceX's. According to CNBC, SpaceX probably did about $2 billion in sales in 2018. But through 2023, it grew that revenue 450% to an estimated $9 billion. Compounded annually, that's a growth rate of 35% per year -- seven times as fast as ULA.
On profits, SpaceX may have earned at least a small profit in 2018. (We can't be sure, but according to internal company documents reviewed by The Wall Street Journal, that was the plan.) And in 2023 the company seems to have reached steady profitability, with our best guess being it earned about $220 million last year.
So in short, SpaceX is growing much faster than ULA, and it's getting more profitable over time -- while ULA is getting less profitable. These seem to me two big reasons why private investors might value SpaceX more than they value ULA.
On top of all that, SpaceX owns its own satellite internet business, Starlink, a business that SpaceX expects to churn out as much as 60% operating profit margins on its sales once it gets up to speed. And SpaceX has a new rocketship, the Starship, with which it hopes to drive the cost of space launch down to $10 million or less -- underpricing every other rocket company on the planet.
All things considered, I believe investors have good reason to value SpaceX more highly than ULA.
