The news lit up space investors like a fireworks show: Firefly Aerospace is for sale. And the sales price -- $1.5 billion -- implied the company's valuation has actually shifted into reverse!
I admit that as a longtime follower of this space stock, this report by Bloomberg last week caught me by surprise.
Last summer if you recall, I had the opportunity to interview Firefly CEO Bill Weber to discuss his company's history, its upcoming space missions and -- most tantalizing for an investor -- the potential that Firefly Aerospace might hold an initial public offering. Weber didn't give a definitive answer on the IPO question, but neither did he rule out the possibility. He most certainly did not hint that Firefly was planning to sell itself outright...or at a discount!
And yet, Bloomberg says this exactly what's going to happen.
Image source: Getty Images.
Firefly lights up a "for sale" sign
Citing "people with knowledge of the matter," Bloomberg reported that private equity firm AE Industrial Partners and other Firefly investors are cooperating with the company to explore "strategic options" -- generally a euphemism for a sale. What's curious about this report, though, is that Firefly recently hit an estimated private market valuation of $1.8 billion, according to Payload -- yet Bloomberg said the company wants to sell for only $1.5 billion.
So why would Firefly want to do that?
Firefly's still flying high
After all, 2024 seems a strange time to turn out the lights and sell. Firefly's sitting atop a record of four completed launches with its Alpha rocket to date, including a high-profile, time-sensitive mission for the U.S. Space Force completed late last year.
Firefly's got four more flights slated to launch this year, including one that will arguably vault it into the ranks of artificial intelligence (AI) companies (an AI mission for space navigation), as well as a NASA mission to put a lunar lander on the moon. The company is developing new products -- the lunar lander itself, an orbital space tug to carry the AI system, and two new rockets being built in partnership with defense contracting giant Northrop Grumman (NOC 0.51%).
In short, one could almost say that Firefly's firing on all cylinders (if rocket ships used cylinders).
Firefly's valuation rollback
Rounding out the list of objections to a Firefly sale is a statement from Firefly itself, which says, "Speculation about transactions in our industry is constant. As a private company, Firefly does not comment on any speculation related to M&A or financing."
And that right there might be a clue: "or financing."
Three years ago, almost to the day, Firefly became a space unicorn company, raising $75 million in "Series A" funding and clinching a $1 billion private market value. By last year, Firefly had already grown that valuation 50%, to $1.5 billion, on the private market. And Payload estimates the company is now worth $1.8 billion.
With the company's valuation still on the rise, the likelihood that Firefly would suddenly sell itself for the same price it was worth six months ago seems slim. A more reasonable move would be for the company to sell more stock at its new and improved valuation, to amass some spare cash to fund all of its new projects.
Should you invest in Firefly stock?
This, if I had to guess, is most likely what's going on at Firefly. And if I'm right, this means investors may still get a chance to invest in a future Firefly IPO.
But should you?
That really depends on how big Firefly has gotten over the past year, and how fast it's growing. As a privately held company, Firefly doesn't have to report its financial data publicly, meaning any information we have on the company's annual sales and earnings is just educated guesswork. Still, ZoomInfo.com estimates Firefly did $154 million in revenue last year. Assuming this number is in the ballpark, it would imply that at $1.5 billion, Firefly is trading for 10 times annual revenue. A $1.8 billion valuation would raise that P/S ratio to 12 times.
Suffice it to say that's a pretty steep valuation for a space company that is (as far as we know) still not profitable. As I've argued from examining similar deals in the space market, fast-growing but still unprofitable space stocks most often trade in the 2- to 4-times-sales valuation range, and rarely for more than 6 times sales. A 10x to 12x sales valuation would therefore seem to be on the high side.
That's not to say it's impossible. Firefly might actually have more revenue than the estimates surmise. It might be closer to profitability, or growing faster than we believe. The best individual investors can do at this point is keep following the news, keep evaluating the company's progress...and cross our fingers that the rumor that Firefly is for sale proves false.
