SpaceX has confidentially filed to go public, seeking to raise up to $75 billion at what has now grown to an estimated $2 trillion-plus valuation. The company, which includes its flagship rocket building and space exploration business, its low-Earth orbit satellite internet operations, the artificial intelligence (AI) lab xAI, and social media company X (formerly Twitter), is one of the most anticipated initial public offerings (IPOs) ever.
But investors can gain exposure to the company before it makes its public debut. Perhaps one of the best ways to buy into SpaceX before its IPO is by investing in EchoStar (SATS +0.54%). The satellite communications company now finds most of its value tied to its future stake in SpaceX, which means its stock price moves in line with expectations for SpaceX more than its core business operations.
Investors may be anxious to get in on SpaceX before its IPO, but they may be better off waiting to take direct ownership of the stock.
Image source: Getty Images.
How much is EchoStar's stake in SpaceX worth?
Last September, EchoStar struck a deal with SpaceX to sell some of its wireless spectrum licenses in exchange for $17 billion, half in cash and half in stock. It sold another $2.5 billion worth of spectrum in November in an all-stock deal. At the time, SpaceX had a valuation somewhere between $400 billion and $800 billion.
It's unclear exactly how much EchoStar's future shares are worth based on a $2 trillion valuation for the SpaceX IPO. That's because shares were diluted in the merger with xAI. But at the $1 trillion valuation used in that deal, EchoStar's shares could be worth as much as $27.5 billion. Add the $8.5 billion in cash it'll receive once the deal closes, and the company's market cap of $35 billion looks like you're practically getting paid to wait for the deal to close.
On top of that, EchoStar is also slated to sell $23 billion worth of spectrum to AT&T. But that's offset by the $24 billion in net debt on its balance sheet at the end of 2025.
But what's not reflected in those numbers are the tax liabilities EchoStar faces. Management cut its estimate of taxes from the spectrum sales from a range of $7 billion to $10 billion to a range of $5 billion to $7 billion last quarter. However, it didn't explain why it expects more favorable tax treatment. What's more, if EchoStar ever wants to realize the gains of its SpaceX stock, it'll have to sell shares and incur taxes on the gains, which are already quite substantial. That could add billions more to its tax bill.
So, it's not necessarily the home run it might look like at first blush, but investors may still be getting a fair deal. Plus, EchoStar has an operating business worth considering on top of its future cash and SpaceX equity.
NASDAQ: SATS
Key Data Points
The operating business isn't much to write home about
EchoStar reabsorbed Dish Network at the start of 2024, acquiring its television, wireless phone, and broadband internet services, along with its trove of wireless spectrum licenses. But all three services are facing significant challenges in growing their operating income.
The pay-TV business ended the year with 7 million subscribers, down 780,000 for the year. That led to 10% in operating income before depreciation and amortization last year.
Meanwhile, the wireless and broadband businesses combined generated an operating loss last year. That could improve with the switch to using AT&T's network for its Boost Mobile brand and foregoing plans to build out its own wireless network, but it faces significant competition in the virtual network operator market with minimal differentiation.
Overall, it's a business in decline with worsening operating margins. It provides minimal value relative to EchoStar's spectrum assets, which it's set to turn into cash and SpaceX equity. As such, the stock appears to be trading at a fair value right now. However, investing in it solely for its SpaceX exposure places a lot of trust in EchoStar's management to make the most of the cash and stock infusion coming later this year. That makes it a very inefficient way to invest in SpaceX, and most investors will be better off waiting for the upcoming IPO.
