After a highly anticipated initial public offering (IPO) in June, Space Exploration Technologies (SPCX +0.01%) (SpaceX) held one of the more anticipated earnings reports on Aug. 4, its first as a public company. After the stock jumped over 18% from Aug. 3 until the earnings report, it plunged more than 13% following the call the next day.
Although SpaceX beat revenue expectations, the company is still operating at a loss. That isn't why investors panicked, though; it was the unexpectedly high capital expenditures (capex) SpaceX reported.
But regardless of the overall sentiment around SpaceX's spending plans, the one glaring reason why I'm avoiding the stock has nothing to do with its operations. It's about the value (or lack thereof).
NASDAQ: SPCX
Key Data Points
How SpaceX performed in its recent quarter
SpaceX's revenue jumped up 92% year over year to $7.81 billion, beating Wall Street expectations. Its most thriving segment is Connectivity, primarily its Starlink business. This accounted for nearly 55% of its total revenue ($4.29 billion) and was the only segment to operate profitably, with $1.66 billion in operating income (profit from core operations).
The company's other two segments, Space and AI, had operating losses of $542 million and $1.26 billion, respectively. This wasn't necessarily a surprise, though. It had been expected that Starlink would be the profit-maker while the others focus on growth.
The most notable part of SpaceX's earnings for Wall Street -- and why the stock dropped so much post-earnings -- was the $18.37 billion in capex, $15.29 billion of which went to its AI segment. SpaceX's high capex put its free cash flow well into the negative, and management noted it will continue to spend aggressively as it builds out its AI computing capacity.
As we've seen, Wall Street's view on heavy AI spending is "show me the results," which SpaceX hasn't produced just yet.
Image source: The Motley Fool.
The one glaring issue with SpaceX's stock
As of market close on Aug. 5, SpaceX's market value was $1.43 trillion, making it the 10th most valuable company in the world. With revenue of $7.81 billion, that would mean it's trading at 183.1 times its revenue. Calling that expensive would be a major understatement.
These aren't apples-to-apples comparisons by any means, but for perspective, here is how much the companies valued at more than SpaceX trade at (minus Saudi Aramco):
- Broadcom: 27.0
- Nvidia: 21.2
- Taiwan Semiconductor Manufacturing: 15.0
- Microsoft: 11.0
- Alphabet: 9.9
- Apple: 9.8
- Meta Platforms: 6.6
- Amazon: 3.8
Trading at over 190 times revenue is hard to justify for virtually any company, but especially one with ongoing losses like SpaceX. The company is still early in its public market life, so there's no need for investors to rush to invest at its current valuation. That doesn't make it a bad company by any means, but good companies don't always make good investments when you're overpaying.
