Space Exploration Technologies (SPCX +1.08%), better known as SpaceX, has been one of the most-watched companies of the year. A few months ago, and after much anticipation, the tech and industrial giant launched the biggest-ever initial public offering, raising $85 billion after the exercise of an overallotment option and entering the market with a trillion-dollar valuation.
Investors were eager to get in on the company due to its involvement in three high-growth businesses -- and possibly benefit from the innovative spirit of its leader, Elon Musk. But SpaceX hasn't remained at its high of more than $200, and today the pullback sets up a classic buy-the-dip case for long-term investors. Let's find out more.
Image source: Getty Images.
SpaceX's businesses work well together
We'll start by considering SpaceX's businesses, ones that overlap, allowing for shared strategies, efficiencies, and growth. The company operates a space unit focused on rocket launches, a satellite connectivity business called Starlink, and an artificial intelligence (AI) unit. How do they work together? The space unit's rockets may be used to accomplish the goals of the other two, carrying satellites and eventually infrastructure for data centers to space. And Starlink, the company's major revenue engine, helps fund operations and growth.
SpaceX has big ambitions across its businesses. In space, it aims to significantly bring down the cost of launches through the use of fully reusable rockets. And just this week, it reached a major milestone, sending reusable rocket Starship into orbit with 26 new Starlink satellites. This was the rocket's 14th test flight and first time in orbit.
Starship's ability to transport satellites to space is key to Starlink's growth and, therefore, to the company's overall revenue growth. In the latest quarter, Starlink revenue climbed 65% to more than $4 billion, and that's on a total of $7.8 billion in revenue for the entire company.
"It's not out of the question that at some point, Starlink will deliver a majority of the world's Internet," Elon Musk said in the earnings call, noting that could be less than 10 years away.
NASDAQ: SPCX
Key Data Points
SpaceX's capital spending in AI reaches $15 billion
Starship's strength is also crucial for any eventual build-out of data centers in space, something that could be a major revenue driver for SpaceX down the road. Today, SpaceX is pouring most of its capital spending into the AI unit, with the latest AI capex at about $15 billion out of a total of $18 billion. So it's clear that SpaceX must seek to significantly monetize this investment in the future.
SpaceX reported a 92% increase in overall revenue in the latest quarter, but as should be expected from a company investing this much in research, it's operating at a loss. A bright spot is that this loss narrowed to $541 million from $1 billion in the year-earlier period.
Now, let's consider the stock's performance. SpaceX priced at $135, opened at $150, and in the days that followed its debut, soared to a high of $225. Since, however, it's retreated from that high and now trades around $145. While some investors eagerly rushed to get in on SpaceX for the reasons I mentioned above, others have hesitated to buy -- or have even bought and then sold -- due to the risk that goes along with this investment.
In its prospectus, SpaceX itself even said that some of its goals rely on new technologies that haven't yet been proven, and therefore the timeline to achieve these goals "may be difficult or impossible to determine."
Meanwhile, investors have focused on the significant capex, particularly in the AI unit. All of this may have weighed on appetite for the stock. And it's true that SpaceX isn't the best investment for every investor -- those who are risk-averse or have a cautious investment style are better off looking elsewhere. But for very aggressive investors who aim to hold on for the long term, SpaceX's pullback from $225 sets up a classic buy-the-dip case.
