SpaceX (SPACE) has been at the forefront of the commercial space industry for years. Its rockets carry government and commercial satellites to orbit and have even delivered supplies to the International Space Station. But this is just the beginning, according to founder and CEO Elon Musk. He states that, within a few years, SpaceX will take humans to space, first to the moon, and then to Mars, not long after.
While it does not cost anything to dream of a future mission to Mars, actually undertake a will. For years, SpaceX has promoted the idea that Starlink, a proposed constellation of up to 11,000 small satellites, will fuel the company's broader vision by providing broadband internet coverage to customers around the world. Therefore, Starlink has been a key part of SpaceX's growth narrative.
However, according to the company's recent comments, Starlink could be receiving the ax. That could mean serious problems for the mission of SpaceX and for any hope of significant gains in the future.
Financing a dream
According to a study published by the National Research Council, a manned mission to Mars would cost a considerable $ 220 billion. That's a bit outside the SpaceX price range, to say the least. Since 2002, the private company has raised $ 2.4 billion of investors in 21 rounds of financing. The only significant source of operating income for SpaceX is the launch contracts, with the US government. UU., Your dominant client.
However, despite all its efforts to reduce the price of launches, the margins are still narrow and SpaceX is still not profitable. While there are still a few years to go, a lot of new competitors, such as Jeff Bezos' Blue Origin, will put more pressure on the results of SpaceX.
SpaceX is aware that the launch of satellites for government and commercial customers can not provide the money needed to fund its highest ambition of manned space exploration, nor justify its valuable valuation of $ 30 billion. That's where Starlink comes into play. The first satellites should be operational next year, with an aggressive expansion ahead. In 2015, SpaceX estimated that, by 2025, Starlink would generate $ 30 billion in annual revenues from 40 million subscribers.
Source: The Wall Street Journal
Without Starlink, SpaceX would be just another space-intensive, capital-intensive business that will face increasingly tough competition, large operating losses and an uncertain future.
Given the obvious importance of the Starlink to SpaceX narrative, it's a surprise that the program is not working. In a recent interview, Gwynne Shotwell, president and chief operating officer of the company, suggested that Starlink might not be viable:
"I think that internet and global telecommunications are something like a trillion dollars. So it is worthy of reflection and the hard work we are doing. But is it feasible with our approach or not? Still [to be determined]. "
That is far from 2015 and its promise of endless profits. It is doubly strange to make such admission in the midst of another capital increase, which aims to raise up to $ 510 million of capital sales by valuing the company at $ 30.5 billion.
A sky full of people
To the problems of Starlink is added the appearance of competitors in the satellite Internet space. Amazon (AMZN) recently announced its intention to launch its own constellation of more than 3,000 satellites that could end up competing directly with Starlink. When the news of Amazon's plans became known, Elon Musk demonstrated his usual bravery, accusing Jeff Bezos of being an imitator.
Bezos has already picked up a number of former SpaceX engineers, including some of the top Starlink managers that Musk had fired, reportedly due to his slow progress. Since Starlink could cost up to $ 10 billion to complete, price competition of any kind could prove disastrous for the expected margins.
In our latest research note on SpaceX, we came to the conclusion that the success of the company would depend on its ambitious development program, not the current business of launching satellites:
"The aerospace sector is a brutal business. SpaceX is far from guaranteed survival, even with government contracts aimed at building an ecosystem of multiple private release providers. That said, SpaceX has managed to be a disruptor in a tired and welcoming industry. "If you can really get your other projects off the ground while defending yourself from the new launch industry competition, you could justify your valuation."
With Starlink now in danger, the future of SpaceX seems more precarious than ever. Investors in the company, either directly or through mutual funds, can not afford to ignore this latest revelation. Without Starlink, there is no path to sustainable profitability, nor a credible justification for the aggressive valuation of SpaceX.
SpaceX was always a risky proposition from an investment perspective. With the future of Starlink in doubt, it is absolutely reckless to bet on this company.
Revelation: I / we do not have positions in any of the actions mentioned, and we have no plans to start any position within the next 72 hours. I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (except for part of Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.