Blain’s Morning Porridge – 17th November 2023: SpaceX and Starlink – What are they worth?
“I would like to die on Mars. Just not on impact.”
Rumours Starlink could be 2024’s big IPO are in circulation, but hype and the Musk effect have inflated the value of Space commercialisation and the financial actuality. What are they really worth?
Later today, or later this weekend, Space X will try for a second time to launch its Starship rocket. The first test, back in March was… interesting. It experienced a “rapid unscheduled disassembly” when engines failed, the stages didn’t separate properly, and someone pressed the self-destruct button. It met SpaceX owner Elon Musk’s parameters of a “fail fast” event.
The launch itself did not go well. Take-off was an “explosion so violent it left officials in disbelief over the environmental damage it caused” – according to Bloomberg. If you were a nesting Bobwhite Quail or a Blue Crab on the shores of Boca Chica on the Texas coast… it was definitely not your day as acres of land were torched. The concentrated power at launch completely destroyed the launch platform – which is something the Germans, Soviets and NASA all addressed decades before, but no one at SpaceX seemed bothered about as they chucked the biggest, most powerful rocket into Space. (Or rather, didn’t.)
Musk’s Starship atop a SpaceX heavy booster is a terrible beast. 33 of the most powerful “Raptor” rocket engines ever assembled are on the launch vehicle. Musk’s intention is to use Starship to go to Mars – I would love to see it fly. If this one disassembles in an unplanned manner, then I’m pretty sure they will fix it next time, or the time after that. Things may blow up, but SpaceX has shown that “doing things fast” actually works – just not perfectly. While NASA planned missions, Musk went ahead and built rockets.
You can’t deny his success. SpaceX dominates space delivery. If Space is genuinely monetizable – which remains a very big question – then Space X is so far ahead of the opposition, its likely to be the firm that sets the market for decades. Its rockets are reliable, they work, they are reusable. Starship is a key part of Nasa’s next moon mission – which is scheduled next year. (I will take money it will be delayed.)
The second part of SpaceX is Starlink, its’ constellation of over 5000 plus Low Earth Orbit satellites. Musk’s plan is to bring internet access to every dark spot on the globe. This week there has been a flurry of speculation Musk will IPO Starlink in 2024 on the basis he recently said it had reached “breakeven cash flow”, which the high priests of Musk who peruse and record the holy-tweets of the blessed Elon say presages an IPO.
Musk subsequently denied a 2024 IPO is under consideration, but already the market is talking up Starlink as the most exciting new business for next year.
What will Starlink be worth?
Earlier this year, The Wall Street Journal said SpaceX made a profit of $55mm in Q1 2023, on revenues of $1.5 bln. Musk and others have hinted SpaceX will exceed revenues of more than $9 bln in sales from Rocket Launches and Starlink this year. That is expected to grow to $15 bln next year. Depending on who and what you read, and what you discount of Musk’s haverings on Twitter/X, SpaceX is now profitable. It’s currently valued at $150 bln – but recent noise from shareholders says that will be $300-500 bln in just a few years, equal to a multiple of perhaps 300-500 times, expensive even by Musk standards of conflabulation. Is that remotely justifiable?
Starlink has literally doubled the number of satellites in earth orbit in just 5 years. It owns nearly 60% of satellites circling round the Earth! I understand he want to double its total numbers of “birds”. As a private company, its revenues are obscure. Back in 2015, Musk said he expected to have 20 million subscribers by 2022. While over 3 billion people do not have access to terrestrial internet, the satellite provider currently only has 1.5mm subscribers.
Satellite based internet has issues. Because the birds circle up in space, latency (the speed of communication) is not as fast as current terrestrial systems, thus it’s not great for many modern apps. But, it does the basics well. At the right price point, it should provide good backup, but if you are tech reliant you’d probably want to be near a fibre hub. There is also little that can be upgraded in space.
If I go sailing across an ocean, I would certainly look at buying Starlink, but I already have a sat-phone and GPS – so do I really need it? It will cost me £450 for the hardware, plus £75 monthly for a service comparable to 4G. Starlink can be used by the Military – as the Ukrainians have shown. (Many folk think Musk’s denial of service to Ukraine when it wanted to take out Crimean targets is because Russia quietly threatened to take out Starlink assets in Space!)
According to the WSJ and Forbes, Starlink achieved revenues of $1.4 bln in 2022 – five times what it made in 2021.
OneWeb, once touted as the UK’s rival to Musk, is now owned by the French and has 634 satellites in orbit. Eutelsat does much the same thing as Starlink – satellite internet connectivity. It posted revenues of $1.4 bln in 2022-23 – down 5%. It expects to hit revenues of $2.1 bln by 2027. Current EBITDA is $820mm. On completion of the Eutelsat/OneWeb merger in September, the company was valued at $3.4 bln – still an agressive multiple when profit remains low.
If Starlink shows numbers similar to Eutelsat, it will not excite the many funds that have invested in SpaceX’s private equity. They expect a phenomenal valuation for Starlink. Expect Musk to float a Starlink IPO on a sea of speculative hype about subscriber growth, dominance of the market, future revenue streams, new tech, and all hinds of fantastical tech-whiffery. Whether Starlink is massively profitable or not, Musk is not going to IPO it for anything less than gazillions.
The real question is how profitable can Space be?
I devour Science Fiction novels, and while I love the concept of nipping off to cloud scoop Neptune for fuel, or finding massive diamonds in the Kuiper belt, the reality of recent space missions is they are not easy and require tremendous resources. Interplanetary flight obeys the laws of orbital physics. It is slow, it is expensive, and it’s dangerous. It’s far more likely to be done by robotic unmanned missions under AI control, rather than exposing humans to risks in deep space. Going to Mars is a massive undertaking – and no one has ever really given a good answer to the question why?
While Asteroid mining for rare minerals sounds exciting, you first have to find the target and then get there and back, potentially taking a decade or more. In that time, it’s perfectly possible science and technology will have found new ways to sidestep the need for particular materials. There may be near earth space businesses – like zero grav manufacturing, and upto 4 new space stations are being planned when the ISS is deorbited in the 2030s.
The economics could change if the technology of Space flight evolves, and we find new propulusion methods, and ways to cart heavy materials from Earth and the Moon for construction in space. But, would that happen if a single firm, say SpaceX, has any kind of monopoly on launch vehicles? How much could that stifle invention and innovation?
And then there is one huge remaining problem…
Even if Starlink is insanely profitable, and there is a commercial case for space, we may have already made it impossible. Launching thousands of Low Earth Orbit satellites carries significant consequence risk. Space is strategic – and the Military aren’t enthused about the space they need for their spy satellites being filled with space junk or commercial satellites…
There concern is Kessler’s Syndrome – which I wrote about recently as a potential No-See-Um risk. A satellite collision in inner space could trigger a cascading number of further collisions as billions of tiny shards take out other satellites, very quickly making space missions too dangerous. The fact the Israeli’s apparently shot down a ballistic missile fired from Yemen in inner space highlights the risk!
Each little piece of space debris has the potential to hit something else – a chain reaction creating more and more debris eventually obliterating all functional satellites in LEO, and potentially forming a barrier to future launches to higher orbits. It’s a doomsday scenario the boffins claim could happen.
It’s a business risk for anyone considering space investment.
Five Things to Worry About This Weekend
Out of time, and off for a swim…
Market Strategist and Author Morning Porridge