Starlink IPO: Buy the Next Elon Musk Stock?
It’s not every day that a casual Twitter conversation reveals what could be one the world’s most hotly anticipated IPOs.
Yet, that’s exactly what happened on February 9th when Elon Musk responded to a Twitter user, “Once we can predict cash flow reasonably well, Starlink will IPO.”
Would a Starlink IPO follow in the footsteps of Tesla and transform a massive industry, and how soon could it go public?
What is Starlink?
Starlink is a division of SpaceX that’s building out a satellite Internet constellation. The company began beta testing the satellite service in October 2020 and began taking preorders in February 2021.
Expected IPO Date:
2023 or later
- In May 2018, SpaceX President and COO Gwynne Shotwell estimated Starlink will cost $10 billion or more to deploy, making it an extremely capital-intensive project.
- In January 2021 Starlink cleared the 1,000 satellites in orbit mark. SpaceX is targeting 1,440 satellites in the constellation as part of its “first tranche.” However, the company has approval from the FCC to operate close to 12,000 satellites in total.
- Starlink has key competitive advantages in launch cost and its low Earth orbit (LEO) satellites offer significantly lower latency than rival satellite offerings.
- Come on… It’s from Elon Musk. While he’s not batting 1.000, he’s also one of the most visionary CEOs in the world.
- Satellite Internet constellations have historically been expensive projects that led to bankruptcies and have failed to live up to their promise.
- Once Starlink is operational its total addressable market (TAM) could prove far smaller than investors anticipate.
Prior to Elon Musk’s tweets in February, there had been past hints that a Starlink IPO might come before SpaceX. In February 2020, SpaceX President Gwynne Shotwell called Starlink “the right kind of business that we can go ahead and take public.”
With signals pretty clear from company leaders that a Starlink IPO will happen before SpaceX stock ever hits public markets, the next question becomes when could Starlink reasonably predict cash flow? Is an IPO likely shortly after the company makes Starlink widely available or is it still years away?
Starlink News & Analysis
- Our SpaceX Stock hub: Everything you need to know about SpaceX before its IPO
- March 11: Starlink launches 60 satellites & reveals next growth market
- February 28: Elon Musk Doubles Down on Promise to IPO Starlink
- February 14: Elon Musk Predicts Starlink Will Make $30 Billion. Don’t Believe It.
The Shocking Truth Elon Musk Knows: Satellite Internet Has Been a TERRIBLE Business
To answer the question of when an IPO could take place, we need to first detail the economics of satellite Internet businesses. The industry has a terrible history that Elon Musk knows all too well. As he recently said on Twitter:
“Every new satellite constellation in history has gone bankrupt. We hope to be the first that does not.”
A dire assessment from Mr. Musk, but not an unfair one. When we look at the graveyard of ambitious – and failed – satellite constellation projects we find:
- Iridium: Backed by Motorola, Iridium declared bankruptcy in 1999 after spending $5 billion to launch a satellite constellation. When it went bankrupt, the service had only 10,000 subscribers. Iridium reorganized after bankruptcy and is publicly traded today.
- GlobalStar: Launched in 1991, the company went bankrupt in 2002. It was restructured and today is publicly traded under the ticker GSAT.
- SkyBridge and Teledesic: Two proposed satellite constellations backed by Alcatel and Microsoft in the ‘90s that were cancelled because they proved cost-prohibitive.
Today, both Viasat (Nasdaq: VSAT) and HughesNet, a division of EchoStar (Nasdaq: SATS), provide satellite Internet.
Are they world-changing companies? Not really. Let’s compare the two companies side-by-side.
|Company||Free Cash Flow||5-Year Revenue Growth Rate (CAGR)||Net Income|
|Viasat||-$100.5 million||9.8%||-$2.1 million|
|EchoStar||$125.6 million||0.4%||-$40.2 million|
Both companies are relatively slow-growing and sporadically profitable. So, why could Starlink be different?
Part of the challenge is both Viasat and Echostar operate geostationary (geo) satellites, which are 22,000 miles above the Earth. As you’ll see in the next section, Starlink’s low Earth Orbit (LEO) satellites are much closer and provide more of a true broadband Internet experience.
The Bull Case: Why a Starlink IPO Could Soar
Given this look at Viasat and EchoStar, you might come to the conclusion that satellite Internet is a hopeless endeavor.
Yet, Elon Musk would say the opposite. He’s repeatedly gone on record with his belief that Starlink could become a $30 billion business. That tracks with SpaceX internal documents received by the Wall Street Journal in 2017, which revealed the company’s growth plans for Starlink.
- SpaceX projects that Starlink will reach 40 million subscribers.
- Once at this level, the company projects $30 billion in Starlink revenues by 2025.
- This would contribute roughly 83% of SpaceX revenue.
- Fueled by Starlink, SpaceX is targeting more than $20 billion in operating profit by 2025.
While those numbers would be mouthwatering for investors if they came to pass, they should also pull out the skeptic inside us all. After all, Viasat and HughesNet have roughly $4 billion in revenue combined.
Which would mean Starlink is aiming for more than 7X of their total revenue. Here are a few reasons Musk’s $30 billion goal could be possible.
1.) Starlink has technological advantages: Satellite Internet has historically been slow and expensive. In independent speed tests, Starlink is roughly 4X as fast as HughesNet/Viasat. Importantly, its latency is a more than 10X improvement. In a world of Zoom meetings, latency advantage could be a massive difference.
2.) Starlink is cheaper: Starlink is initially pricing at $99 per month for faster Internet with (for now) no data caps. By comparison HughesNet is $70 per month for 20GB of data and a fraction the speed. Meanwhile, Viasat’s plan with a 40GB plan costs $100 per month.
3.) Launch cost advantages: Why is Starlink able to charge cheaper prices? For one, the company launches its own satellites into space, giving the company an enduring competitive advantage.
4.) Marketing edge: Once you’ve built out a satellite network you still need to spend heavily to get attention and acquire customers. With Elon Musk in charge, Starlink gets no shortage of free press. This once again gives the company a huge cost advantage.
With 42 million Americans lacking access to broadband, a large satellite market overseas, and opportunities such as connectivity for trains and airplanes, fund manager ARK Investments estimates satellite connectivity could approach a $100 billion annual market over the medium term.
The Bear Case: Why You’ll Want to Avoid Starlink Stock
Now that we’ve gotten the good news out of the way, let’s discuss why you may want to avoid a Starlink IPO.
First off, we detailed earlier that internal Tesla documents had leaked and revealed projections for $30 billion in Starlink revenue by 2025. Also in those documents was a projection that Starlink would record $1 billion in revenue in 2019, and 2021 Starlink revenues would exceed $5 billion.
With Starlink having just left its beta phase and moving into general availability, it’s likely already years behind projections, so you can see how a project as complicated as satellite Internet can quickly fall behind schedule and fail to live up to projections.
Second, while Starlink has advantages today with users reporting speeds that have reached beyond 200 Mbps, speeds could slow once more users begin using the satellite network. Rich Smith at The Motley Fool wrote a full article about this, but the short story is as more customers begin signing up for Starlink, the more its network capacity will be taxed.
Third, the market for Starlink may simply not be as robust as many investors would believe. For example, while 42 million American households lack broadband, at a $50 per month average broadband bill, that entire market is only about $10 billion.
While $10 billion isn’t small, it’s also not nearly the size of many other markets major technology companies are chasing.
When Can I Buy Starlink: Its Target IPO Date
So, when might Starlink IPO? As Musk has said, “when we can predict cash flows reasonably well, Starlink will IPO.”
Our guess is that IPO date will occur in 2023 or later.
The important note is that cash flows will become predictable once Starlink has millions of customers. If you assume the annual bill for Starlink is roughly $1,200 per year, the company will need roughly four million customers to reach a run rate of $5 billion per year.
While that might not seem like a huge number given SpaceX’s current $74 billion valuation, remember that the main two satellite companies Viasat and EchoStar combine for $4 billion in revenue today.
Starlink will need time to continue building out its constellation of satellites, but also to expand internationally. While Starlink first operated in the U.S., Canada, and the UK, it has begun expanding its international operations. Future markets include Latin America, India, and Japan. The addition of these markets would provide Starlink with added growth that could make an IPO offering even more appealing.
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Starlink Sales Catalysts that Could Accelerate an IPO
In October 2020 Morgan Stanley estimated SpaceX would soon be worth more than $100 billion largely thanks to an estimated $80.9 billion valuation on Starlink. Morgan Stanley further predicted a “bull case” where Starlink becomes a $132.8 billion business.
The downside of Morgan Stanley’s predictions? An estimate that Starlink won’t become cash-flow positive until 2031 and burn $33 billion in capital into the next decade.
That’s not exactly welcome news if you’re hoping to buy a Starlink IPO in the year to come. Yet, a few key accelerants could help SpaceX reach positive cash flow sooner than estimates.
- Expanded target market: Today, Starlink’s target market is mostly limited to rural areas with limited (or poor quality) broadband options. However, as the service continues launching satellites into space it could reach significantly larger markets. Morgan Stanley believes the service could improve to a level where 5% of the world’s population (more than 300 million people) are Starlink customers.
- New growth markets: On March 8th SpaceX filed an application with the FCC to supply satellite internet to moving vehicles. By providing Internet to connected machines of all kinds, Starlink could expand past home Internet service.
- Mega-contracts: On March 22nd it was reported SpaceX is negotiating with the United Kingdom on its $6.9 billion “Project Gigabit” to supply Internet to rural areas. If Starlink is able to win larger projects at a state or national level it could accelerate revenue beyond today’s projections.
Starlink Competitors: What are its Main Threats?
Since its founding, SpaceX has faced competitors ranging from Virgin Galactic to Blue Origin. In recent months dozens of space-oriented companies have either gone public or are exploring it. Many of these companies are focusing on markets that aren’t competitive with Starlink (such as space tourism or imaging satellites). However, a number of competitors to Starlink have emerged.
- Amazon: As if Jeff Bezos’ efforts with Blue Origin weren’t enough, Amazon is also planning to compete with Starlink in the low Earth orbit satellite space. Through their Project Kuiper the company plans on launching 3,236 satellites into space. The major threat to Starlink? Beyond Amazon’s balance sheet, the company claims antenna breakthroughs could allow Kuiper to deliver speeds of up to 400 Mbps, or twice the fastest delivered speeds of Starlink today.
- OneWeb: Is aiming to launch 648 satellites into orbit. The company has faced challenges that included a bankruptcy filing, but now has backing from such well-funded companies such as Softbank.
Overall, Starlink seems well-positioned in this market. OneWeb faces financial difficulties while Amazon may find the cost of funding satellite Internet to be too significant to pursue directly. In recent years tech giants like Google have folded up projects aimed at solving rural broadband availability.
Starlink Stock: Who Owns it Now?
For now, Starlink is 100% owned as a subsidiary of SpaceX. As of September 2020, Elon Musk owned 54% of SpaceX, leaving him as the majority owner.
A clever backdoor play on SpaceX (and thus Starlink) is Alphabet (Nasdaq: GOOGL), the parent company of Google. The company invested $900 million in SpaceX – when it was valued at $12 billion – for a 7.5% stake.
While that investment might be small relative to Alphabet’s total valuation, it gives investors a “backdoor” investment into both SpaceX and Starlink itself. Today Alphabet’s stake in SpaceX is up more than 500%.
Starlink Stock: Potential Valuation and Share Price
As noted above, today SpaceX has been valued at $74 billion and has a share price of $419.99 (cheeky Musk).
Currently, the vast majority of SpaceX’s revenue comes from the launch industry. In 2018, it was reported the company made $2 billion in launch revenue. That topped rivals ULA and Orbital ATK, who made between $1 and $2 billion that year.
Overall, the bulk of SpaceX valuation is likely attributed to Starlink. If the company were to successfully become cash flow positive and convince investors it was on track to reach $30 billion in revenue with strong operating profits, it’s likely Starlink could reach a $100 billion-plus valuation in a spinoff.
One question is whether SpaceX would want to spin off Starlink if its revenue potential was 80% of total company revenues. Elon Musk has long stated a goal for SpaceX of making humans an interplanetary species, so a massive Starlink IPO with more than $100 billion in funding could go a long way toward that goal.
However, a spin-off could also leave SpaceX with a very small addressable market opportunity. With the entire launch industry delivering just $4.5 billion in sales in 2017, SpaceX would likely need to make inroads into industries like space tourism if it wanted a strong growth profile after spinning off Starlink.
What Stock Symbols Could Starlink Choose?
Companies related to Elon Musk have gone for fairly straightforward ticker symbols in the past. Examples include Tesla (Nasdaq: TSLA) and SolarCity (Nasday: SCTY).
Given that, it’s like Starlink would list on the technology-heavy Nasdaq and list under a stock symbol that resembles its name.
STLK is a likely option that would be available and condenses Starlink’s name. Other options that might appeal to Musk such as STAR are not available. iStar is currently using the ticker symbol. Likewise, Interlink Electronics currently trades under LINK.
Starlink Sattellite Launches
In recent months Starlink has begun increasing the number of satellite launches into orbit. For example, the company carried 60 Starlink satellites into space on a Falcon 9 rocket on March 11th, and then just three days later sent another batch of 60 satellites into space.
Starlink Launches in 2021
- March 14, 2021: 60 satellites
- March 11, 2021: 60 satellites
- March 4, 2021: 60 satellites
- February 16, 2021: 60 satellites
- February 4, 2021: 60 satellites
- January 24, 2021: 10 satellites
- January 20, 2021: 60 satellites
As of their March 14th launch, Starlink has 1,261 operational satellites in orbit.
Starlink Stock: Should You Buy the IPO?
Given everything that you’ve read above, the final question is: should you buy the Starlink IPO?
Obviously, if Starlink makes it to IPO, it will mean the satellite constellation has been quite successful and is cash flow positive.
That will be no small achievement. Elon Musk was able to build a successful electric car company after dozens of prior attempts had failed. This has led to intense interest in getting in on his next world-changing idea.
Today, it’s like electric cars will eventually become all cars. Volvo just announced they anticipate half their sales to be electric by 2025 and completely electric by 2030. Even General Motors (NYSE: GM) has announced its plans to phase out gas-powered cars by 2035.
Yet, it’s hard to see the same potential for satellite Internet. The cost challenges remain prohibitive for competing with wired broadband options near cities, which leaves the market targeted to rural adoption.
That could be a lucrative market, but one that’s likely a small fraction of an industry like electric cars. Our best advice if you’re interested in Starlink is whenever the IPO appears to be imminent look at two key areas.
1.) Its valuation. How richly is it being valued?
2.) And how that valuation stacks up to its market potential. Is $30 billion the absolute upside for Starlink, or do technology trends like the Internet of Things open up larger market opportunities that investors are missing today?