A simple view of SpaceX is that it’s a low-cost rocket launcher that created the profitable Starlink satellite business and which is now burning cash to build orbital data centers and colonize Mars. Starlink doesn’t have the lead role in SpaceX’s $1.8 trillion initial public offering. But it is the real business inside the company, and the telecoms industry and its regulators can ill afford to be complacent about the disruptive threat it poses.
Starlink provides home broadband via satellite receivers to people who don’t have access to terrestrial networks, typically in remote areas. It also serves business customers, including as a provider of in-flight Wi-Fi. Lately it’s moved into satellite-based mobile telecoms.
The unit generated nearly two thirds of SpaceX’s $19 billion of revenue last year. Thanks to the company’s efficient space-launch capabilities, Starlink’s profit margins comfortably beat those of its telecom and satellite peers, according to research provider PitchBook. When customers are paying for their own satellite boxes and mobile phones, the cost of an additional subscriber is practically nil.
The IPO would be a far cleaner deal if SpaceX was made up of just its rocket launch business and Starlink. The market opportunity in satellite-based connectivity is $1.6 trillion with almost half coming from mobile broadband, according to the prospectus. That pales beside the touted $23 trillion total addressable market from selling AI applications to businesses. The difference between these two sums is that the market size for satellite-based telecoms isn’t such a stretch to believe. And SpaceX could blow billions chasing space-based AI projects that may fail to become commercially viable.
Starlink is both a threat and a partnering opportunity for the telecoms sector. It could become a more serious competitor in the mainstream home-broadband market. In connecting mobile phones, the technology has a way to go. But satellite providers can already act as a guarantor of service when the signal from terrestrial masts is weak. That could become a ubiquitous add-on service that consumers pay a few dollars for as a backup. PitchBook sees the number of Starlink cellphone subscribers increasing from more than 6 million today to 1.1 billion by 2040, based on consumers taking the service for “coverage assurance.”
Much depends on the next generation of satellites. Company founder Elon Musk’s ambition is to vastly expand the fleet. A wave of satellites offering better connectivity is in the offing, and they could be launched in high numbers in SpaceX’s new reusable Starship rocket. This, however, depends on the vessel graduating from testing to commercial operation.
Satellite mobile has technical challenges that limit its capacity, especially in densely populated areas. Hence the consensus in the telecoms industry seems to be that Starlink’s competitive threat is more about it expanding the market than stealing business. This might be overly complacent.
Satellites need replacing every several years, creating a natural upgrade cycle. The R&D spending needed for orbital data centers could well have payoffs for Starlink. If SpaceX fails in its AI goals, a sensible fallback strategy would be to push Starlink more aggressively, alongside Musk’s vast data centers.
“It's mostly a question of when not if they start competing” with the dominant telecoms firms, says PitchBook analyst Franco Granda.
There are important questions here for regulators, too. As Starlink grows, how will its handling of customer data be supervised? And what access will it give authorities seeking to monitor any threats to public safety, something that’s standard for the traditional mobile-phone operators? It’s not the only player in satellite broadband, but it’s the leader, and in any new market it’s never good to have a single company dominating.
Of course, Starlink’s attractions don’t make the SpaceX IPO a slam dunk. Its cash flows are being used to fund the development of space-based AI and interplanetary missions. Morningstar Inc. analysts reckon the launch unit and Starlink are together worth $611 billion (and ascribe only $170 billion to the AI business). PitchBook gets to a bit more than $1 billion for the pair.
The far higher IPO valuation for the whole company assumes Musk can use Starlink’s cash to create space-based computing capability that’s commercially viable and cheap. Investors must decide whether that’s possible let alone probable. As Morningstar’s research puts it, this poses a “material threat of value destruction.”
Before SpaceX bought Musk’s xAI — owner of the Grok chatbot, X social-media network and Colossus data centers — it was indeed focused on rocket launches and Starlink. This would have been a simpler, less risky business to own in isolation. That’s not the deal on offer.
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