SpaceX

$150 billion valuation for a $3 earnings is a p/e of 50. That's honestly not that bad for the kind of company it is.

Revenue is money coming in. It never includes operating expenses. So the 'excludes expenses...' statement is just so people without business knowledge won't think this is 8 billion in profit.

Elon Musk’s Space Exploration Technologies, the most highly valued private tech company in the U.S., has told some investors it expects to bring in about $8 billion in revenue in 2023, roughly doubling its revenue from the previous year, according to people familiar with the discussions.

The expectation for rapid growth helps explain the fervor of some investors for SpaceX shares, which have defied recently depressed private tech valuations. The company, valued in a secondary share sale at about $150 billion this month, has also assured investors it expects to pull in about $3 billion in operating profits this year, at least by a measure that excludes expenses tied to building rockets and satellites.

SpaceX’s business has been boosted by a growing roster of governments and commercial space companies that pay SpaceX to launch their satellites into orbit, in addition to contracts with NASA to put astronauts in space. SpaceX’s satellite internet business, Starlink, which opened up pre-orders to the public in 2021, has also started to comprise a significant portion of revenue, the people said. The company has said publicly it has surpassed 1.5 million Starlink customers, at least some of whom pay $120 a month for a standard subscription. SpaceX also recently unveiled a new service to build and launch satellites on behalf of government customers.

Still, the top-line number shows just how much of a premium investors in the private market are putting on SpaceX. It is more valuable than publicly traded Boeing, Raytheon and Lockheed Martin, all aerospace companies with more than $60 billion in annual revenue each.

The company will have to continue to grow quickly to live up to its private valuation. Investors are valuing the rocket and satellite internet company at nearly 19 times this year’s expected revenue of $8 billion. Only a handful of public companies with market valuations of at least $50 billion command such a high forward revenue multiple, according to an analysis of data from S&P Capital IQ. Those firms include chipmaker Nvidia, enterprise software darling Snowflake and payments firm Adyen. Viasat, a satellite maker valued at about $3.7 billion, trades at a market cap roughly equal to its projected revenue for next year.

“There’s an element with SpaceX of FOMO—fear of not owning SpaceX—that drives people to own it,” said Chris Quilty, a partner at research firm and investment bank Quilty Space. “I’ve talked to portfolio managers that say, ‘This thing is going to be a $1 trillion company down the road, so why would I be concerned about buying at a $100 billion valuation?’”

“That sentiment is not weighted on some in-depth financial analysis—it’s a statement of their belief in Elon Musk and what he’s done with Tesla and honestly with SpaceX,” Quilty added.

Since its founding in 2002, the company has nearly cornered the rocket launch business by designing partially reusable rockets, which greatly reduce the cost of launching satellites into orbit. Several space startups, including Jeff Bezos’ Blue Origin, are developing rockets to compete in the launch business, but none is far enough along to reliably launch customer satellites.

Last week, privately held SpaceX closed a $750 million secondary share sale, CNBC first reported. This increased its share price 5% from $77 to $81, shareholders told The Information. The company’s venture capital backers include Google, Steve Jurvetson’s Future Ventures, Valor Equity Partners, Sequoia Capital, Founders Fund and Gigafund.

SpaceX did not respond to a request for comment.

SpaceX has told investors it is starting to generate significant profits, at least if you exclude important expenses like the depreciation costs associated with building its rockets and satellites. This year, the company expects about $3 billion in earnings before interest, taxes, depreciation and amortization, the people said. Neither the firm’s depreciation expenses nor its capital expenditures could be learned. SpaceX shared the financial information with at least two investors in verbal conversations, the people said. It’s also unclear if the Ebitda figure excludes expenses associated with share-based compensation.

The company also likely has extensive capital expenditures from its work developing its new Starship rocket, a 400-foot-tall launch vehicle, which would greatly expand the scale at which SpaceX can launch satellites and humans into space. SpaceX’s first Starship launch test on April 20 ended in an explosion, and the company likely has years of testing and development ahead of it before it can use Starship in the launch business.

Even if SpaceX has to burn significant amounts of cash on those kinds of projects, it likely has at least some wiggle room. The company currently has $5 billion in cash on its balance sheet, the people said. (Bloomberg earlier reported the balance sheet figure.)

Based on the Ebitda figure, SpaceX is much more profitable than other capital-intensive companies, including Musk’s own Tesla. According to the figures shared with investors, SpaceX would have a 38% Ebitda margin compared to 21% for Tesla.

Historically, SpaceX has been able to generate a healthy profit margin on its rocket launches because of its near-monopoly position. “You can set the price based not on your costs but on the next-best alternative,” Quilty said. SpaceX also gets paid in installments for each launch, boosting its working capital, he said.

But an important test of SpaceX’s profitability will be Starlink, which has to replace the satellites it launches into space every few years. Satellite operators usually boast high Ebitda margins but have extensive capital costs, Quilty said. “A nice Ebitda number is good but, net net, you care about free cash flow,” which incorporates capital expenditures.

Musk has avoided taking SpaceX public across its more than two decades of existence, but has held regular share sales allowing investors and employees to cash in on some of their gains. Investors have been closely watching the prospect of capturing more gains through a potential corporate spinoff of Starlink, SpaceX’s satellite internet business. Musk said two years ago that Starlink would eventually go public, likely through a corporate spinoff, “once we can predict cash flow reasonably well.” SpaceX President Gwynne Shotwell said at a conference in February that Starlink generated positive cash flow in one quarter last year.

SpaceX regularly uses its rockets to launch satellites into low Earth orbit as part of its growing Starlink constellation. The company launched 61 rockets in 2022, most of which transported Starlink satellites. In 2023, it’s looking to set a new record with 100 rocket launches, Musk previously said. The company has around 3,700 operational satellites in orbit, according to satellite tracker Jonathan’s Space Report.