The space business and public markets are not, perhaps, a match made in heaven. Consider the much-anticipated Starlink IPO. Elon Musk’s SpaceX is the most valuable private company in the U.S., and its largest revenue driver by far is Starlink, which offers broadband connections around the globe via a constellation of low-Earth orbit satellites.
But Musk is in no hurry to spin off Starlink, despite excitement over the idea. A big reason why? The advantages of being a private company versus a public one.
“At SpaceX, we never think about the quarter. We never think about it, and we don't think about the stock price," Musk said this week during a Spaces conversation hosted by ARK Investment Management CEO Cathie Wood.
As he knows from leading Tesla, there’s “immense pressure on a public company to not have a bad quarter. So this can actually result in a less efficient operation, where you're going to great lengths at the end of a quarter to not disappoint people.”
The SpaceX advantage
Asked if he can better take appropriate risks with SpaceX than Tesla because the former is private, Musk replied, “Absolutely.”
SpaceX has quickly become the dominant launch provider, and Starlink is well ahead of its future rivals, notably Amazon’s Project Kuiper. The company has started talks to sell insider shares at a price that puts its valuation at close to $180 billion, Bloomberg reported on Dec. 12.
Speculation on the timing of a Starlink spinoff IPO now ranges from late 2024 to 2027, though last month Musk denied that it would happen next year. In January, venture capitalist Chamath Palihapitiya predicted that Starlink would go public this year and that its valuation would “be at least half of SpaceX’s current private worth,” which at the time was about $150 billion.
Starlink revenue surged from $222 million in 2021 to $1.4 billion last year, the Wall Street Journal reported in September. But that's low considering that eight years ago SpaceX projected $12 billion in revenue in 2022. Last month, Musk announced that Starlink had achieved break-even cash flow.
Starlink has more than 5,000 satellites in operation and the service has surpassed 2 million active users, according to SpaceX; meanwhile, the popular retailer Costco recently began selling its receivers.
But, Musk said this week, “I don't think it's worth going public until you have maybe an extremely stable and predictable revenue stream. At that point, going public is less of an issue because you're just not going to have these big gyrations.”
In the meantime, Musk has little problem luring venture capitalists to invest in SpaceX given his track record, and he welcomes them. “If others are prepared to invest at a particular value…it’s sort of an outside assessment of the value of the company," noted the world's richest man.
Getting satellites into space, of course, is wildly expensive, and the payoff can take some time. Ashlee Vance, who wrote a 2017 book about Musk, told the billionaire earlier this year that he sometimes questions whether the Starlink business case makes sense given the “incredible amount of money” spent on something that “may or may not work.” He asked Musk if he also had doubts.
“The business case is not subjective, it is objective,” Musk replied. “If you can provide a compelling internet connection, where the quality of the product and the price are competitive with terrestrial options—or often there are simply no terrestrial options—then you obviously have a business.”
Tesla hassles
SpaceX being private also spares it from analysts’ influence, Musk added this week. One of the challenges of public markets, he said, is that “a lot of the analysts following companies have a time horizon that is maybe only a year or two...they do not care about what your long-term outcome will be because their career is dependent on how you do in the short term.”
At Tesla, “we feel like we have a sort of moral obligation to not have a bad quarter and disappoint people,” he said, adding that he’s often spent New Year’s Eve at delivery centers until midnight.
He complained that the "legal burden of being public is also way too high. So if you're public, you're just going to be sued nonstop by these class-action law firms...the plaintiff is simply a puppet, but the media never mentions this...That drives me crazy. It's constantly happening."
Musk acknowledged the advantages of Tesla going public, the most obvious being the greater capital availability. It also helped the carmaker clean up its capital structure, which was “overly complex as a private company," he added.
But, he said, it’s “been a tremendous distraction as well on the downside.”
At SpaceX, by contrast, Musk and company have largely floated above such earthly distractions.
