Why investors should care about SpaceX’s Starlink IPO

Starlink, part of Elon Musk’s SpaceX venture, could be one step closer to an IPO. Responding to a Twitter user asking “Will starlink [sic] IPO soon? Would love to invest!” Musk replied that Starlink will likely go public once Starlink’s cash flow can be predicted “reasonably well”.

“SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable. Every new satellite constellation in history has gone bankrupt. We hope to be the first not to do so,” Musk wrote in a February tweet.

"Every new satellite constellation in history has gone bankrupt. We hope to be the first not to do so" - Elon Musk

As reported by Bloomberg, SpaceX COO Gywnne Shotwell had already said Starlink would likely go public last year.

Starlink provides super-fast broadband to areas outside of existing coverage. The simple fact that Elon Musk is behind SpaceX and Starlink makes any IPO a must-watch for investors. Telsa’s [TSLA] share price was one of the standout performers last year, with the company being admitted to the S&P 500 after several profitable quarters.

But what is Starlink and why should investors care about Musk’s vision for global internet coverage?

What is Starlink?

Starlink’s aim is to provide customers with low latency, high-speed internet. It works by transmitting data at light speed from a planned array of 12,000 low-earth orbit satellites.

SpaceX has been using its Falcon 9 rockets to launch 1000 satellites so far into space for Starlink. According to the Independent, this amounts to a quarter of all active satellites launched in the past two years.

Customers pay $499 for a terminal — akin to a satellite dish or antenna — to receive a signal along with a $99 yearly subscription.

SpaceX had previously claimed that download speeds will hit 1Gbps, however the company has subsequently downplayed this, saying that customers should expect to see data speeds vary from 50Mb/s to 150Mb/s.

How big could Starlink’s valuation be?

Barron’s reported in November 2020, that Morgan Stanley analyst Adam Jonas put a valuation of between $50bn and $200bn on SpaceX. That’s a big range, and largely depends on the success of Starlink, which the analyst estimates to be worth between $40bn and $130bn.

The opportunity is potentially huge, as using satellites overcomes physical barriers to deliver high-speed broadband regardless of location, serving a market that could potentially number hundreds of millions of individuals. However, it’s also an expensive endeavour. Jonas estimates that it will cost SpaceX circa $170bn to build the satellite-based communications network.

In November, Starlink won a licence from UK regulator Ofcom. This marks a further expansion into Europe, with Germany and Greece having already granted licences. Starlink has also cleared a licence to operate in Australia.

What is the competition?

Starlink aren’t the only ones dreaming of offering lightning-fast internet from the heavens. OneWeb plans to have 648 satellites in orbit by 2022, providing broadband coverage to 90% of the planet. The UK government has invested circa half a billion pounds of taxpayer money in OneWeb, which it owns with India’s Bharti Global.

Amazon’s [AMZN] “Project Kuiper” plans to offer the same service with 3,000 satellites. Competition between Amazon and SpaceX resulted in a dispute over how close the two companies’ satellites could orbit the Earth.

Starlink will also face local competition from incumbent providers in each territory it enters, such as BT [BT.L], Virgin Media and Sky [SKT.NZ] in the UK.

How big is space as an investment theme?

Space innovation, from tourism and rocket building to satellites, is taking off as an investment theme as more private companies reach for the stars — or at least earth's orbit.

Virgin Galactic’s share price has soared almost 400% since launching via a SPAC in 2019. Jeff Bezos has also explicitly said he will also devote more time to his rocket-building company Blue Origin when he steps down as Amazon CEO. Bezos’ firm already has deals in the pipeline with NASA.

When Starlink does launch its IPO, SpaceX itself will remain a private company, with Elon Musk saying shareholders would disrupt its long-term goals. Still, any debut from Musk’s camp is bound to attract a stratospheric level of attention — the big question now is when exactly it will happen.