How Much Value Can SpaceX Unlock From Starlink’s Proposed IPO?

SpaceX recently indicated that it could spin off and pursue an IPO for its satellite-based Internet business, Starlink. The Starlink service, which is likely to see operations begin later this year, aims to provide high-speed Internet globally in a cost-effective manner by leveraging a constellation of several thousand satellites. While SpaceX has not given a definitive timeline for an IPO, it has indicated that it could occur within the next few years. According to our analysis, we estimate that Starlink could be worth about $30 billion by 2025, assuming it generates revenues of about $10.4 billion then and is valued using a P/S multiple of about 3x. Below, we provide a breakdown of the opportunity Starlink provides to SpaceX and the potential risks.

View our interactive dashboard analysis, ‘Starlink Valuation: What Could SpaceX’s Starlink Service Be Worth?’ to modify our key assumptions to arrive at your own estimate for Starlink’s valuation as it heads towards an IPO.

Why Starlink is Crucial To SpaceX

• While SpaceX has built a relatively stable business of launching satellites for a variety of customers, the potential for the launch business is quite limited, given the small size of the market and relatively slow growth.
• For perspective, the market for commercial satellite launches stood at ~$5 billion in 2017, with revenues projected to grow to $7 billion by 2024. This gives SpaceX little room to expand, considering that its launch revenues stood at roughly $2 billion in 2018.
• In fact, Elon Musk himself has indicated that SpaceX’s share of the launch space “probably taps out” at roughly $3 billion a year.
• However, the market potential for Internet connectivity is much larger (as much as $1 trillion per Elon Musk), and Starlink could find a sweet spot if it can deliver the Internet globally at speeds and prices that are competitive with cable and fiber providers.

Estimating Starlink’s Valuation

We project that Starlink’s first full year of service will be 2021, with coverage spanning a large portion of the global population by 2025. We also expect that Starlink will primarily compete with fixed-line broadband services, as its receivers are expected to be somewhat large for truly portable use (likely pizza-box sized).

2.1 Estimating Starlink’s Total User Base

• We assume that the global population will grow to a little over 8 billion by 2025 (just under 1% CAGR), with Internet penetration rising to 72% (about 2.5 percentage point increase each year) in the same time frame. This implies that 5.8 billion people will be online by 2025.
• We estimate that Starlink will garner about 0.1% of all new Internet users by 2021, with the number rising to 2.3% by 2025 as coverage scales up.
• This would imply that the company’s new subscriber adds would scale up from 0.2 million in 2021 to about 5.6 million by 2025.
• We estimate Starlink’s total user base as of 2025 at about 14.4 million.

2.2 Estimating Starlink’s Revenues

• We project that the monthly ARPU for the service will stand at $60, based on the company’s internal estimates for revenues and subscribers made in 2017. This is also roughly in line with the average broadband ARPU of about $60 in the U.S., per the Leichtman Research Group.
• This would imply annual revenues of about $10 billion by 2025.

2.3 Estimating Starlink’s Valuation using a P/S Multiple

• We estimate that Starlink could be valued at a little over $30 billion, assuming 2025 revenues of about $10.4 billion and a P/S multiple of about 3x.
• For perspective, Comcast and Charter, two of the leading U.S. broadband providers, have P/S multiples of around 2.1x and 2.3x.
• We believe a 3x multiple for Starlink is warranted, considering its higher growth prospects, although its costs and risks are also likely higher.

What Are The Key Risks Associated With Starlink?

• Starlink is likely to be most attractive to people in far-flung areas with weak connectivity and potentially lower purchasing power.  This could limit the pricing potential of the service.
• Starlink will need to offer speeds superior to wireline broadband services to convince higher-value customers in developed areas to switch to its service. It remains to be seen if SpaceX can pull this off, given that the technology remains relatively unproven.
• Starlink is not the only player in the satellite-based Internet space. OneWeb, backed by the Virgin Group and SoftBank, is building out its constellation of Internet-beaming satellites, while Amazon has also expressed interest in this space.

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