Revisiting SpaceX’s $36-Billion Valuation After Its First Manned Mission

[Updated 6/1/2020] SpaceX Valuation Post Crew Launch Still Relies Primarily On Starlink Global Internet Network

Last weekend, SpaceX successfully launched two NASA astronauts to the International Space Station using its reusable Falcon 9 rocket – the first instance of a commercial manned launch. As the privately-held company makes significant progress with its launch program, we briefly revisit the key drivers of its valuation, which now reportedly stands at about $36 billion. ^[1] See our dashboard analysis detailing SpaceX’s Revenues and Valuation for the underlying numbers on launches, revenues per launch, and valuation multiples.

SpaceX is likely to launch about 15 commercial missions this year. Assuming an average revenue of $80 million per launch (Falcon 9 launches start at about $60 million & Falcon Heavy missions cost as much as $150 million) this amounts to about $1.2 billion in launch revenues for 2020. This implies that the company’s latest reported valuation of about $36 billion values it about 30x projected revenues. This is steep, considering the limited potential of SpaceX’s launch business. After all, the total commercial launch market is expected to stand at $7 billion by 2024 ^[2]. Investors are likely betting big on the space-based global internet network – Starlink – which we project could be valued at over $30 billion by 2025. See our detailed dashboard analysis Starlink Valuation: What Could SpaceX’s Starlink Service Be Worth?

[5/30/2018] What’s Driving SpaceX’s Sky High Valuation?

SpaceX stands out among the list of multi-billion dollar startups as one of the few companies that has grown by focusing on an industry that has existed for decades, rather than disrupting existing industries through the use of technology. While SpaceX’s ultimate goal of colonizing Mars will take decades to reach, if at all, the company has definitely achieved a series of significant milestones since it was founded in 2002.

Over recent years, though, SpaceX has done well to dominate the space launch services sector – offering to launch commercial (and occasionally military) satellites at a much lower price than incumbents while largely remaining profitable. This has shaken up the industry status quo and forced incumbents like Arianespace and United Launch Alliance (ULA) to work on similar low-cost launch systems. As we capture in our interactive dashboard for SpaceX, space launch services have been the only source of revenue for the company and it looks poised to cross $2 billion this year if all goes well.

Notably, though, SpaceX’s valuation has outpaced revenue growth over the years, and could top $32 billion next year according to our estimates. In this article, which is the first of our in-depth series on SpaceX’s existing and potential growth drivers, we detail the reasons behind SpaceX’s rocketing valuation.

SpaceX’s Business Model Is Evolving, And Holds Immense Potential

SpaceX is a space technology company primarily focused on manufacturing and launching rockets and spaceships. Since it was founded in 2002, the company has built a series of rocket and spaceship systems from scratch, with the core driving principle being to reduce costs substantially by making various parts of the system reusable. The company has demonstrated success in reusing and relaunching many rocket components – a first for any private or government operator – and has made its long-term goal of building fully reusable rocket systems that can be used to reach other planets a very real possibility in the not too distant future.

While SpaceX has made significant advances in space technology, it currently makes money purely by launching satellites into low earth orbit and by transporting cargo to and from the International Space Station. Notably, the company charges customers much less per launch compared to other players. Although this has resulted in profit margins being small compared to incumbents, it allows SpaceX to line up more launches – giving it more opportunity to refine and advance its expertise in reusing components. In other words, the space launch services keep cash flows positive as SpaceX focuses on the R&D aspects of its long-term goal of interplanetary travel.

Admittedly, it is difficult to develop a timeline for when (and if) SpaceX succeeds in its mission to put a human on Mars – and also if it will be able to do so profitably. However, the fact that the company’s valuation growth continues to outpace revenue growth can be explained by the fact that it intends to add more revenue sources over the coming years. This includes billions in potential revenues annually from:

• Its space-based global internet network, Starlink: SpaceX launched two demo satellites earlier this year with an aim of placing more than 4,000 satellites in the future to form its Starlink constellation array. The satellites will provide low-cost internet access globally – including far-flung areas where conventional internet and mobile services cannot be provided in a cost-effective manner
• High-speed point-to-point travel on Earth: SpaceX’s progress in reusable rocket technology could allow it to compete directly with airlines in the future using a proposed high-speed rocket-based system that would take off with passengers in one location, reach a low-earth orbit, and return safely to earth at its destination.

A Quick Look At What Currently Drives SpaceX’s Valuation

As we detail in our interactive dashboard for SpaceX, revenues for the company currently depend on just two revenue drivers: the number of successful launches in a year, and the average revenue per launch.

Number of Successful Launches in a year: This is the total number of successful launches SpaceX carries out in a year. The number of successful launches climbed from 6 in 2014 to 18 in 2017. We expect the number of successful launches to increase to 31 in 2018 and further to 45 in 2019.

• Forecast Rationale: SpaceX now has the largest market share in the commercial satellite launch industry, and should be able to improve its market share further thanks to its significantly lower revenue per launch compared to rivals. Additionally, 5 of the 18 launches in 2017 involved reused components – which allow quicker turnaround times. As SpaceX gets better at reusing components, the downtime between launches should be reduced further.
• Underlying Risk to Forecast: SpaceX witnessed two launch failures in 2015 and 2016, which had a negative impact on the number of launches for these years. This is because the company had to wait to fix issues in both instances before resuming launches. A launch failure in the near future could significantly affect our forecast.

Average Revenue per Launch: SpaceX has a fixed price for launching commercial satellites, and offers a sizable discount for customers opting to reuse rocket components. Also, the company had millions of dollars in one-time payments linked to its long-term contracts with some customers like NASA and Iridium, which boosted payments over the initial years. This would explain the reduction in average revenue per launch from an estimated $175 million in 2014 to around $72 million in 2017. We expect the figure to decline to $65 million in 2018 and further to $60 million in 2019, as more small-sized customers opt for the low-cost benefit offered by reused rocked systems.

As shown above, our forecast for SpaceX’s launches and average revenue per launch in 2018 and 2019 results in revenue forecasts of $2 billion and $2.7 billion respectively.

To arrive at the revenue multiples used by early investors to value SpaceX over the years, we plotted our estimates for revenues with SpaceX’s valuation. We interpolated the yearly valuation for the company from funding-round valuation figures of $12 billion in 2014 and $21 billion in 2017.

As shown above, this works out to an increase in the revenue multiple for the company from 11.4 to 16.2 – an increase of more than 42% even though the company’s revenues were largely stagnant over this period. As SpaceX’s space launch service works on extremely low profit margins, and has limited scope for growth in the long run, we believe that the increase was primarily due to the potential value proposition from Starlink. However, given the sharp increase we forecast in SpaceX’s launch revenues, we estimate a current revenue multiple of 13 for 2018, and 12 for 2019, as detailed in the chart above. This works out to a current valuation of $26 billion for the company – potentially increasing to over $32 billion in 2019.

That said, we believe that our multiple of 12 for 2019 is conservative, given the immense growth potential for Starlink and point-to-point Earth travel in the long run. What remains to be seen is how soon – and how profitably – SpaceX is able to implement these ambitious initiatives. You can see how changes in any of these drivers can impact SpaceX’s valuation by making your own changes on our dashboard.

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1. SpaceX is looking to raise about $250 million, valuing Elon Musk’s space company at $36 billion, CNBC, February 2020 [↩]
2. Commercial satellite launch service market to hit $7B by 2024, SpaceTechAsia, May 2018 [↩]