Elon Musk’s SpaceX ended its latest funding round with an extra $315m from investors. In total, SpaceX raised $1.6bn in its funding round, according to CNBC, giving the commercial space company a $74bn valuation and fuelling rumours of a SpaceX IPO.
Behind that lofty valuation are what Quilty Analytics founder Chris Quilty describes as “two Manhattan Projects running in parallel”.
As the space investment theme grows, speculation is mounting over what a SpaceX IPO might look like. Yet for investors, there are other options to gain exposure to this theme before it blasts off.
Why SpaceX IPO rumours are getting investor attention
SpaceX’s valuation has lifted thanks to its Starship and Starlink projects — two interlinked initiatives that represent the cutting-edge of innovation.
Starship refers to rockets that SpaceX is developing. The rockets are designed to be reusable — in effect landing and taking off like an aeroplane — and are reported to be more powerful than the Saturn V rockets used in the Apollo space program. While this will be expensive to develop, the reuse will bring costs down, helping cement SpaceX’s dominance among space companies.
Starlink is a network of more than one thousand satellites that will be able to deliver high-speed internet service anywhere on the planet. SpaceX’s management believes that the program will cost circa $10bn, but could bring in $30bn a year, according to CNBC. So far, Starlink has secured regulatory approval in the UK, Australia, Greece and Germany, and Elon Musk is on record as saying Starlink could go public itself once it achieves financial stability.
Starlink's potential annual revenues
Options for investing in space companies
Starlink’s potential revenue numbers are huge, reflective of a sector that is seeing an impressive influx in investment. In the first quarter of 2021, $1.9bn was invested in space companies, according to Space Capital. Space Capital divides the industry into three segments: infrastructure, application and distribution. In the infrastructure segment, rocket builders received $1.1bn worth of investment, while satellite manufacturers got $900m.
Where should investors interested in space companies start? SpaceX may be synonymous with commercial space travel but, as a privately held company, it’s currently not an option. Likewise, Jeff Bezos’ Blue Origin is off the table for the same reason.
That doesn’t mean investors are lacking for upcoming options, however. According to Barron’s Al Root, the total value of pure-play space stocks now stands at $25bn, with many space companies going public via a special purpose acquisition company (SPAC). Root picks out Astra, which launches rockets into low-earth orbit, as one to watch. The company is valued at $3.2bn and will make its public debut merging with SPAC Holicity [HOL].
Total value of pure-play space stocks
Among Root’s other picks is Rocket Lab USA, which he describes as a “mini Space-X”, as it not only launches rockets but also manufactures satellites. According to Root, Rocket Lab USA is guiding for $400m in launch sales and $350m in satellite sales by 2025. Rocket Lab is merging with SPAC Vector Acquisitions [VACQU] in a deal that would give it a $4.1bn enterprise value when it completes in the second quarter.
Space Capital managing partner Chad Anderson told CNBC that he expects around a dozen space companies to go public via a SPAC this year. However, Space Capital cautioned that some valuations may be out of reach unless the companies develop a “defensive data angle” i.e., a side business. For example, SpaceX may be known for building rockets, but the bulk of its valuation comes from Starlink.
“We’ve seen SpaceX again leading in this way. They’re a launch business first, but the main driver of their valuation is their satellite communications services business [called Starlink], and so many other things that they’re doing,” Anderson told CNBC.
Other established options include Virgin Galactic [SPCE], Boeing [BOE] and Lockheed Martin [LMT], which Root describes as the “safest way to play space”. Then there’s the ARK Space Exploration ETF [ARKX] launched at the end of March and managed by Ark’s chief investment officer Cathie Wood, which tracks US companies engaged in space exploration and innovation.
When will SpaceX IPO?
Elon Musk tweeted “...going to the moon very soon” on 10 April, and he wasn’t kidding. On Friday, Nasa awarded Musk’s SpaceX a $2.9bn contract to build the lander that will take astronauts back to the moon.
"...going to the moon very soon" - Elon Musk, SpaceX founder and CEO
But will SpaceX or an offshoot like Starlink IPO “very soon”? Right now, nothing suggests that will happen in the short-term, but the new round of funding indicates that institutional investors are backing the company and see its long-term potential.
Analysts have pegged 2024 as a likely bet for Starlink achieving positive cash flow, so don’t expect any kind of SpaceX IPO before then.