SpaceX IPO: Successfully Disrupting The Aerospace Market

  • Aerospace service provider SpaceX is leading the efforts to enable low-cost commercial aerospace services.
  • The company has contracts with NASA to transport cargo to the ISS in the short run and U.S. astronauts in the long run.
  • Despite the valuation hike, SpaceX will be an attractive buy in case of an IPO.
SpaceX IPO

Elon Musk’s Space Exploration Technologies Corporation, which is also known as SpaceX, is probably the entrepreneur’s most exciting initiative, and his other initiatives include electrical cars manufacturer Tesla (NASDAQ:TSLA) and solar energy provider SolarCity (NASDAQ:SCTY), among others. SpaceX designs, manufactures, and launches rockets and spacecrafts providing low-cost space transport services. SpaceX is the ultimate leader in the private aerospace market as it succeeded not only in sending a spacecraft into orbit but also in launching a vehicle that provided supplies to the International Space Station (ISS).

SpaceX Revenue and Business Model

Supplying cargo to the ISS was not a onetime effort by SpaceX but part of the company’s $1.6B contract with NASA that was signed in 2008. NASA chose SpaceX to perform at least 12 missions to the ISS to provide cargo and supplies for the station; this contract may end up including additional missions on top of the cargo shipping and could rise to $3.1B. In 2014, NASA and SpaceX expanded their relationship further when NASA chose SpaceX for a very lucrative mission to develop, test and finally transport U.S. astronauts into space by 2017 and ending U.S. dependence on Russia. The 2014 contract is worth $2.6B for SpaceX and the company will be able to use the capabilities developed in this project for its commercial purposes later on.

Besides the NASA agreements and the government-funded projects, SpaceX provides some commercial aerospace services such as an aerospace rocket launch service, satellite launch service, and manned space travel. SpaceX vision is to offer rocket launch service powered by reusable rockets for relatively low prices that are expected to range between $5M and $7M per launch. SpaceX is also engaged in an ambitious project to deliver The Internet through satellites to areas which currently don’t have an internet connection. An internet connection from space that covers the entire world is tech companies wet dream. Google (NASDAQ:GOOG), Facebook (NASDAQ:FB), Microsoft (NASDAQ:MSFT) and other giants tried in the past to launch similar projects with balloons, antennas, and drones, but SpaceX solution could be the most realistic of all. The internet by satellite will require SpaceX to launch several thousands of small satellites that will orbit the earth and cover every piece of it.

SpaceX Funding and Valuation

SpaceX raised more than $1.2B in seven equity funding rounds between March 2006 and January 2015. In the latest round in January 2015, Google and Fidelity invested $1B into the company for approximately 8.5% of the company’s shares, evaluating the company at $12B. Probably, Google invested 90% of the funds in that round to get a piece of SpaceX’s satellite Internet project, indicating its importance for Google’s growth. As a worldwide household name, Google can continue to grow by penetrating new markets in Africa, Latin America, and Asia where Internet connections are lacking. Moreover, with full, high-quality satellite coverage of the planet, Google could offer additional commercial intelligence information services. For Google, this is as strategic as Google Fiber, Google Glass, and location-based ads, and serving as a central player in the satellite Internet industry could be significant for its success.

As shown in chart 1 below, SpaceX's valuation hiked in the last series to $12B while its preferred stock price soared from $7.5 to $77.46. SpaceX early investors include Elon Musk, Draper Fisher Jurvetson (DFJ), Valor Equity Partners, and Founders Fund. However, Google is by far the biggest investor in SpaceX.

SpaceX_chart 1_081115

SpaceX Path To IPO

As other companies that Elon Musk founded, such as PayPal (NASDAQ:PYPL), SolarCity, and Tesla are extremely successful in the market, many expect SpaceX to go public, so they can grab a piece of this huge aerospace promise. I believe the company is very close to exhausting its private market funding, and SpaceX IPO could be headed our way in 2016. Once the group approaches the underwriters, I think SpaceX will perform a stock split or provide a significant discount to its IPO share price.

As SpaceX revenues are still confidential, based on the NASA contracts and some commercial initiative, I believe SpaceX TTM revenues could be in the ballpark of $0.7 billion to $1.2 billion, which reflects a P/S ratio in the range of 10 to 17. This P/S range is substantially higher than Boeing’s (BA) 1.02 P/S or Lockheed Martin’s (LMT) 1.44 P/S, but the risk of investing in a young company and growth potential are also baked into the P/S; in my opinion, it’s not a bad valuation at all.


Ambitious aerospace service provider SpaceX tries to disrupt the aerospace services market by utilizing reusable rockets to launch spacecrafts and satellites. The company has a couple of strategic contracts with NASA that have helped it to establish its leadership position, and its Internet satellite project intrigues and is followed by the entire tech sector. SpaceX's valuation of $12 billion and 10 to 17 P/S ratio makes it an excellent investment opportunity once the company goes public. In my opinion, in 2016, the company will start the process to become a public company as it has mostly exhausted its public market funding channels.

Disclosure: The information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's opinion about the companies mentioned in the article. Investors should conduct their due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.

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Comments on this article and TSLA stock

user profile picture
Elon has before stated that SpaceX won't be considering an IPO for a long time. He's said he would like to be doing trips to Mars before going public. He's also stated that running a public company sucks. He's also stated that SpaceX is very profitable. They have enough funds to invest $165 million in 1 year Solar bonds.
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user profile picture
Trips to Mars is a nice idea, but SpaceX generates revenues from more earthy streams like the NASA deals, commercial rocket launches and satellite internet in the future. As I don't know real intentions behind Musk's comments you mentioned - I'll put them aside. Investors in SpaceX didn't do that for the sake of science they are looking for a nice return. Google might settle for partnership in the satellite internet business but other investors will look for dollars and SpaceX is very close to exhaust its private market investing niche. Moreover, BA and LMT also have similar deals with NASA and develop the same technologies as SpaceX does. BA and LMT can leave with this R&D expense for a long period, SpaceX - not so much.
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