For more than two years – since SpaceX COO Gwynne Shotwell said the event was “probable” – investors have been eagerly awaiting a Starlink IPO.
Now I’m wondering if Starlink will ever be able to go public at all.
Image source: Getty Images.
Elon Musk’s space dream
Anticipation of an IPO of Starlink – SpaceX’s pioneering effort to cover the earth with satellite broadband internet – began to grow noticeably in October 2020, when SpaceX announced introductory “beta” pricing for the Starlink internet service.
Interest in a Starlink IPO likely peaked last year after Elon Musk tweeted his support for his COO’s prediction, saying he would “probably” list Starlink.
We’ll likely list Starlink, but not for a few years, when revenue growth is smooth and predictable. The public market *does* not like erratic cash flows, haha. I’m a big fan of retail investors. Will ensure they are given top priority. you can hold me to it
— Elon Musk (@elonmusk) September 28, 2020
Finally, most analysts agree that SpaceX’s core business of space launches likely generates less than $2 billion in revenue annually. And given that most of the company’s launches are for its own benefit (ie, launching Starlink satellites), that $2 billion figure isn’t growing very quickly.
Musk says Starlink, not the space launch, will become the core service and primary revenue driver for SpaceX going forward, generating over $30 billion in annual revenue — and potentially as much as $72 billion — all at once from the company’s planned 12,000 satellites are in orbit. But as you can see above, Musk has qualified his prediction of a Starlink IPO. That said, Starlink won’t go public until its revenue growth becomes both “smooth and predictable.”
And right now, Starlink’s revenue growth is looking far from smooth or predictable.
Starlink’s Space Mathematics
Here’s how the math works: At the last report (in June), Starlink had approximately 500,000 subscribers to its satellite internet service. SpaceX initially charged these customers $99 per month, but in the face of rising inflation, SpaceX announced in March it would increase the monthly subscription cost to $110.
Today $110 times 12 months a year times 500,000 customers equals $660 million in annual revenue. That’s an impressive total, but it still falls short of SpaceX’s forecast of $30 billion (much less than $72 billion). Even though some customers pay higher prices for “premium” services (i.e. more bandwidth), some more “business” and “sea” customers pay even more, and some one-off income from selling the hardware needed to run Starlink – less than $300 million total — it seems Starlink is a $1 billion-a-year business at best today.
The endgame for Starlink
Granted, last time we checked, Starlink was still growing, albeit in spurts. As long as the growth continues, Musk’s $30 billion dream remains a possibility. The problem is that Starlink may be hitting the natural limits of the bandwidth its satellites can support, affecting the internet speeds achievable via Starlink, reducing the service’s appeal — and potentially capping how big Starlink can grow.
As CNBC reported earlier this month, SpaceX has begun throttling download speeds for Starlink customers who exceed one terabyte of monthly Starlink usage during so-called peak usage periods. “Premium” customers who violate this data cap may have to pay an additional $0.25 per gigabyte over the cap ($1 per GB for enterprise) or be downgraded to a slower “Basic” service for the remainder of the month.
On the one hand, each additional $0.25 (or $1) helps bring Starlink one step closer to its $30 billion goal. On the other hand, spoiling customers and throttling their download speeds is probably not the best way to retain customers or acquire new Starlink subscribers. And Starlink’s new policy highlights the limitations of its ability to support new users, which could further discourage new subscribers from signing up.
So what is the outcome of Starlink and SpaceX’s plans to take it public? I won’t bore you with all the math (although you can read it here if you’re interested). But the result is that even at full capacity — 12,000 satellites in orbit — SpaceX is unlikely to be able to support more than 8 million global users or so, which translates to annual sales of about $16 billion, or barely half of the 30 billion US dollars equals target.
Worse, if Starlink slows its growth by throttling its customers, even $16 billion could be out of reach. And the less revenue Starlink can make, the less its IPO will be worth — if an IPO happens at all.
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