Morgan Stanley doubled its long-term valuation estimate for Elon Musk's SpaceX on Thursday and is now expecting the company to be worth at least $100 billion due to its position in the growing space industry.
"SpaceX continues to solidify its place as 'mission control' for the emerging space economy. Important milestones with Starlink, Starship and government contracts dovetail to support an increase in our base case valuation," Morgan Stanley analyst Adam Jones wrote in a note to investors.
The firm's new valuation expectation is twice its previous estimate in July, but Jonas said that "quite a lot has changed since we published" that report three months ago. SpaceX has passed a number of milestones in that time, including returning its first NASA astronauts from space successfully, winning hundreds of millions of dollars in Pentagon contracts, launching hundreds more Starlink satellites to orbit to build its global internet network, and conducting two test flights of its next-generation Starship rocket. The company also in August sought $2.1 billion in a new round of equity funding, which valued SpaceX at near $44 billion.
"The pieces are coming together for SpaceX to create an economic and technological flywheel," Jonas said. "It is clear to investors and industry observers that SpaceX's launch cost advantages are being used to accelerate deployment of its LEO broadband network. As the company achieves pole position in LEO, which many believe is a winner take most (if not winner take all) arena ... the promise of a viable and capable satellite broadband service increases, helping the company attract large amounts of capital at attractive rates, further enabling development of even more capable launch architectures (Starship) that further deepens and widens the moat in satellite launch costs."
Morgan Stanley increased its base case model for SpaceX's valuation to $101 billion, up from $52 billion previously. The firm also slightly increased its bull case – the scenario where the company exceeds expectations – valuation to $203 billion, up from $175 billion before. Thirdly, it's bear case valuation also increased to $5.4 billion, up from just $200 million before.
"The drivers of our increase in valuation are changes in our underlying assumptions in the Launch and Starlink units," Jonas said. "Our valuation ranges are calculated from our SpaceX earnings model and 20-year [discounted cash flow] of the various business lines."
In the bear case, SpaceX's existing rocket business grows to be the sole part of the business, with Morgan Stanley assuming no added value from Starlink. In the base case, SpaceX's rockets become an $11.7 billion business while Starlink grows to $80.9 billion, and the company adds point-to-point space travel as an $8.7 billion business. Finally, in the bull case, the rocket division becomes a $52.5 billion business while Starlink jumps to $132.8 billion, with point-to-point worth $17.4 billion.
Musk's company has launched 18 missions so far in 2020, with the company capturing the majority of the global satellite launch market in recent years. Additionally, SpaceX has steadily pushed the boundaries of reusing rockets, most notably by landing the booster that makes up the largest and most expensive part. To date, SpaceX has landed 55 rocket boosters and flown them again 40 times.
"SpaceX is widely seen as the low cost launch provider in the global launch market," Jonas said.
While the company is currently launching rockets at a rate of about one every two and half weeks, Morgan Stanley's base case assumes "SpaceX achieves a launch cadence of 1 launch per day by 2040." Thanks to reusing the rockets, Morgan Stanley also expects in 20 years SpaceX will bring in $67 million per launch with an operation margin of 20%. That in large part depends on the success of its Starship rocket.
Starship represents Musk's goal to build a fully reusable rocket that can launch mass amounts of cargo, and as many as 100 people, on missions to the Moon and Mars. The company has been developing Starship prototypes at its growing facility in Boca Chica, Texas. After recently completing to short flights, SpaceX next plans to fly a Starship prototype to an altitude of about 50,000 feet and then land.
"Things have been heating up at Starship operations," Jonas noted.
He estimates that Starship would cost between $5.6 billion and $8 billion to fully develop. And Musk has acknowledged that Starship will need to "hundreds of missions with satellites before we put people on board." One of the advantages of Starship will be its ability to launch more Starlink satellites at once. The company's Falcon 9 rockets currently deploy up to 60 satellites at a time, but SpaceX designed Starship to be able to carry as many as 400 to space per trip.
"While there is excitement around the use of Starship infrastructure for deep space exploration and hypersonic earth-to-earth transportation, investors must consider the nearer-term use case of deploying Starlink satellites in a high number," Jonas said.
Overall, Morgan Stanley emphasized that Starship is key to further growing SpaceX's already dominant position in the launch market.
"Based on our discussions, we believe SpaceX is disruptive enough not just to dominate share in the global launch market, but to grow the overall pie substantially," Jonas said.
The larger but yet to be established piece of Morgan Stanley's valuation model is SpaceX's Starlink satellite internet: An ambitious plan to build an interconnected internet network with thousands of satellites, designed to deliver high-speed internet to anywhere on the planet. Morgan Stanley doubled its base case expectation of Starlink to $81 billion, from $42 billion before, due to the "meaningful progress" SpaceX is making toward offering commercial service.
To date, SpaceX has launched over 800 Starlink satellites – a fraction of the total needed for global coverage but enough to begin providing services in some regions. The company has an ongoing private beta test of the service, and is also working with organizations in rural regions of Washington state to deliver satellite internet. SpaceX also recently announced a partnership with Microsoft, to connect the tech giant's Azure cloud computing network to the Starlink network.
Morgan Stanley expects Starlink will burn about $33 billion in cash before it turns cash flow positive in 2031. But at that point the firm expects Starlink's subscriber base will have grown substantially. Morgan Stanley estimates Starlink will capture as many as 364 million subscribers by 2040 – or nearly 5% of the current global population. At that point, Morgan Stanley estimates Starlink will bring in $21 in monthly revenue per customer – as opposed to a current estimated $25 per month.
"In recent months, SpaceX's Starlink project has continued to widen the lead vs. its LEO mega-constellation peers in several key areas," Jonas said.
But, although SpaceX already has a presence in more than a dozen countries, Morgan Stanley warned that Starlink still faces regulatory, execution, financial, and competitive risks.
"History includes many cautionary tales, including DBSD, Globalstar, Iridium, Teledesic, and TerreStar in the 1990s, LeoSat in 2019, and OneWeb in 2020," Jonas said. "While meaningful progress is clearly being made, significant caution is still warranted given the scale of the venture and several outstanding questions. Regulatory concerns remain with possible space debris issues likely at the top of the list ... as noted above, there also remain serious questions over what network performance will look like once the user base widens meaningfully as network congestion has historically been the largest issue with satellite internet."
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