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SpaceX’s disappointing splashdown hardly seems to matter

SpaceX’s disappointing splashdown hardly seems to matter


I got sucked into a whirlpool of SpaceX financials to find out

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One of the joys of being a private company — and the reason why Elon Musk prefers these kinds of companies — is that you do not have to undergo close scrutiny by, variously, the Securities and Exchange Commission, short investors, journalists, and lookie-loos. You don’t have to open your books. You don’t have to announce certain kinds of news. So even though SpaceX is an older company than Tesla, by most measures, we know less about it.

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What we do know tends to come from the government agencies that buy trips on SpaceX rockets: NASA, the Air Force, and the occasional unknown government agency. Launches occur in public, of course, so screw-ups are also public. SpaceX failed to land its rocket booster on Wednesday. Does it matter?

Don your protective gear: I am about to speculate.

Private companies don’t trade in the easily observable way that public companies do. I can’t look at a stock price and say, “Gee, the water landing this week sent the stock down 15 percent, so it looks like investors are freaking the fuck out,” or “Goodness, the stock didn’t move, so SpaceX’s investors don’t seem to care at all.”

Here’s how hard it is to figure out what’s going on with private companies from the outside: no one can agree on SpaceX’s valuation. With a public company, it’s simple: you multiply the outstanding shares by their prices, and you’re done. With a private company like SpaceX, you have to estimate. In April, CNBC reported that estimates ranged from $25 billion to $27 billion; Bloomberg pegged it at $28 billion in October, while The Wall Street Journal said it’s worth “more than $20 billion.” The consensus seems to be the WSJ’s line — the disagreement is by how much more than $20 billion SpaceX is worth.

SpaceX’s revenue is about $2.5 billion a year, according to The Wall Street Journal, which cites “industry officials” as sources. That suggests, at least to me, that the numbers aren’t coming directly from the company, implying a level of guesswork. The company is profitable, SpaceX president Gwynne Shotwell told CNBC in May. “We’ve had many years of profitability,” she said. “The years that are financially rough for us are the years where we have issues.” But I don’t know how profitable, and I can’t pull any forms to find out. Complicating matters is that Bloomberg’s reporting on SpaceX’s recent loan suggests that the company hasn’t been profitable in the 12 months before September. (It’s in the final paragraph, if you’ve clicked over to look.) This is sourced to “people with knowledge of the matter,” which might be bankers who saw the paperwork.

That makes it harder for me to figure out whether the failed landing matters to SpaceX financially. I have limited information; I don’t know how trustworthy some of it is, and I’m not entirely sure where it’s coming from. For a public company like Tesla, this information is disclosed quarterly in filings.

Here’s my speculation: the water landing likely doesn’t matter much. Remember, landing the boosters has always been a secondary objective for SpaceX. Musk’s public comments suggest he thinks this booster can be recovered after this landing. (Though previously, a booster that made a splashdown had to be destroyed.) And since SpaceX flew and landed a booster for the third time — also this week — it’s at least possible that the recovered booster from Wednesday could fly again.

But on a corporate level, the fact that SpaceX is private means it can be much choosier about its investors than Tesla can be. Those investors are instructed to have “a very long time horizon” for a return, Robert Hilmer, global head of business development at Equidate (a specialized firm that analyzes private companies), told CNBC in April. “Elon told me: ‘Are you ready to not see a return for 15 years,’ and I said, ‘Yes, of course,’” said Laetitia Garriott de Cayeux, a venture capitalist and SpaceX investor who spoke at a 2017 conference, according to CNBC. It is also harder, though not impossible, to trade shares of privately held companies, so there are likely to be fewer panicked sellers.

What Shotwell was talking about when she mentioned issues were a series of high-profile rocket explosions: one in 2015 and one in 2016, both of which delayed SpaceX’s other planned launches. (There was an explosion in 2017 as well, but it didn’t require the company to halt its launches because it was (1) just an engine and (2) on a test stand.)

Wednesday was disappointing, but not a disaster.

Remember how in 2017, the WSJ got ahold of SpaceX’s 2015 financials? Look, I know they’re profoundly out of date, but I can only work with what I can get. When I was trying to figure out whether this missed landing would matter to the company, I pulled those numbers because I remembered they showed how thin SpaceX’s margins were and how devastating those 2015 misfires were to the business. The document confirms the 2015 explosion and 2016 explosions were different; you don’t halt the launch cadence because the rocket didn’t land. You don’t have to rebuild a launchpad or upgrade the rocket. Wednesday was disappointing, but not a disaster.

Upon rereading the WSJ’s report, I realized something I’d forgotten: there were projections for SpaceX’s launch schedule. This year, the company had projected more than 40 launches; there were actually 20. In 2019, the company had estimated 52 launches; there are actually 18 Falcon-family missions scheduled for 2019, according to the SpaceX presser on Wednesday. That number may shift — the rocket business is also notoriously vulnerable to weather, which might scramble the launch pace, and I don’t think it takes into account the Starlink program, which SpaceX says will begin launching next year — but that means SpaceX’s target is to launch a rocket about every two weeks. That’s about the same cadence as this year.

SpaceX’s strategy changed.

I am not a rocket scientist, but 52 and 18 are different numbers! So this raises a question: were the projections overly optimistic, or was there a deliberate change in strategy between then and now? Predicting the future is notoriously difficult, after all, and at the time of the WSJ report, 2019 was a lot farther away than it is now. So I think the answer is yes, those projections were optimistic, and also SpaceX’s strategy changed.

Let’s start with the market. One thing that has sustained SpaceX’s business are orders from companies that put geostationary satellites into orbit. But orders for those satellites have dropped, which means the number of rockets needed to launch them has also dropped. “The market is very soft. It was last year, this year, and I don’t know that it’s going to change dramatically next year, either,” Shotwell said at a panel with other space executives in September, according to Space News.

That changes the business model. In her April CNBC interview, Shotwell pointed out that the company had moved toward telecommunications with its Starlink venture — a constellation of 12,000 satellites that are meant to provide continuous internet access from orbit. There were some details about Starlink’s ambitions in the leaked WSJ report: a projection of 40 million subscribers, and revenue of $30 billion by 2025. Even then, those projections suggested the Starlink business would bring in considerably more revenue than rocket launches. But Starlink has also changed since those estimates, and no new projections are available, nor has SpaceX spoken publicly about their revenue expectations for the business. The first batch of these satellites is projected to launch next year.

The company is also exploring space tourism as a revenue stream, having promised to shoot a billionaire into space. It’s hard to know precisely what this means for the company’s long-term prospects because I don’t have solid numbers about any of it. But it does represent a change in strategy between the leaked document and now, too, because space tourism wasn’t mentioned at all in the WSJ report.

I have lost the plot, haven’t I? This is the thing about a private company — at least if you are attempting from the outside to figure out what’s going on. It’s possible to fall down rabbit holes and emerge bleary and confused, wondering if you’ve managed to piece together anything useful at all. In conclusion, I wind up back where I began: no, SpaceX didn’t stick its landing this week, but that hardly seems to matter.

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