Elon Musk’s SpaceX Gets Bullish $100 Billion Valuation From Morgan Stanley, Double What In…

Morgan Stanley, the New York-based investment bank, has nearly doubled its valuation of Elon Musk’s rocket company SpaceX, from $52 billion in July to over $100 billion, it said in a research note issued Thursday. The bank’s so-called “bull case”–its absolute best-case scenario–puts SpaceX at a value above $200 billion.

The research note titled SpaceX: Raising Valuation Scenarios Following Key Developments, listed the company’s recent $1.9 billion funding round and the “continued momentum in winning government contracts” (mainly from NASA and the U.S Department of Defense) as key reasons for its revision of SpaceX’s value. The note doesn’t bother to mention important financial details like SpaceX’s current revenue or estimated revenue for 2020 or even 2021. Or whether SpaceX is profitable or not.

Morgan Stanley describes Musk’s space business as “mission control” for the “emerging space economy.” With its capabilities in launch (carrying satellites, humans or instruments into space for clients), Starlink (developing internet from satellites) and earth to earth (often described as point to point travel), Morgan Stanley says “the pieces are coming together for SpaceX to create an economic and technology flywheel.” To do so, however, will take hundreds of billions of dollars more in investment.

How High?

The single largest driver of the massive valuation upgrade is Starlink, SpaceX’s “constellation” of small satellites set to beam broadband internet around the world (and into new markets) from space. While Morgan Stanley values SpaceX’s launch business at $12 billion, and its unproven point-to-point space travel at $9 billion, the bank has raised the estimated value of Starlink (also yet unproven) to a massive $81 billion, up from $42 billion, based on a revised estimate of potential subscribers up from 235 million to 364 million globally by 2040.

To get to that number, however, will cost about $240 billion to build out the network, Morgan Stanley says. That is one reason why there are plenty of people who are skeptical that Starlink will work as advertised, notably investment bank Cowan, who questioned Starlink’s value to “bandwidth driven” homes in the U.S. in a research note in late September.

Investors just valued SpaceX in August, when the company raised $1.9 billion in funding—at a valuation of $46 billion. Forbes values Musk’s stake in SpaceX based on this number, minus a 10% discount because it’s a privately held, illiquid asset. 

Investors

Such wild discrepancies in valuation are possible because defining SpaceX alongside a series of publicly traded comparable companies is nearly impossible. Unlike Tesla, Musk’s other main venture, the business’ shares are not publicly traded, and it has no direct, publicly traded competitors either.

Major financial institutions, potentially with one eye on positioning themselves as a potential partner in any forthcoming IPO, may have an incentive to overvalue companies. A statement on Morgan Stanley’s SpaceX report reads, “Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.”

Chad Anderson, a managing partner of Space Capital and CEO of Space Angels (investors in SpaceX over the years through their Space Angels fund) is also unsurprisingly bullish on SpaceX’s value. Citing UBS research, he says that if SpaceX’s point to point travel business eats into the airline industries market share, there’s a $10 to $20 billion per year “revenue opportunity” for whoever gets there first. 

With Starlink set to connect parts of the world still without broadband internet coverage, Anderson cites reported expected future revenue from Starlink around $30 billion to $50 billion per year (Musk claimed this in 2019, according to Morgan Stanley), meaning that even a conservative valuation multiple would put this arm of the business at $90 billion alone. “And that’s not even counting the Mars and deep space stuff,” which both Anderson’s Space Capital and Morgan Stanley don’t value. “It’s almost impossible to put specifics on what the opportunities are.”  

From here to landing on Mars is a long way to go, with lots of potential hurdles. As a private company, SpaceX does not release its revenues. In 2018, the company had about $2 billion in revenues, according to an estimate from investment bank Jefferies.

For SpaceX to achieve all that Morgan Stanley broadly sketches out as possible, enthusiastic investors will still need to keep putting huge sums of money into Musk’s rocket company.