On April 11th, according to Bloomberg, despite widespread attention to SpaceX's Starlink satellite internet service, its financial performance is far from satisfactory and has yet to reach profitable levels.
Insiders familiar with SpaceX's internal finances revealed that although the global leader in private enterprise has sold millions of ground terminals, on average, each terminal incurs losses of hundreds of dollars. This has raised doubts among investors regarding the claims made by CEO Elon Musk and his executive team that Starlink has entered a "profitable trajectory."
Furthermore, insiders pointed out that while Starlink now serves over 2.6 million users, SpaceX often omits the substantial costs of launching satellites into space from its financial reports to present more favorable data to investors. They even described SpaceX's accounting practices as "more art than science," emphasizing that the company has yet to achieve true profitability from an operational standpoint.
Due to U.S. regulatory provisions allowing companies with minority shareholders to withhold financial details, they typically cover ongoing losses through financing, sustaining operations for years. Individuals familiar with SpaceX's financial situation noted that the actual profitability situation is unstable compared to Musk's claim last year on the X social media platform of achieving "positive cash flow."
SpaceX is transforming the rocket and satellite market much like Tesla transformed the global automotive industry. The company has significantly reduced launch costs through reusable boosters. As SpaceX's global satellite market share continues to grow, its global influence expands.
In December of last year, SpaceX's valuation approached $180 billion, rivaling U.S. wireless operator Verizon and industrial giant General Electric. Additionally, SpaceX has become an indispensable part of the U.S. government's space program, playing a crucial role in national security. However, this is mainly due to the financial support from the Starlink business.
Although the launch business brings in some revenue for SpaceX, profit margins are very limited. Musk is well aware of this and has turned to the satellite internet business, hoping it will provide continuous funding for his ambitious Mars exploration plans. Investors anticipate that by 2024, the Starlink business will account for more than half of SpaceX's total revenue.
During an interview with Goldman Sachs partner Susie Scher, SpaceX President Gwynne Shotwell stated, "While there may only be around 150 global rocket customers, the potential customer base for Starlink is as high as 8 billion."
Capacity Constraints
SpaceX is expanding its Starlink satellite network to serve a broader customer base. These low Earth orbit satellites aim to significantly reduce data transmission latency, meaning the time it takes for data to travel from the satellite to the user.
Currently, SpaceX has deployed 5,600 active Starlink satellites and plans to add tens of thousands more in the future to reduce latency and enhance global internet service. Once fully deployed, Starlink will compete with telecom providers using larger, higher orbit satellites, which typically operate only in specific regions.
Unlike terrestrial mobile service providers, SpaceX cannot optimize areas requiring higher bandwidth by adding more ground stations. Therefore, Caleb Henry, a space analyst at Quilty Analytics, stated that SpaceX needs to continuously add satellites to improve network performance.
However, when too many users simultaneously use the satellite network, system overload may occur, affecting the user experience on the ground. Ookla, a research firm that tracks Starlink speeds and analyzes internet performance, reported challenges in Starlink performance as urban and suburban users increased.
Ookla's research shows that Starlink speeds have decreased since 2022 with the growth in users. However, with SpaceX launching new satellites aimed at increasing network capacity, speeds have improved, especially in sparsely populated areas.
SpaceX announced plans to enhance Starlink network performance by launching commercial missions for Starship later this year. Compared to the current Falcon 9, this new rocket is larger. Though still in testing, the goal is to support SpaceX in launching larger, more performant satellites.
Andrea Lamari, a general partner at Manhattan venture capital firm, remains optimistic about SpaceX's future development. She advises SpaceX to accelerate satellite deployment and improve the reliability of existing satellites and services. She emphasized that Starlink has successfully expanded its service range to areas where traditional internet services are limited or unavailable while continuously increasing bandwidth, reducing latency, and providing better service.
Demonstrated Failures
Insufficient capacity may be a major obstacle for Starlink in securing large enterprise contracts.
Currently, major airlines such as Delta Air Lines, Southwest Airlines, American Airlines, and United Airlines, are cautious about Musk-led services and tend to partner with traditional Wi-Fi providers like Viasat. Analysts point out that SpaceX has failed to meet the expectations of enterprise customers in providing long-term contracts and exclusive services. Additionally, the cost of dismantling existing Wi-Fi systems to install services that have not yet gained widespread acceptance has deterred many enterprises. For example, Viasat boasts a large sales team, while Starlink has relatively modest investment in this area. Southwest Airlines CEO Bob Jordan made it clear last year that while they're open to new technologies like Starlink, their current focus is ensuring Wi-Fi service meets expected performance.
In pursuit of a partnership with Delta Air Lines, SpaceX faced a setback when a demonstration failed due to connectivity issues. During the test, Delta executives wanted to verify Starlink service, but when the plane reached 30,000 feet over Chicago, it couldn't connect. SpaceX responded by temporarily suspending network service for some paying users in the city, temporarily addressing the in-flight Wi-Fi issue but failing to secure a contract with Delta.
However, SpaceX has excelled in gaining corporate clients in rural and maritime areas, where bandwidth demands won't overwhelm the system, making it an ideal market for Starlink services. Currently, companies like Carnival Cruise Line, Deere & Company, and CMB Group have signed partnership agreements with SpaceX.
Torbjorn Dimblad, CIO of CMB Group, highly praises Starlink service, describing its access as "like getting tap water," crucial not only for vessel operations but also significantly reducing costs.
Currently, CMB has installed Starlink on about 300 vessels, nearly half of the company's total fleet. Each ship's Starlink equipment costs around $2,700, with a monthly service fee of about $1,000, compared to previous services from European satellite communications companies and Viasat's Inmarsat Global, which not only had slower download speeds but also charged equipment costs of up to $20,000 per ship and monthly service fees of $2,000.
It's certain that as SpaceX's costs for satellite manufacturing and ground terminals decrease, its profitability steadily increases. It's been revealed that by the end of 2023, SpaceX's cash flow had significantly strengthened, with its profitability becoming more stable.
Insiders say that SpaceX has exceeded revenue expectations for the past three years, with sales expected to skyrocket from $4.7 billion last year to $15 billion this year.
To cope with this growth, investors believe SpaceX needs to raise more funds or receive new investments from Musk.
SpaceX is evaluating the possibility of an independent IPO for Starlink, which would allow Starlink to raise debt or equity independently of the parent company. According to reports, SpaceX has already stored Starlink data independently and prepared the necessary steps for a split.
However, SpaceX currently indicates it's not in a hurry to IPO. CFO Johnson stated last month, "An IPO will be considered in the coming years, as we expect growth to accelerate by then."
