Elon Musk’s SpaceX Is Raising Money at a Valuation Approaching $10B
techcrunch.com
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I'm sure WhatsApp is an outlier because I see it brought up all the time when the topic of valuation arises but it still seems like SpaceX should be worth a lot more to me.
Humans can't perceive exponential effects intuitively and on the scale of SpaceX its almost impossible.
Until there is something useful in space other than satellites, market value for space companies won't be that high.
It is true that ad spends generally result in diminishing returns, however diminishing returns are far from zero sum.
In industries subject to economies of scale advertising is actually really good for economic efficiency and does not at all waste resources rather causing them to be used more effectively.
It's all very good money for the ad platform/brokers.
So they're already very close to the dream of a liquid booster that you can just land, refuel, and relaunch.
Don't get me wrong, it'll be great if they manage it, but I don't think it's as easy as people seem to assume.
Adding some perspective:
Ferrari enterprise value: $6.03bn
Heineken enterprise value: $11.857bn
American Airlines enterprise value: $10.666bn
KFC enterprise value: $19.492bn
Audi enterprise value: $17.731bn
Clean water for the entire planet: $10bn
Top 50 college football programs: $15bn
World's music industry: $16bn
Mozambique's GDP: $18.9bn
Sources:
http://www.thedrum.com/news/2014/02/20/19-brands-facebook-co...
http://list25.com/25-things-facebook-could-buy-with-19-billi...
http://www.telegraph.co.uk/technology/facebook/10652397/Face...
But I do see why for others there is value there, bread, beer and entertainment (or, as it was in the old days, bread & circuses) have been able to capture very large audiences for millennia. (And the Music Industry and Heineken are reprentatives of the same category.)
Why?
Cuz GDP is a measure of economic output (throughput, generally per annum) whereas Market Cap is a measure of worth at a moment in time. The units don't match up but since they are frequently omitted we get unlike things being compared.
What do you reckon?
Market cap takes future earnings and total value into account. There is no such calculation for countries, but a country's "Market Cap" (potential) should, in most cases, be higher than its "Net Revenues.
As an example, the national wealth of the US in 2014 was $81.8 trillion, while our GDP in 2013 was $15 trillion. So your intuition is correct; GDP is a horrible way to value a country. Though in practice, GDP tends not to vary a lot in mature economies (i.e. inflation tends to stay roughly the same year to year), so you can do a relatively simple NPV calculation on the GDP to approximate the national wealth.
Heineken enterprise value: $57bn [1]
American Airlines enterprise value: $36bn [2]
Yum Brands (KFC parent company) enterprise value: $37bn [3]
Audi looks to be about right, and Ferrari is still a private company so their EV is a bit harder to quantify. The rest of your numbers are also harder to quantify; so I won't take issue with them.
I agree with you that it's fallacious to compare SpaceX to WhatsApp because the vast majority of WhatsApp's valuation comes from the terminal value. Given that WhatsApp was purchased largely with Facebook stock (which also derives its high price from a large terminal value) I would say this is a case where Facebook basically paid for WhatsApp in "Facebook bucks", not actual US dollars. Since Facebook and WhatsApp are in largely uncharted economic territory, there is a large degree of potential error in the terminal value. SpaceX, meanwhile, is in an industry that existed prior to 10 years ago, and is thus a lot easier to accurately peg a terminal value to. Additionally, SpaceX requires a significant amount of capital investment to grow and perform additional research, while WhatsApp can scale enormously with very little capital needs.
[1] http://ycharts.com/companies/HEINY/enterprise_value
Mark Zuckerberg made the decision of WhatsApp deal. In this planet he probably has the best visibility on revenue opportunities of mobile social networks.
Facebook market cap is around 190 billion as of writing, and they have +1B monthly actives. WhatsApp had around 400M monthly actives when the deal was announced. If Facebook can implement ad model to WhatsApp as succesfully as it has implemented it to Facebook mobile app, it is totally possible that WhatsApp $19B deal was fairly valued. Maybe a bit overvalued as a defensive move, but not out of proportion.
Even if the user base continued to grow to 1/7th of all humans on the planet, that's still $16 per user. Over 5 years that's about $3.2 per user per year. Can they monetize that much?
Their fee is $1/year with the first year free. So assuming a billion people use it, it would take 17 years to get their money back in gross revenue terms. Who knows how long in net revenue.
FB has a little over a billion users, and makes about $6 per user per year in gross revenue with tons of advertising.
Is WhatApp overvalued? A little.
This is something WhatsApp can't possibly do, as their market can't grow much more, but space is only starting to.
The differences between what SpaceX does today and a self sufficient permanent colony on Mars are far far greater than the difference between what SpaceX does today and and the fireworks I shot off last weekend.
Spacex is definitely not limited to satellites, they are planning to launch people in space and are currently delivering cargo to the space station.
There are plenty of information, some by Spacex, that show how their technology could be used for a permanent settlement on mars.
Their goal:
SpaceX designs, manufactures and launches advanced rockets and spacecraft. The company was founded in 2002 to revolutionize space technology, with the ultimate goal of enabling people to live on other planets.
s/is building/has built
> Nowhere in that endeavor is the technology to permanently move a sufficient number of people to some other planet.
Nowhere in 1999 Google was the technology to autonomously drive cars, either. Yet, Google's cofounders explained their vision in 1999 to collect and organize the world's information. Vision and leadership is an important part of predicting a company's future, and Elon is very clear about this: The purpose of SpaceX is Mars colonization.
Until we see rocket fuel doubling in energy every eighteen months, any idea of a Mars mission (let alone colony) paid for with private money is wishful thinking.
Have you heard of the phrase "once you're in orbit, you're halfway to anywhere" (Robert Heinlein)?
The delta-v from LEO to mars is only ~4.6 km/s assuming you aerobrake once you're in orbit. Or 3.8 if you're doing aerocapture.
For comparison, it costs ~10 km/s just to get into LEO.
Remember the tyranny of the rocket equation. Saving the rocket fuel required to get into orbit drops the total fuel cost by an absurd proportion.
We already have the tech for being able to do at least an order-of-magnitude drop in price to orbit, if not more. Launch loop, etc. (With a launch loop you need ~120m/s additional to get into LEO, but that's peanuts comparatively.) The biggest issue currently is that it's a lot of money to potentially build. And the political components.
Yeah, it'd be a huge chunk of change to build. But it's potentially worth it.
As crackpot ideas go, the launch loop (or variants thereof), is the one that I am (still) most excited for.
Realistically, the only hope we have of seeing astronauts on Mars is if China and the US (or some other pair of countries) gets in a Cold War-style pissing contest.
Looks like we need at least 3 orders of magnitude of improvement before we can even start to think about it. If SpaceX's program for reusable rockets succeeds beyond Musk's wildest dreams, we might get like 1 order of magnitude of cost reduction. There's still a hell of a long way to go, and that's if everything works perfectly.
A semi-permanent colony might be doable, but anyone there wouldn't last long without regular resupply from Earth.
Not obvious. This month Google announced a big trans-pacific underwater internet cable system, for instance. Although it is clear satellites still have a major role in intercontinental communications, it's not clear to me whether this role will prevail in the future.
ref: http://finance.yahoo.com/news/google-asian-companies-invest-...
Of course, they also make some money on NASA contracting and grants, but I don't think anyone has ever managed a huge valuation on being a government contractor.
It's entirely possible that SpaceX will open up whole new fields of space industry, but at this point it's hardly something that most people are going to bet on.
Lockheed Martin is worth around $52B on the NYSE.
Is a seat in Orchestra section really worth 3 times more than one in balcony? Hard to tell, but some will pay that difference because they consider it worth it FOR THEM, therefore that's the valuation of that seat.
glorified messaging app < puts things into orbit and literally does rocket science
...which is not necessarily the case.
Now, we can talk all day about whether EMH is accurate or not and if the investors in these companies have "perfect information" or not, but there would have to be pretty conclusive evidence that there is something other than economic forces impacting investors valuation of these companies.
This is obviously not true if you count economic value, and obviously true if you count "value" as in something good and useful for humanity. In our economy, the former is a proxy for the latter, but both forms of "value" are getting more and more misaligned nowdays.
Things that benefit the common man are usually way better economic bets than lofty ideals.
Getting most of india talking to each other is far more important than a 50 people circling the earth.
WhatsApp adds almost zero because there are many other options to text everybody. So it's just another company that got traction. It could die tomorrow and nobody would worry much. It can be easily replaced. There is no long lasting value (again, due to so many other options and the easiness of creating it from scratch again). Text chatting is a exhausted marketed, in terms of innovation. If WhatsApp is secretly working on hologram technology then it'd be another entirely different matter, but I doubt that's their focus.
SpaceX, on the other hand, is making breakthroughs in engineering and science. What they create will be with us for a long time, can yield multiple patents, can feed into other inventions.. I think it's very difficult to argue that creating technology that allows us to go to other planets has little value. I think it has a lot.
So I think we're substituting the question "where should humanity invest money?" for "which companies are correctly valued". The latter is much easier to answer based on economics. The former, quite difficult to agree on.
This leads to weirdness as you've described where the fact that a billion people deriving marginal utility from something is far more valuable than a much more "important" market where the utility is much higher but the volume is low. But this isn't a new phenomenon, there's also the situation of movie/tv/music stars related to industry, for example, which we've largely come to accept as normal but is equally bizarre. There are stars who are multi-millionaires despite having sort of sub par work, but because it appeals to such a large market and because scaling and incremental profit can be so high in media it's much easier to get rich. Johnny Knoxville has more annual revenue than lots of small companies working on very hard and interesting problems, that's just the way the economics works out.
Surely there are deeper technical challenges and social motivations to "a glorified messaging app".
How about considering the value of wide-spread human communication vs. multi-planetary human existence & space research?
What hasn't been talked about much (probably because it's a decade or two away and thus quite speculative) has been the economics of colonization. Yes, money can be raised for an expedition perhaps with public/international/crowdfunding assistance, but then what? What profit or economics will drive colonization? Would the chance of establishing their own new country be enough? How do you convince ~100k people to pay 500k each to go there?
Consumption goods, not investment goods.
How do you convince ~100k people to pay 500k each to go there?
Back of the envelope Drake-like equation:
• Minimum wealth of richest 1% of Americans: $8.4 million
• Of those, 1% are in good enough mental and physical health to go
• Of those, 1% actually want to go.
That's 30,000 people. Obviously those numbers are seat-of-my-pants. Maybe only 1-in-a-thousand of people capable of making the trip want to go.
EDIT Tomp is right, my math was wrong.
In terms of compensation for the colonists, what are you going to do with money when you're on a dead rock 225 million kilometres from Earth?
The idea of SpaceX being public makes me very nervous about the future of commercial space (though I really, really want them to succeed). Think back to when NASA lost people (Apollo 1, Challenger, Columbia) - these were seen as huge national tragedies followed by years of public scrutiny and gov't inquiry. But work pushed on, because their funding and momentum to continue with operations was decoupled from these reactions.
Now, imagine the first time SpaceX loses a human. If they are public, that could kill the entire company right there. Stock traders are not rational actors.
SpaceX, as you say, will need to be profitable. It won't invest money into a place where it cannot plausibly break even.
Elon Musk, on the other hand, will be consuming his personal fortune when he goes to Mars.
TLDR: Musk is building the company that can sell him a trip to Mars. In the end, investors will own most of SpaceX, Musk will be a pauper relative to his current wealth but on Mars, and everyone will be happy.
Elon has said he intends to bring the cost down to $500,000 per ticket. His current net worth is $12 billion, before Spacex, Tesla, and SolarCity have even really taken off mass market. Am I missing something here?
There are a lot of pieces left that need money dumped into them. Musk seems to be building all the technology pieces needed for a Zubrin "Case For Mars" trip. [1] Not all of those have immediate market needs that SpaceX can justify, such as artificial gravity. (NASA is extremely reluctant to have anything to do with this. Their tune might change if someone else can demonstrate it safely, but for now NASA policy is to only talk about microgravity, not artificial gravity.)
SpaceX needs to stay profitable. That is extremely important, because people need to be able to build plans around the company continuing to exist. It can't have loss-leaders.
However, Musk can be a loss-leader: he can hire SpaceX to (say) research, develop, and build artificial gravity labs. SpaceX would be hard pressed to find a business reason for building those in the intermediate term.
The "Case For Mars" got a ~$30 billion price tag from the same committee that gave the 90-day report a $450 billion price tag. SpaceX has demonstrated the ability to significantly aerospace costs, but even if they cut it by a factor of 6, that's still $5 billion in development costs that a company with a total valuation of $10 billion somehow has to support. (And "selling tickets to Mars" won't give them revenue for at least a decade.)
[1] The rough list of big technologies needed is about 5 elements long: 1. Heavy lift. 2. Methane-burning rockets. 3. In-situ resource production. 4. Artificial gravity. 5. Mars EDL. SpaceX is working directly on #1 and they have a nice research project going on #2. Methane rockets are justifiable by SpaceX because they have (some) practical advantages over LH/LOX rockets.
Also, we just don't know what 3 years of Martian gravity does to a human. It would be good to see just how much better 3/8 g is against 0 g.
In a way for an investor it is very nice to know what makes the founder(s) of their portfolio companies tick because it makes them more predictable.
If the route to Mars for Elon goes through profitability of SpaceX then I would hate to be in the way of his particular brand of steamroller, regardless of whether or not he himself benefits from that in a financial way.
Edit: Seems like folks still like Uber around here. Use the taxi service at its current costs while you can; it's not gonna stay that way.
I love space, I love SpaceX in particular. That doesn't mean I think this valuation is out of whack. Facebook and Whatsapp have literally unprecedented reach. It's easy to hand wave off as 'just a messaging app', or 'just a social network', but we're talking about brands that achieved the global reach of Coca Cola in under 10 years. That's nothing to sneeze at.
Meanwhile, SpaceX is making something roughly as technically difficult as stuff Boeing, Lockheed, General Dynamics are all doing. Should those companies be worth more?
We continue to live in a strange time where people speak of "deserved" valuations without ever talking about future potential profits, both for space companies and even messaging apps.
Elsewhere in the comments, someone said that SpaceX will will simply "go public" to raise the money for Mars (sidenote: that must be an SV thing, to talk as if "going public" is like going to the ATM). Well, who in the public is going to invest without having some idea of what the business model here is, with a reasonable expectation of profits for the undertaken risk?
Look, I'm fascinated by the work SpaceX is doing too, but I need something more concrete than a bunch of loose ideas ("Mine asteroids! Launch satellites!") before I'd turn over my money. It will probably (hopefully) happen eventually, but until then any valuation is meaningless, high or low.
Colonizing Mars may be a driver and talking point now, but will be minor in the long run. Asteroid mining, orbital habitats, Moon resorts (with flying domes ala Heinlein), Comet water chasing, it's all open. Mars' role may be huge, it's sooo much easier to get to orbit from Mars than it is from Earth.
Looks like SpaceX's total funding is $400-500 million (private + Musk + VCs and excluding income). It's astounding what they've accomplished with such a relatively small amount of money compared to NASA's budget.
I doubt SpaceX would care whether the entity was a corp or an individual, but if you have enough money to invest in SpaceX why are you holding it personally instead of via a holding company, etc?
Edit: eh, third!