SpaceX fundraising again

[CuddlyRocket]

Since Elon has not sold any Tesla or Solar City stock ever .... I wonder how he funds his billionaire lifestyle. It takes a few hundred million dollars to fund his personal lifestyle with the private jet, the $17 million mansion, etc. His official income from Tesla is something like $40,000 per year. He doesn't have any listed income as Chairman of SolarCity.

He borrows money from a bank or other financial institution secured on his shareholdings in Tesla, SolarCity, SpaceX and other investments he has. The interest is rolled over, but the value of his shares are increasing much faster than this so the debt as a percentage of his assets is declining rapidly. He's supposedly worth over $10 billion, so even $300 million to fund his personal lifestyle is only 3%!

Valuations of companies can be carried out using a number of different metrics. Which one is most appropriate is a matter of judgement about which even financial experts can disagree (it takes two to make a market, as the old adage goes). It certainly is not limited to considerations of a multiple of present revenue, as a quick glance at published research by major financial institutions on Tesla will demonstrate; most of the recent ones are based on anticipated revenue once planned new models are in production. Research drugs companies are another example; valuations are based on anticipated revenue if the candidate drug works, less a discount because most of them don't!

SpaceX's aim is to develop the transportation infrastructure to enable a Mars colony; and it no doubt can be used for other purposes. Should they succeed revenue is likely to be considerable. Opinions differ on the likelihood!

[dkovacic]

Must be nice to have a $10B valuation on ~$50M/year in sales (most of which is bookings - which in any other industry would count for $0.) I suppose it's closer to $300M/year if you include NASA, but that's not scalable business.

Estimate for 2014:
 - 2-3 CRS missions (266-399 mil)
 - CCiCAP funding (200 mil, I estimated 45%)
 - 2 Asiasat missions (2x52,5=105 mil)
 - Thaicom mission (52,5 mil?)
 - 1-2 Orbcomm missions (11-22 mil)
 - Turkmensat mission? (52,5 mill)

So 2014 estimate is between 634 and 831 million.

2015 estimate:
 - 2-3 CRS missions (399 mil)
 - CCiCAP and CCtCAP funding (100-200 mil)
 - 4-5 commerical missions (5x56 mil = 280 mil)
 - 1-2 USG missions (Jason-3, STP-2) - 180 mil

So 2015 estimate would be between 780 and 1059 million.

Conservative 5 year outlook (2019):
 - 3 CRS2 missions (399 mil)
 - 2 USCV missions (280 mil)
 -10 commercial GTO missions (560 mil)
 - 5 EELV missions (500 mil)
 - 3 other USG missions (300 mil)

That is over $2 billion in revenue, without any new markets (such as large LEO constellations, Private space stations, orbital tourism etc.), and price reductions. And the market capture is conservative 50% of each segment (ISS, commercial GTO, EELV). And no new development programs (such as COTS or Commercial Crew).

Note that just big three in commercial communications space (SES, Intelsat, Eutelsat) need to launch 10 satellites per year just for replacement of the existing fleet.

Optimistic 5 year outlook (2019), with reduced F9R price to 40 million per launch (33%):

 - 3 CRS2 missions (360 mil)
 - 4 USCV missions (480 mil)
 -15 commercial GTO missions (600 mil)
 - 8 EELV missions (640 mil)
 - 3 other USG missions (240 mil)
 - 5 commercial LEO missions (200 mil)
 - 2 Private spaceflight missions (160 mil)
 - Future NASA development program (200 mil)

That is $2.88 billion. With 40 missions per year. And the outlook to grow the private spaceflight segment by a significant factor. Of course there are risks, but so is in any business. I would even say that many "normal" companies take greater risks than SpaceX does.

[Scylla]

Unfortunately for the discussion on this thread, there appears to have been an oopsy on the reported fund raising and 10 billion valuation.

I refer you to my post up thread-#51.

Party spoiler!

And add option D to my list above:
D) This has all been a dream

Just doing my part to insure your proposed poll had all the pertinent options.

[QuantumG]

Why is the NASA/CRS deal one-off?  CRS-2 is coming as is CCtCAP. NASA science payloads are on the horizon.

A valuation is about growth. It's about the multiplier of investment to return. It's about saying "if you had X more money, what would you do to produce Y more return". It's really hard to make the argument that SpaceX could get more government business if only they had more production capability. Whereas commercial customers are lining up for it - if SpaceX can finally demonstrate they can deliver.

So we seem to have a the following situation:

A number of rather successful investors think one thing, and QG thinks another.

There are three explanations:
A) QG is correct about the investors being irrational with their money by a good order of magnitude, or
B) The model for valuation used by the investors is more forward looking than QG's, or
C) The investors have been given some information by SpaceX that makes then subscribe to the $10B valuation.

Shall we start a poll?

Ha! Turns out I was right and all your imaginary investors were wrong. Who would have guessed!

[dcporter]

Ha! Turns out I was right and all your imaginary investors were wrong. Who would have guessed!

You get big points for "A SpaceX valuation of $10B seems wrong enough to me that I bet it's wrong" but I don't think anybody is going to give you "No company is ever valued based on signed contracts and expectation of future revenue".

[QuantumG]

Ha! Turns out I was right and all your imaginary investors were wrong. Who would have guessed!

You get big points for "A SpaceX valuation of $10B seems wrong enough to me that I bet it's wrong" but I don't think anybody is going to give you "No company is ever valued based on signed contracts and expectation of future revenue".

I never said that. There are companies that get valuations like that.. they're called startups.

[dcporter]

I never said that. There are companies that get valuations like that.. they're called startups.

Well I'll take my licks for exaggerating for effect, but:

Must be nice to have a $10B valuation on ~$50M/year in sales (most of which is bookings - which in any other industry would count for $0.) I suppose it's closer to $300M/year if you include NASA, but that's not scalable business.

Bookings don't count for valuations either. Didn't I say that? Yup, I did.

You did lead without any caveats, and you used pretty broad language.

A simple multiplier on annual revenue or profit only makes sense for steady-state companies.

If you think they'll be worth significantly more than $10B within a few years, you should jump in if you can.

This is once again people insisting that a 10 year old company should be treated as a startup. That's a fool's game.

So I gather you were basically implying this the whole time – fair enough. Are you saying that only startups should ever be judged based on near- and medium-term expected revenue?

If so I can rephrase my original post: I don't think anybody is going to give you "Only brand new companies should ever be valued based on signed contracts and expectation of future revenue". Why shouldn't any company with great expectations over and above their historic and current revenues be valued based on them? You can dismiss anything beyond a P/E ratio as emotional investing, but if you as an investor have seen enough to suggest that the P/E severely undervalues the company in the medium term, you'd be missing an opportunity to walk away.

[QuantumG]

Because when you bet on a company delivering in a way they've never successfully delivered before you're no longer investing, you're gambling. SpaceX is on their own until they prove out their magical business model that somehow makes money from charging people less, while plowing money into R&D and an ever increasing headcount. When they have the numbers to back up their brave claims we'll see them expand rapidly and revolutionize the industry.. but it hasn't happened yet, so a valuation that high would be wrong. That's what a valuation is - a sober analysis of how much the business is worth if they do what they've been doing. I'm hopeful they'll pull it off, but I'd be suing my 401k if they invested at this point in time.

[dcporter]

A valuation is a sober analysis of how much the business is worth, full stop. If SpaceX is confident in its future earnings curve, it would be very remiss to sell off bits of itself at its current "sober" valuation.

All investing is gambling – your analysis assumes the continuity of the status quo, which is as much of a gamble as soberly assuming change. Things don't ever stay exactly the same.

I WILL GRANT that it's possible to hide a lot of hocus pokery under "but things will change", and not possible to hide much in "look only at history". There is a great deal of value there. But it's narrow thinking to say that the only sober way to value a company older than n years is to look at existing actualized revenue.

a valuation that high

Agreed by the way that $10B seemed pretty bonkers, and again kudos for calling it out. We're not arguing about your conclusion but some specifics.

[Oli]

Investors are interested in future profit not revenue.

Either way, we're witnessing another period of 'irrational exuberance'.

[Coastal Ron]

Because when you bet on a company delivering in a way they've never successfully delivered before you're no longer investing, you're gambling.

I disagree.

Venture capital investment, which is the kind that was erroneously reported SpaceX was seeking another round of investment from, is about risk.  You can't make a 10X ROI without assuming a lot of risk, and if you look at some the deals VC's have done you'll see lots of money going into companies that have yet to prove out their business models.

SpaceX is on their own until they prove out their magical business model that somehow makes money from charging people less, while plowing money into R&D and an ever increasing headcount.

I don't understand what you mean by "on their own", because every time a company orders a launch from SpaceX they are joining SpaceX in their "magical business model" - they believe enough in it to risk their own money.  They are investing in SpaceX.

I'm hopeful they'll pull it off, but I'd be suing my 401k if they invested at this point in time.

If you want zero risk investments then put your bury your money in a secret place in your yard.  Because the only way your 401K makes money is by taking risks, both small and big.

[ncb1397]

Because when you bet on a company delivering in a way they've never successfully delivered before you're no longer investing, you're gambling. SpaceX is on their own until they prove out their magical business model that somehow makes money from charging people less, while plowing money into R&D and an ever increasing headcount. When they have the numbers to back up their brave claims we'll see them expand rapidly and revolutionize the industry.. but it hasn't happened yet, so a valuation that high would be wrong. That's what a valuation is - a sober analysis of how much the business is worth if they do what they've been doing. I'm hopeful they'll pull it off, but I'd be suing my 401k if they invested at this point in time.

You don't understand how Elon Musk works. Tesla never has really made a dime(or planned to make a dime) off anything they have sold but is worth 30 billion now and was worth 5 billion not that long ago. Given their non-profit driven business model and plan to charge less for electric cars in the future, you would have sued your 401k for buying Tesla at a 5 billion dollar valuation effectively making you a much wealthier person? You don't need a profit driven business model to have a company's value and your portfolio float. Amazon is trading at 880 P/E but is trading profits now to sustain its impressive revenue growth. Their investors are doing fine, despite their attempt to charge customers less. I doubt that any company Elon Musk is involved with will ever make any sort of big profits anytime soon if ever, but will simply dominate through plowing everything back into expanding the business while other companies take their money and a.)let it sit there or b.)give it to owners to blow on <insert vice>. An example of this is Tesla's recent expansion of drivetrain warranty to 8 years for future and former buyers. Tesla could have taken that money and paid dividends or something, but instead they are building a customer base and building a larger piece of the market for the type of cars that they sell. Given that the industries he is in: energy, transporation and aerospace are simply enormous in scope and have room to grow, there is a long way to go before the natural limit to expansion is reached even at double digit growth rates.

[Lar]

I think we are probably done with the "I know more about investing than you do" posts, right? They certainly had a lot of snark.

Is there more to say on other things? Feels like done overall if in fact this 10B valuation was based on a thing that didn't happen, no?

[corneliussulla]

Because when you bet on a company delivering in a way they've never successfully delivered before you're no longer investing, you're gambling. SpaceX is on their own until they prove out their magical business model that somehow makes money from charging people less, while plowing money into R&D and an ever increasing headcount. When they have the numbers to back up their brave claims we'll see them expand rapidly and revolutionize the industry.. but it hasn't happened yet, so a valuation that high would be wrong. That's what a valuation is - a sober analysis of how much the business is worth if they do what they've been doing. I'm hopeful they'll pull it off, but I'd be suing my 401k if they invested at this point in time.

I think you just described intel, and to many other tech names to mention business model. Charging people less for more is a well established business model i think

[QuantumG]

I think we are probably done with the "I know more about investing than you do" posts, right? They certainly had a lot of snark.

Is there more to say on other things? Feels like done overall if in fact this 10B valuation was based on a thing that didn't happen, no?

I don't think it's unreasonable to talk about the topic of the thread.

Of course, if ya wanna lock this now, it'd be a good idea because the topic of the thread turned out to be completely false.

[Lar]

I think we are probably done with the "I know more about investing than you do" posts, right? They certainly had a lot of snark.

Is there more to say on other things? Feels like done overall if in fact this 10B valuation was based on a thing that didn't happen, no?

I don't think it's unreasonable to talk about the topic of the thread.

Of course, if ya wanna lock this now, it'd be a good idea because the topic of the thread turned out to be completely false.

It's not unreasonable to have a reasoned discussion, including disagreements. It IS unreasonable to have a discussion that's more snark than anything else, which is my perception of how things went. Leave it at that unless you wanted me to name names.

Given that this turned out to be a rumor, yes, locked. Discussion of novel business models and less is more strategies and the like might well fit into the "who will compete with SpaceX" thread and fit well.