The different businesses that SpaceX is in

[Space Ghost 1962]

Launch is a low-margin industry. Spacecraft building I believe has higher margins.

Yes, but each has very different capital structures.

Companies in both have a reason - usually its a fall back ride to orbit to keep under control galloping launch services costs.

If SpaceX does succeed in lowering launch costs, their revenue may drop unless they add some higher margin business. Dragon is responsible for probably about half their revenue though I'd bet they spend more resources on F9, FH, Merlin, and their launch sites. So unless the launch industry increases dramatically, SpaceX may very well be incentivized to keep their prices high.

You mean flight rate/frequency/cadence.

Either you supplement/enhance market size, which saps your capital base, or you must increase productivity to accomplish increase in payloads. This assumes an increase in demand - where?

Diversification (in a way that takes advantage of significantly lower launch costs) may make sense for them and might be critical for their future. Remember that their work with Dragon means they have significant in-house experience with power, thermal, propulsion, qualification, etc for spacecraft, so there is overlap for something like commsats there.

That said, I'm not convinced there's significant evidence that SpaceX IS entering the commsat business. But it wouldn't be the worst idea ever, considering the experience from Dragon.

Nor am I. They could easily become to thinly spread with not enough benefit and to large a cost structure.

A more efficient way is to identify productivity improvements in existing industries, specify such that to source through that path it compels industry/market to use such. That means that capacity in SC matches launch services.

It is the only way to create the conditions to support a growth in demand that drives sustainable launch frequency that then results in a chance to bring down cost to orbit permanently.

You cannot compel demand, you can only reduce the barriers to accessing the demand, such that the demand can occur and not be bottle necked.

[nadreck]

SpaceX wasn't formed to maximize profits, however you maximize profits by finding the way to have lower costs than your competitors and price at a point where the amount of business you stimulate into existence with lower pricing multiplied by your margin hits a peak

I'll say it again.  SpaceX is aiming for zero profits (none) for at least the next 10 years.

To be clear, I'm not talking about income.  Profit = Income - Expenses.  For the next 10 years or more, SpaceX will raise their expenses to meet their income, or perhaps exceed their income by using more investment.  By raising expenses, I mean developing BFR, MCT, and other new projects.

This is why SpaceX has pushed out their IPO indefinitely.  Stock holders generally want to see a profit a lot sooner.

I completely disagree with you. Profit = Income - operating costs - depreciation/amortization - taxes - interest.  Capital spending does not come out of profit. SpaceX will keep from having any free cash flow for 10 years - or maybe forever (many long term giants in their industry stayed growth companies for ever and never paid out dividends always finding ways to take free cash and reinvest it in capital projects).

SpaceX to accomplish what it needs to accomplish needs to make capital investments, the only way you make big capital investments is to either issue a lot of equity (IPO) or you spend your profits on growth. Microsoft, Berkshire Hatheway, etc all piled their huge profits into new businesses areas. SpaceX's (really Elon's) goal is a new business area (MCT) that is a ways down the road. It will generate inordinate profits compared to the equity invested OR it will have to go public OR it will totally fail to accomplish Elon's goal.  A number bandied about not that long ago was $1B to get from zero to hero (attached to a booster) on the Raptor engine. That $1B has to come from somewhere. Unlike a cost plus contract environment SpaceX needs to make a profit to invest in that.

[nadreck]

I mean capital expenses are not deducted from income to calculate profit. Capital expenses are paid for with borrowed money, equity raised in private or public markets, or from the cash flow of a business.

[oldAtlas_Eguy]

The business has two parts: Operations (includes manufacture) and new development.

Any cash flow surplus in operations is used to fund new development.  Somewhere they have balanced their prices on operations to fund the development rate they want to accomplish.  Also new investors/investments from external sources can be used to increase the development rate or other capitol property expansions (real estate, launch pads, etc).

P.S. Remember Development work is mostly manpower costs not capitol equipment.

[nadreck]

Labour to develop a new product or device that has a life cycle longer than a year is a capital expense. Microsoft had little plant or equipment to buy, but as they developed Windows, Office, and a variety of things that never left drawing boards they spend a lot of capital on R&D. When a product was discontinued as a product, any capital that had not been depreciated would be been written down.

Still, taking the Raptor as an example all development work on it, until the first use, is a capital expense. If it never is used then they write off the R&D and it becomes an expense at the time the project is discontinued. However, if it is used they could arguably depreciate some of the development expenses over 10 years or more - look how long the RD-180 has been in manufacturing.

[JasonAW3]

SpaceX wasn't formed to maximize profits, however you maximize profits by finding the way to have lower costs than your competitors and price at a point where the amount of business you stimulate into existence with lower pricing multiplied by your margin hits a peak

I'll say it again.  SpaceX is aiming for zero profits (none) for at least the next 10 years.

To be clear, I'm not talking about income.  Profit = Income - Expenses.  For the next 10 years or more, SpaceX will raise their expenses to meet their income, or perhaps exceed their income by using more investment.  By raising expenses, I mean developing BFR, MCT, and other new projects.

This is why SpaceX has pushed out their IPO indefinitely.  Stock holders generally want to see a profit a lot sooner.

So, in otherwords, they are currently charging just enough to cover all their expenses, including taxes, fees, FAA certification, experimenting with new landing techniques, and pretty much what they are currently doing.  I'm not quite sure that I believe that.  While making enough money to support all current activities, they would have to be making enough to support planned expansion of the company, unless they are "stealing from Peter to pay Paul" from Tesla and Solar City.

Edit/CR - material related to Tesla and subsequent posts in response removed

[deruch]

Did SpaceX suddenly get into the accounting business and no one told me? 

[Robotbeat]

SpaceX wasn't formed to maximize profits, however you maximize profits by finding the way to have lower costs than your competitors and price at a point where the amount of business you stimulate into existence with lower pricing multiplied by your margin hits a peak

I'll say it again.  SpaceX is aiming for zero profits (none) for at least the next 10 years.

To be clear, I'm not talking about income.  Profit = Income - Expenses.  For the next 10 years or more, SpaceX will raise their expenses to meet their income, or perhaps exceed their income by using more investment.  By raising expenses, I mean developing BFR, MCT, and other new projects.

This is why SpaceX has pushed out their IPO indefinitely.  Stock holders generally want to see a profit a lot sooner.

So, in otherwords, they are currently charging just enough to cover all their expenses, including taxes, fees, FAA certification, experimenting with new landing techniques, and pretty much what they are currently doing.  I'm not quite sure that I believe that.  While making enough money to support all current activities, they would have to be making enough to support planned expansion of the company, unless they are "stealing from Peter to pay Paul" from Tesla and Solar City.

They aren't the same companies. I would have thought that's obvious.

Edit/CR - material related to Tesla in quote removed

[Dudely]

I agree that they will seek to minimize profits. This is the model Amazon uses and it works. You can dominate any market really easy when you make it almost impossible for anyone to make money.

[MTom]

I agree that they will seek to minimize profits. This is the model Amazon uses and it works. You can dominate any market really easy when you make it almost impossible for anyone to make money.

The simple strategy "minimizing profit" is a suicide strategy. Amazon and SpaceX following not that strategy.
They are following the strategy making quality and delivering fast, for low prices. This is the heaviest: three in one.
Most of the companies can make only two from this three.)

[watermod]

Don't forget Musk's family of companies that could behave mutually to support colonization.
http://en.wikipedia.org/wiki/Keiretsu Kieretsu: ( SpaceX, Tesla, Battery Company, Solar City )

[wannamoonbase]

I agree that they will seek to minimize profits. This is the model Amazon uses and it works. You can dominate any market really easy when you make it almost impossible for anyone to make money.

The simple strategy "minimizing profit" is a suicide strategy. Amazon and SpaceX following not that strategy.
They are following the strategy making quality and delivering fast, for low prices. This is the heaviest: three in one.
Most of the companies can make only two from this three.)

I don't think Amazon and SpaceX are similar businesses in anyway.  I manage my own investment and I would never touch amazon.  One might make money trading it, but it's not an investment.  They lose money constantly.  That's a path to failure.

SpaceX is a startup.  The most there revenues are going to be is 1-3 billion a year.  At least for the next 10 years or so. 

I think the day SpaceX becomes publicly traded is the end of the 'can do, revolutionary culture'. Make it a widely held employee owned company.  One where space and rocket fans have a home.  Start filing quarterly reports with the SEC and vision dies.

Besides, until someone finds a solid block of gold on Mars there's no way I'd buy shares in a company that says it's sending people to mars.  Exciting yes, a viable paying business no.

[Pete]

Besides, until someone finds a solid block of gold on Mars...

At current launch costs, the sands of Mars could be all 100-carat diamonds, and it would still not pay economically to go fetch them.

Mind you, the scientific community might pay more for a nice authentic scoop of Mars dirt than for a similar weight of diamond....

[QuantumG]

Diamonds aren't really that fungible, you want something a little more moreish.

[wannamoonbase]

Besides, until someone finds a solid block of gold on Mars...

At current launch costs, the sands of Mars could be all 100-carat diamonds, and it would still not pay economically to go fetch them.

Mind you, the scientific community might pay more for a nice authentic scoop of Mars dirt than for a similar weight of diamond....

Only for the first few scopes, pounds or tons. Then it becomes dirt.

[CuddlyRocket]

Besides, until someone finds a solid block of gold on Mars...

At current launch costs, the sands of Mars could be all 100-carat diamonds, and it would still not pay economically to go fetch them.

No, but if you'd gone to Mars anyway, and your reusable lander/return vehicle has (as envisaged) spare payload when returning, both gold as well as diamonds would certainly be worth bringing back!

[StealerofSuns]

Besides, until someone finds a solid block of gold on Mars...

At current launch costs, the sands of Mars could be all 100-carat diamonds, and it would still not pay economically to go fetch them.

No, but if you'd gone to Mars anyway, and your reusable lander/return vehicle has (as envisaged) spare payload when returning, both gold as well as diamonds would certainly be worth bringing back!

Why the mention of "current launch costs" anyway? This is, after all, SpaceX we are talking about.