Three years ago -- almost to the day -- SpaceX chief operating officer Gwynne Shotwell got space investors' hopes up when she predicted that "Starlink is the right kind of business that we can go ahead and take public." Barely a year later, Shotwell's boss, SpaceX founder, and CEO Elon Musk qualified that prediction by saying that, while a Starlink initial public offering (IPO) is in the cards, it won't happen until the business's revenue is at least "reasonably predictable."
At least a few years before Starlink revenue is reasonably predictable. Going public sooner than that would be very painful. Will do my best to give long-term Tesla shareholders preference.
-- Elon Musk (@elonmusk) June 24, 2021
But with nearly 3,600 satellites in orbit and more than a million customers subscribed to Starlink -- and consistent profitability just around the corner -- that day is fast approaching.
Image source: Getty Images.
What is Starlink?
An exciting service that's literally out of this world, Starlink is SpaceX's satellite broadband internet subsidiary. It's a business that SpaceX first proposed in 2015 and that the company thinks will eventually produce $30 billion in annual revenue and earn 60% operating profit margin.
Admittedly, as recently as two months ago, Musk was frustrated by Starlink's inability to earn a profit, and indeed, the company is losing as much as $20 million a month. But that appears to have changed.
Appearing at a Federal Aviation Administration Commercial Space Transportation Conference in Washington, D.C., earlier this month, Shotwell dropped her latest bombshell. In the course of commenting on Starlink's role in the Russia-Ukraine war, she confirmed that, far from losing money, Starlink in fact "had a cash flow positive quarter last year." (Although she didn't say which quarter was positive -- and she also qualified that cash flow as only positive if you don't count the cost of launching the satellites in the first place.)
Furthermore, Shotwell observed that even if you do count those launch costs, Starlink "will still make money" this year.
Is Starlink profitable?
Now it's worth pointing out that some reading between the lines is necessary when parsing Shotwell's statements because the COO was frustratingly vague on a couple of points.
A company can be cash-flow-positive and still unprofitable (if it's still depreciating the costs incurred back when it was cash-flow-negative). It can also be cash-flow-negative yet deemed "profitable" according to generally accepted accounting principles (GAAP) if it calculates that the money coming in far in the future will eventually offset all the cash it's spending to grow its business today. It really depends on how you do the accounting. And a private company like SpaceX has a lot of leeway in how it decides to keep its books. (A better way to consider whether a company is actually a good buy at any given moment, therefore, is to calculate its free cash flow. Unfortunately, this is something investors can't easily do with a private company like SpaceX, which doesn't publish its cash flow statements.)
Still, taken as a whole, there's a lot to be optimistic about in Shotwell's comments. Things do sound like they're looking up for Starlink. By at least one measure, the SpaceX subsidiary is making money. And if you draw back the lens a bit, SpaceX as a whole is probably doing even better than its Starlink subsidiary, because Shotwell confirmed that SpaceX's launch business is definitely making money this year -- albeit primarily by booking profits from all of its Starlink launches.
Now when will it IPO?
Probably the best news for space investors, though, is that the more optimistic SpaceX sounds about its chances, the more likely it is the company will decide it's time to go ahead and IPO Starlink -- giving individual investors a chance to directly buy a piece of SpaceX's biggest business for the first time ever.
Granted, SpaceX still hasn't laid out a clear timeline for when an IPO will happen. But with Starlink raking in $110 a month per subscriber, times 12 months in a year, times at least a million subscribers -- well, that's already a $1.3 billion-a-year business right there. And if Starlink really is getting close to profitable with just a fraction of the $30 billion in revenue Musk ultimately expects it to produce, then it just might be "reasonably predictable" enough that investors could see an IPO date set soon.
