Quantifying the Expectations in SpaceX’s Valuation

Welcome in everybody. Thanks for joining us here today. Sorry for any confusion. I know my screen name says David, but I'm obviously not David Trainer. He will not be joining us today, but we'll go ahead and get this kicked off. Topic of the day is SpaceX. I see they just started trading above their IPO price. as most would've expected. We'll see what they end up doing today and in the coming months. Welcome in. We'll get this thing kicked off. This is our monthly podcast. We're here with myself today, Kyle Guskey, and our senior analyst, Garrett O'Grady. Garrett, thanks for joining us today.

Yeah, thank you, Kyle. A pleasure to be on.

The title of today's podcast, we've gone with Quantifying the Expectations in SpaceX Valuation. That's been the topic of the week. We'll get into that a little bit later. I want to start off with the disclosures and disclaimers. Most importantly, we are not providing advice. We are simply publishing research. You can read all of these in the replay that we'll post on our website in the community. But again, keep in mind, we are publishers of research, not providing advice. The agenda for today. First up, I want to let everyone know that this is a monthly podcast. The next one will be July 10th. If you signed up for this one, you're actually already signed up for the next one. You'll get some emails about it, reminders to join then. Some of the research we've published recently, some new long ideas, new danger zone picks, SpaceX pre-IPO report. We looked at some stocks that actually were added to the Core Earnings Leaders Index in the most recent quarter. An interesting look at what it takes to join that index. It's not just about a specific valuation or number, it's really about core earnings and core earnings strength. Dig deep into some AI companies on some of those reports. Put out a few short little videos on new constructs in general, and then some earnings watch parties and model portfolio updates as well in the past few weeks. On the agenda today, we'll talk a little bit about number one stock, stock picking. We're excited to hit 60 straight months or 5 years. We'll talk some upcoming training events we've got going on, and then we'll jump into the topic of the day, SpaceX. So with that, I'll get right into it. No need to delay. If you have any questions, you can definitely put those in the chat. We'll do a full reverse DCF on SpaceX a little bit later. Maybe we can test some of your assumptions as well, or expectations maybe for future growth there. But I wanted to kick it off here with our number 1 ranking. We've been ranked now number 1 in multiple categories on SumZero, 16,000 buy-side analysts for 60 straight months, 5 straight years. We're very proud of this. We like to say proof is in performance. You don't just have to take our word for it. You can look at third parties. 5 years now, we've had number 1 ranked stock picking. So something we're very proud of. This really shows the power of using our data to basically glean insights from superior fundamental research. That's— we're very proud of that and wanted to share that with you guys. On the training side of things, we do have a couple upcoming trainings that you guys can also join in on. We got an Ideas Dinner coming up next week, June 16th, that is exclusive to our pro and institutional members. That's with David Trainer, He'll jump in. They'll talk about long ideas, short ideas, kind of anything that the pro and institutional members really want to talk about. It's an awesome opportunity. We've had some good ideas come out of it as well. So if you're a pro and institutional member, you're probably already signed up, but if you haven't joined one, we definitely think they are worth your time. And we've also got another training on June 18th at 1:00 PM Eastern. Registration links will start going out via email, I think this weekend or early next week. We're calling it the IPO Meltup. We'll talk about Everything going on with SpaceX IPOs, Anthropic IPO, OpenAI, all those AI companies, and what it means for the market and what it means for investors as a whole. But that is next week. Let's get back to today. SpaceX, the topic. SpaceX, SpaceX, SpaceX. I feel like it's some of all we've seen in the past few weeks of headlines is SpaceX. Rightfully, it is the largest IPO in history. We published our Pre-IPO report on May 21st. We wanted to basically provide analysis on the risk-reward of the IPO, and we try to get every big IPO out there covered before the IPO so that investors can go into it with clear eyes and look at profitability, valuation adjustments, hidden items, things like that before it starts trading, before you get the IPO pop or fall. And so we did that on May 21st, and we wanted to kind of walk through a few different key takeaways that we saw from that report in this presentation, and then we'll jump into the full report as well as the reverse DCF case study. And then we'll talk a little bit with Garrett about some items he found when he was parsing the S-1, kind of going through the footnotes and things like that. But the top line, SpaceX is growing very fast. I don't think that's a secret. Your revenue, 33% year over year in 2025, but SpaceX core earnings fell from negative $475 million to negative $2.9 billion. So you've got a Fast-growing, but also fast-growing losses company that is now, I believe, sitting right now as the 6th most company in the market, despite not generating any positive core earnings. So quite a juxtaposition there. When we went through the S-1, realized quickly Starlink, you called it the early star, more than doubled subscribers. It is the only segment of theirs that generates positive operating income, but it's not enough to offset the operating losses as a whole. But it's definitely the early standout from the business. They've got all these aspirations of AI, rockets, space, everything but Starlink and the kind of satellite internet, satellite broadband connections is definitely what is driving the potential profitability of the company at this point. Again, losses in the other segments override those for the moment, but we'll see where that goes. But even though they are the early star, it was not without issues. Average revenue per user is falling quickly, which is something we've seen in a lot of businesses that try to scale up across the globe. A lot of times with these social media companies, average revenue per user is the chosen metric to show how many— how much they're bringing in per person. And usually when they expand globally, that number falls. So you've got a situation where, yes, they're growing fast, they are operating profitable, but if that ARPU falls further, We could see that margins actually not be positive or potentially positive as we move forward. So it's something to keep an eye on with the Starlink business. And then there's other red flags. We detailed a bunch of these in our report, and I'm actually going to go out to the report here in a second. Actually, you know what, let's just do that now. We'll go straight to the report here because we've got all of these report items on our website in different categories as the red flags that we found. The first one was misleading non-GAAP results. You've got adjusted EBITDA looking way better than GAAP net income and economic earnings. That's something we see a lot in unprofitable companies, IPOs, and even some companies that have been trading for many years. They love that adjusted EBITDA number, even though it removes a whole lot of expenses that you might say are recurring or continuing. One of the big items— I know, Garrett, I think you may have flagged this one— they don't technically have material weakness in internal controls, but they can't say they don't.

For every IPO we cover, this is like the first thing I look for. Most of the time there's either weak internal controls or they just can't say the internal controls are actually good. So for any IPO, when you're just sitting there, if you can't trust the numbers, I don't know, that says a lot, doesn't it?

Yes, I think so. We're building these models the best we can. with the most up-to-date numbers that they provide. And then in the filing, they kind of go out and say, hey, watch the numbers, we don't totally know if they're accurate.

Yeah, just really hard to trust. Yep.

Red flag number 3, I think this one is maybe most well-known, that Elon Musk will own 85% of the voting power in the company. It's something we've seen with a lot of IPOs recently. This one might take it to the extreme. I'm not sure I've seen 85% in one person's hands in a long time. But it's definitely a red flag for new investors. You're along for the Elon Musk ride, whether that is positive, negative, anywhere in between, because you can't really say anything else because he's got the voting power there. Another item that we've noticed is you're almost paying for Elon Musk's past ventures. Some of the Twitter debt and repaying that is basically already pledged from the IPO proceeds. And so it was something to look out for. It's just a— it's not a clean SpaceX investment. You're getting a lot of the stuff that has been wrapped up into SpaceX, which sort of hints at red flag number 5 here, the related party transactions. I think it's something that we've seen with Elon Musk since Tesla. Wrote an article here on the bailout of SolarCity. It was a business that got rolled up into Tesla. They rolled up a lot of companies into SpaceX. And then there's just related party transactions between Elon's companies, Tesla owning SpaceX. SpaceX owning aircraft that are used by Tesla, stuff like that. Things to just be aware of. Not saying anything here is fraud. It's just saying that, hey, these are deals that deserve scrutiny because they are between parties that are all having conflicting interests, conflict of interest, and questioning whose best interest is actually involved in some of these. I think the big one was the $20.2 billion in cash obligations that is owed to a board member. It's another performance obligation that is pledged to those IPO proceeds. So while it was the biggest IPO in history, a lot of the proceeds are already accounted for. That's, I think, red flag number 8 that we talk about here in a second. But number 6 was the dilution. Obviously, we— in the headlines, Elon's pay package being huge if they get the company to certain levels. They get establishments, permanent human colony on Mars, non-Earth-based data centers. It increases the level of shares that could be outstanding by 302 million split over 12 tranches. It's just a large potential dilution. Obviously, if they took the company from market cap to $7.5 trillion, maybe no one would complain, but it is a market dynamic story that the level of dilution would be astronomical. I joked with Garrett here that some of the puns don't seem as funny because it is a space company, but That is there. Another item we talked about a little bit in the report was customer concentration risk. They're generating a lot of revenue from one customer. We speculate it's the US government at this point, but as they move into other areas, we talked a little bit about the Anthropic deal where Anthropic's going to pay SpaceX over a billion per month that was disclosed, which is a third of the entire AI segment revenue. So it's a huge concentration in a new customer. Obviously, they've already expanded some of that with some Google details, like Google partnerships agreements, stuff like that. But something to watch out for. There's been a web of 5 to 10 AI data center companies that are all paying each other. And so something to watch for. And I think the last one mentioned a little bit, but nearly 80% of the IPO proceeds were already spoken for. You've got $20.2 billion owed to Valor Equity Partners, which was that board member, $20 billion to repay some legacy X/Twitter XAI debt, And then $22.6 billion to pay EchoStar for a spectrum acquisition. And so you've got $62.6 billion, 78% of what we thought might have been $80 billion if they ended up raising $75 billion. So it's even a little bit higher there, but most of it's already spoken for. And we think that if SpaceX is going to come anywhere close to justifying expectations, they're going to need all that money and more because of the ongoing AI race, the space race that could come out with different companies launching satellites and stuff. But with that, I'm gonna jump back into the slides a little bit because there's some things that we didn't put specifically in this report that speak a little bit to the parsing the data, the numbers we're looking at in the filing that Garrett pulls out as well. I see got a question here on the summary of the article. I'll put this article link in the chat, and then we'll also share these slides when we post the replay in our community. Let me jump back over there real quick. Here is our SpaceX report. That's in the chat now for anyone who wants to look at it as we go. Start this back up. Some other items you may not know about. Garrett, I'll let you talk a little bit about these, where we found them, how they impact our model as we're going through and building out the fundamentals and valuation scenarios.

Yeah, these were just some of the fun footnotes that I pulled in the filing. Like we said, they're paying for their past ventures. I found a $4 billion Twitter impairment already. From the rebranding from Twitter to X. So that was one of the first things I saw. And then also in the footnotes, they had $1.6 billion in not yet commenced leases. Pretty much all the companies in the AI spend race, the not yet commenced leases, these are just buried in the footnotes. Not a lot of people find them. So this is just, yeah, this $1.6 billion number's probably going to be growing as well. And then the last big footnote find that I found was the $588 million in modified stock option expense. So that's a pretty huge expense. We reversed that out of NOPAT and core earnings. So these were just, yeah, some of the biggest items in the footnotes I found, which were, yeah, pretty interesting.

Yeah, I think the $1.6 billion in not commenced leases is one to watch because we've seen Not yet commenced leases soar in Alphabet, Meta, Google, Oracle. Yeah, I think Oracle has upwards of $240 billion in not yet commenced leases now. I want to say it was up from $30 billion a couple of years ago. And it's basically money that they don't owe yet, but they have on the books in the future for data center leases that is pledged out in the future. And so it's something we include in total debt because they can keep it off the balance sheet for now, but it is going to come on balance sheet at some point through operating leases and whatnot. And so $1.6 billion is small relative to some of these other AI spenders, but I definitely think that could skyrocket here quickly if they're going to remain in the AI space, which per their S-1 is their largest potential opportunity. And to that point, why we think that total debt not committed leases are impacting things, the AI spending race has been super capital intensive. I think Garrett pulled this using FinSights, our AI agent that uses all our data. Google Cloud helped us build it and everything. The AI spending race is costly. We've seen free cash flow plummet on all these big spenders. SpaceX, not so much. We've only got a few, a little bit of data, obviously 2025 being their S-1. We'll see how that goes in the future. But if they are going to remain in that AI race, we would probably see this come down pretty quickly negative-wise. We've seen, what's this, Microsoft used to be at the top. They've gone negative in Zero being here, Google just above, they've gone negative. Oracle being the big one. Like I said, they went, I think, from $30 billion in not-commence leases to over $240 billion. Not all hits that free cash flow number because we're adding that back to invested capital. I think Garrett's note they added at the bottom here, also important. Google's already raising money. Anthropic and OpenAI are going to raise money as well. It's turning into a huge spending race that companies need billions, trillions potentially in capital to build out this AI. And the question remains, what will that return be? We've historically— these tech companies have been some of the best return on their spend. But if they have to spend capital intensive, like utilities, industrials companies, does that change the investment thesis? We've written a lot about— on a lot about that recently. If you check out the section of our website, we've got an AI section that kind of details a whole bunch of this. But before we get into the DCF, I did want to throw it over to Garrett for a bit of a sports analogy about what we've got with the SpaceX IPO.

Yeah. Hey Kyle, could you go back to the prior slide? I just want to mention just to foreshadow to when you do the reverse DCF, you're not showing invested capital growth, which just shows the ridiculousness of the valuation. So I just wanted to get this chart in here to show that spending will be necessary. So when you guys see Kyle's reverse DCF, he doesn't have invested capital growth in there, but to compete with these players and Anthropic OpenAI, they're gonna have to spend. So I just wanna make that clear. But yeah, Kyle, go ahead to the sports analogy. Yeah, so I just wanna have a little fun with this. I don't know if there's any baseball fans in the chat here, but I wanted to compare Juan Soto of the New York Mets And the SpaceX IPO in general. So basically I just want to show that the winners of this IPO today are the early SpaceX investors, right? The employees and the investors that were able to get in at better prices. And the other thing, SpaceX is a great company. They're doing really cool things. So I don't want to completely bash them as a company, right? The valuation's ridiculous. But the company's doing really cool things. And on the flip side, Juan Soto, he's a top 5 baseball player, but basically when he played for the Washington Nationals back in the day, he was on his cheap rookie contract, right? That allowed the Nationals to build out a really good team around him, and ultimately they won a World Series, right? And now fast forward to SpaceX today, the early investors, they're cashing out today. So this is their version of their World Series, right? And the people that buy today the SpaceX IPO, I don't think it's going to end too well for them based on their valuation. And just to compare, Juan Soto, after playing with the Nationals on that cheap rookie contract, he signed the biggest contract in baseball, right? So there's parallels to this being the biggest IPO. And in the 2 years after he signed that record-breaking contract, expectations were sky high. The Mets last 2 years, they've missed the playoffs, last place in the NL East this year. So anyways, I just wanted to give a cool little example here to think about expectations investing. And yeah, Kyle's reverse DCF coming up.

Yeah, perfect segue on expectations. I'm going to jump right into it and we're going to quantify what is in that $1.75 trillion valuation. We can actually look live. I think they're right under $2 trillion right now. SpaceX IPO. Let's see, SPCX. And we're up to $167. And so when the original IPO price of around $135, so we got a big jump there. But we'll jump into our company model in the report here that I sent out in the chat. We did put together these valuation scenarios. And the whole point of this is, we're not trying to predict the future. We don't have some vision 10 years in to know exactly what's going to happen. But we want to quantify what the current price, or in this case, the IPO price, quantifies that the company has to do to justify that valuation. We can look at the implied future profit growth, implied margins, implied revenue growth to justify that valuation. And so when we do that, we can again mathematically show the expectations in SpaceX. So this is our company model, and we've got some of the metrics I had mentioned, core earnings numbers. It went from negative $475 to negative $2.9 billion. Things like that. We've seen margins on here go from positive 2024, negative in 2025. And so we want to look at the forecast, and we put together a couple different scenarios to quantify what is in different price levels right now. In my optimistic scenario, that is to justify $1.75 trillion valuation. And so we had to come in here. We've got the key items being revenue growth and margins. As Garrett mentioned, I'm best-case scenarioing kind of here, saying they're not going to have to spend anything on invested capital. We know that's not realistic, but invested capital can vary. So we just want to create best-case scenarios and then point out, hey, in any real scenario, they would have to spend invested capital. So they're going to have to do even better than this. But we looked at a scenario to justify the IPO valuation. They have to improve margins to 23%, again, from that -7% or so. 23 was in between broadband providers like Charter and some of the hyperscalers, Google, Meta, Microsoft. And then they'd have to grow revenue 50% compounded annually for 10 years. So we can look at what that looks like on this decision page here with our optimistic scenario to get that $135 stock price. You're looking at revenue CAGR 50%, ROIC minus WACC of 131%, and the last year it was -3%. So you've got Massive expectations. We look at revenue in that scenario. They've got to grow revenue from, what is it, $18.6 billion, $18.7 billion up to $1.1 trillion to justify that IPO valuation. So you've got past performance doesn't match future expectations, that longtime saying and whatnot about investing. But the reality is they have to generate more revenue than any company in our coverage universe. They have to generate more profit than any company in our coverage universe simply to be worth that $1.75 trillion. Anything less and they should be worth less. And so it's really a situation where expectations for future growth— we quoted best-in-this-world expectations because a $1.75 trillion valuation implies they will be the largest and most profitable company possibly in history. I don't know if anyone adjusted for inflation, some companies back in older times, But right now would be the most profitable and largest by revenue company in the entire market. Anything below that is basically downside risk in these scenarios. So what we wanted to look at, let's still be optimistic, still look at a scenario where we give them credit for— it's called pessimistic just because there's only 3: neutral, optimistic, and pessimistic. But I still— we could probably make the argument this is still pretty optimistic scenario. But if we give them an OPAT margin of 19%, which is right at, I believe, Charter Communications. If you look in our pre-IPO report here, you got Charter at 19% NOPAT margin, T-Mobile 18%. So somewhere in that broadband wireless spectrum industry, because again, that is currently their most profitable, their only segment generating operating income, 19% margin and growth 34% compounded annually for 10 years. And that 34% growth number, I believe, was their Revenue CAGR, yeah, since 2023. So basically giving them credit for doing exactly what they've done in the past, but with a massive improvement in margins. And in that scenario, we can look at our DCF review to see what they would be worth. We've got the shareholder value here. In this scenario, revenue grows to $348 billion, profits at $66 billion, no PAT, and you're looking at a shareholder value less than $500 billion. So Significantly below the IPO valuation, best-case hopes for the company. And this is still a scenario where they're going to generate $348 billion in revenue, which I think juxtaposed against the S&P— let me see here real quick— would put them— looks like 7 or 8 companies would be better. So they'd still be one of the most largest companies by revenue. On a NOPAT basis, they would be same thing, 6th or 7th in profitability of the entire S&P 500. And so we think this is a kind of clear-eyed look at even in a lower scenario, SpaceX will be worth much less than what it's trading at today, which I think is why Garrett's analogy sort of touches on you're paying for expectations that simply don't match the reality. Because even in a great reality such as this one, the company's worth way less than what it's trading at now. especially after jumping— we're up $164, a little bit lower than what we just looked at, but we're up in the $2 trillion range in valuation. And those expectations are, as we said in the report, out of this world. One I did want to kind of have some fun with— Garrett shared this article with me. Ron Baron believes SpaceX will be worth $30 trillion by 2040. And so I wanted to go in and scenario analysis this one to see what SpaceX would have to do based on current profits, current margins, what they'd have to do in the future to be worth $30 trillion. And so I can put together a quick scenario, and I'll update our model here so we can actually see if we give them optimistic scenario margins of 28%, which I believe, if I jump back to our report here, is on par with Alphabet. And you got 28% margin, so we've got Google-level profitability. And I will copy this one out throughout the entirety of our model. And then we go 50% revenue growth rate out through 20 years. We can save that scenario and see what that looks like to try and find when the company— what kind of expectations would result in the company being worth $30 trillion. So we go to the DCF review. We pull up the optimistic scenario that we just built. You've got 50% revenue growth, 28% NOPAT margins. And then what we're looking for is a shareholder value here of $30 trillion or somewhere in between $30 trillion. If we go out, we're up to 13 years, we're at $7 trillion. We cross that $30 trillion line somewhere between 2042 and 2043. And so what that's saying is SpaceX to be worth $30 trillion, and you've got a scenario where they've got $18 trillion in revenue, $5 trillion in NOPAT. I think for comparison, the entire NOPAT of the S&P 500 and the TTM is just under $2.6 trillion. So you've got a business that would be more profitable than the entire S&P. I believe the GDP of China is right around $20 trillion. Yeah, $21 trillion or so. So you've got a scenario where to be worth $30 trillion, SpaceX has to be something that we've never seen before. And so if you're buying in expecting $30 trillion valuation, just know that you're also buying into expectations for the best-ever company, almost larger sales than China, profits almost double than the entire S&P 500. And anything below that is again, downside risk in such a scenario. And so I think hopefully— let's look at the chart on that one to see what revenue would look like. You've got hockey sticks up here. Same thing with profits as well. You've got profits down at negative $1.2 billion. You've got to get up to— where are we at in NOPAT? We were looking out a little further. So we were out in 2042 or so. Maybe looking at $5 trillion in NOPAT. So you can see the scale is off because it is such a drastic change from the current period. That's the last scenario I had. Again, wanted to really illustrate these scenarios are not worst case, potentially best case. We're not saying they can't do more than this. We're not saying they're going to do less than this because we're not trying to predict the future. We just want every investor out there, if you're jumping into this, if you're not jumping into this, to know what you're buying into. And so at a $1.75 trillion valuation, you've got revenue would need to be $1.1 trillion and profits would need to be upwards of $248 billion over the next 10 years. And those are what you're expecting to happen if you buy at today's prices. I guess you're expecting a little more because the price has already gone up. So it's an extremely expensive stock. Execution remains to be seen, obviously early in their history as a publicly traded company. But It's truly a case where expectations are quote unquote out of this world. And so we wanted to share that with you guys today. As we wrap up here, I'll get one more slide I wanted to show as we get off of SpaceX. The replay of this will be available in our community. We've also got members that go on and talk trade ideas, different discussions. Had a few different trade ideas in the past couple weeks here. That you can share. It's a community of New Constructs-minded investors or analysts, anyone that wants to join. It's free to join, free to talk about ideas, free to talk about topics on our website, stuff like that. You can join it. I'll share a link real quick in the chat. It's just newconstructs.com/society. The replay of this will be posted in that community as well. There's also replays of past podcasts, but that will do it for today. I think I'll be watching SpaceX, to kind of see what they end up doing throughout the day, throughout the next couple weeks, months, as we get into some of the index inclusions that we've talked about in some of our reports recently. But it'll definitely be an overarching story of the market for the near term and possibly the long term as well. Garrett, thanks for joining me today.

Yeah, thank you, Kyle. It was a blast.

Thank you guys for joining us as well, and we will talk to you next time.