Investing in light-speed internet: Does a prospective Starlink IPO represent a buy for investors?
Elon Musk has a knack for turning whatever business venture he touches into gold, so with the prospect of SpaceX offshoot, Starlink, launching an IPO, there’s likely to be a significant rush of investor interest. However, does the ambitious satellite-based internet provider with its head in the clouds represent a buy? Or is the prospect of purchasing shares in the technology too risky to touch?
Just one year ago, Musk announced that the beta testing of the SpaceX-owned Starlink high-speed satellite broadband service had commenced – meaning that for the cost of $499 upfront and a $99 per month subscription, it was possible to join the cordless revolution and enjoy ultra-fast broadband internet access from space.
Fast forward to 11-months of progress, a broadening geographical reach, rising adoption and a more competitive price range, and talk of a Starlink IPO is beginning to hot up.
There’s good reason for prospective investors to get excited about Starlink’s IPO. The price of Elon Musk’s Tesla Inc has climbed over 19,000% in the space of 11 years, showing that the world’s richest man has form for rewarding the faith of investors.
But what would a Starlink IPO look like? And will the company soon be ready to go public? Let’s take a deeper look at one of the most curious arrivals on the tech landscape in recent years:
The venture worth $30bn per year
Musk’s ambitions know no bounds, and the Starlink endeavour is certainly no exception. The goal of the company is to become entirely global, with the intention of providing broadband internet access everywhere – even in more rural locations where connectivity can either be slow or non-existent today.
Musk has already stated that Starlink has the ability to operate its data transfer of its customers’ material “at the speed of light,” and that it could theoretically gain $30 billion per year in revenue simply by serving less than 5% of internet users around the world. Although these figures seem, quite literally, astronomical, it’s worth considering the implications that this could have on the company should it decide to go public.
According to Morgan Stanley, Starlink’s valuation is estimated to be around $81 billion at the time of writing, based on recent figures that estimated the company would attain 364 million subscribers by 2040, and the investment of $240 billion that would be required to build the infrastructure to serve them.
As Statista data shows, a Starlink IPO may have the potential to rank among the largest in history. Although, according to Elon Musk himself, the path towards going public may be a little longer than some may have anticipated.
Upon being asked on Twitter about the prospect of a Starlink IPO, Musk responded: “SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable. Every new satellite constellation in history has gone bankrupt. We hope to be the first not to do so.
In June, Musk clarified his intentions for Starlink further, by confirming that he will do his best to give long-term Tesla shareholders preference ahead of an IPO, whilst also conceding that it will take “at least a few years” for Starlink’s IPO to happen, claiming that “it would be very painful” if the company opted to go public any sooner.
Threats to Starlink sustainability
Naturally, the path to a Starlink IPO will be dependent on the company steering SpaceX through this aforementioned ‘deep chasm.’ This will hinge on Starlink’s growth into a market leader in the realm of satellite broadband.
So far, Starlink’s formative months haven’t been entirely free of teething problems. Recently, it was reported that customers who had paid $100 deposits for access to the service had been left unable to contact customer service for updates surrounding the delivery of their kits.
In late August 2021, it seemed as though the cutting edge technology of Starlink was being interrupted by an unexpected threat: pigeons. “It’s actually been very good but I noticed a series of outages – some a second, some longer,” Prof Alan Woodward told the BBC when asked about the quality of his service, blaming “pesky pigeons” that have a habit of sitting on his satellite dish.
However, Starlink’s main threats will come in the form of competitors looking to make their way into the satellite broadband landscape. However, more rivals may not always be a bad thing for Musk’s endeavour.
“In general, the company is expected to deliver strong results because the pace of satellite deployment is quite fast, forcing the industry to develop at a rapid pace,” explained Maxim Manturov, head of investment research at Freedom Finance Europe. “Amazon, for example, has set aside $10 billion to compete with Starlink. Amazon intends to build a constellation of 3,236 satellites in low Earth orbit, and the company received permission to build the network from the US FCC in July 2020.”
Other rivals are emerging in the form of OneWeb, a satellite internet company founded by a former collaborator with Elon Musk, Greg Wyler. OneWeb is set to begin its service later in 2021, beaming internet to users in areas above 50 degrees of latitude, including the United Kingdom, northern Europe, Canada and Alaska.
Like Starlink, OneWeb aims to utilize lower-cost, low flying satellites as a means of offering better connectivity without spending big on higher flying spacecraft.
What seems certain is that the eventual winner of this 21st Century space race will make a considerable fortune from the deployment of satellite broadband. With Elon Musk’s reputation for pioneering new technology, it wouldn’t be wise to bet against the world’s richest man.