While SpaceX, the rocket company run by Elon Musk, has made a name for itself in the space launch services business, launching satellites at a much lower price than incumbents, its addressable market remains relatively small. The market for commercial satellite launches stood at ~$5 billion in 2017, with revenues projected to grow to $7 billion by 2024, giving the company relatively little room to expand, considering that its launch revenues stood at roughly $2 billion last year. However, SpaceX could see a much greater upside from Starlink, the satellite-based Internet network that it expects to commercialize over the next two years.
Starlink aims to provide low-cost internet access globally, including to far-flung areas where conventional internet and mobile services cannot be provided in a cost-effective manner, using a constellation of several thousand satellites. The company has successfully launched experimental Starlink satellites over the last two years and has plans for 24 missions in 2020. In this analysis, we break down the potential subscriber base, revenues, and valuation for the new satellite-based Internet service by the year 2025.
Estimating Starlink’s Valuation
We assume that:
- Starlink will come into commercial service from 2021, with coverage spanning a bulk of the global population by 2025.
- Starlink will primarily compete with fixed-line broadband services, as its receivers are expected to be somewhat large for truly portable use (likely pizza-box sized).
Step 1: Estimating Global Internet User Base Through 2025
- We assume that the global population will grow to a little over 8 billion by 2025 (just under 1% CAGR) , with Internet penetration rising to 72% (about 2.5% increase per year) in the same time frame.
- This implies that 5.8 billion people will be online by 2025.
Step 2: Estimating Starlink Internet Users
- We estimate that Starlink will garner about 0.1% of all new Internet users by 2021, with the number rising to 2.3% by 2025 as coverage scales up.
- This would imply that the company’s new subscriber adds would scale up from 0.2 million in 2021 to about 5.6 million by 2025.
Note: New Internet users calculated as year-over-year change in the number of Internet users calculated above.
Step 3: Estimating Starlink Revenues
- We estimate Starlink’s total user base as of 2025 at about 14.4 million.
- We project monthly ARPU for the service will stand at $60, based on the company’s internal estimates for revenues and subscribers made in 2017.
- This would imply annual revenues of about $10 billion by 2025.
Step 4: Estimating Starlink Valuation
- We estimate that Starlink could be valued at a little over $30 billion, assuming 2025 revenues of about $10.4 billion and a P/S multiple of about 3x.
- For perspective, Comcast and Charter, two of the leading U.S. broadband providers, have P/S multiples of around 2.1x and 2.3x.
- We believe a 3x multiple for Starlink is warranted, considering its higher growth prospects, although its costs and risks are also likely higher.
SpaceX’s Historical Revenue and Valuation Trends
We capture estimates for SpaceX’s revenues over the years from its core space launch service along with trends in the SpaceX’s valuation in a related interactive dashboard.
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs