Elon Musk says at SpaceX ‘we never think about this quarter’ – and he’s in no rush to spin off Starlink given the ‘huge distraction’ of being public like Tesla

By | December 24, 2023

The space sector and public markets may not be a match made in Heaven. Consider Starlink’s long-awaited IPO. Elon Musk’s SpaceX is the most valuable private company in the US, and its biggest revenue generator by far is Starlink, which provides broadband connections around the world through a constellation of satellites in low Earth orbit.

But Musk is in no rush to spin off Starlink, despite the excitement surrounding the idea. An important reason why? The advantages of a private company versus a public company.

“At SpaceX we never think about the quarter. We never think about it, and we don’t think about the stock price,” Musk said at a Spaces event this week conversation hosted by Cathie Wood, CEO of ARK Investment Management.

As he knows from running Tesla, there is “tremendous pressure on a publicly traded company not to have a bad quarter. This can actually result in less efficient business operations, where you do your utmost at the end of a quarter not to disappoint people.”

The SpaceX advantage

Asked whether he would be better off taking the right risks with SpaceX than with Tesla, because the former is private, Musk said: “Absolutely.”

SpaceX has quickly become the dominant launch provider, and Starlink is well ahead of its would-be rivals, most notably Amazon’s Project Kuiper. The company has begun talks to sell insider shares at a price that would bring its valuation to nearly $180 billion, Bloomberg reported on December 12.

Speculation about the timing of an initial public offering of a Starlink spin-off now ranges from late 2024 to 2027, although Musk denied last month that this would happen next year. In January, venture capitalist Chamath Palihapitiya predicted that Starlink would go public this year and that its valuation would be “at least half of SpaceX’s current private value,” which at the time was about $150 billion.

Starlink’s revenue rose from $222 million in 2021 to $1.4 billion last year Wall Street Journal September reported. But that’s low when you consider that SpaceX forecast $12 billion in 2022 revenue eight years ago. Last month, Musk said announced that Starlink had achieved a break-even cash flow.

Starlink has more than 5,000 satellites in use and the service has surpassed 2 million active users, according to SpaceX; Meanwhile, popular retailer Costco recently started selling its receivers.

But Musk said this week: “I don’t think it’s worth going public until you have maybe an extremely stable and predictable revenue stream. At that point, going public is less of a problem, because you simply won’t have big fluctuations anymore.”

In the meantime, Musk has little problem enticing venture capitalists to invest in SpaceX given his track record, and he welcomes them. “If others are willing to invest at a certain value… that is a kind of external assessment of the value of the company,” said the world’s richest man.

Getting satellites into space is of course extremely expensive, and the payoff can take some time. Ashlee Vance, who wrote a book about Musk in 2017, told the billionaire earlier this year that he sometimes wonders whether Starlink’s business case makes sense given the “incredible amount of money” being spent on something that “may or may not could work.” He asked Musk if he also had doubts.

“The business case is not subjective, but objective,” Musk replied. “If you can provide a compelling internet connection, where the product quality and price are competitive with terrestrial options – or there are often simply no terrestrial options – then you clearly have a business.”

Tesla stuff

Because SpaceX is private, it is also spared from analyst influence, Musk added this week. One of the challenges of the public markets, he said, is that “many of the analysts who follow companies have a time horizon of maybe only a year or two… their careers depend on how you do in the short term.”

At Tesla, “we feel like we have some sort of moral obligation not to have a bad quarter and disappoint people,” he said, adding that he often spent New Year’s Eve at delivery centers until midnight.

He complained that the “legal burden of being public is also far too high. So if you’re public, you just get sued non-stop by these class action law firms… the plaintiff is just a puppet, but the media never mentions this… That drives me crazy. It happens all the time.’

Musk recognized the benefits of a Tesla IPO, the most obvious being the increased availability of capital. It also helped the automaker clean up its capital structure, which “was too complex as a private company,” he added.

But, he said, it was “also a huge distraction on the other side.”

At SpaceX, by contrast, Musk and his colleagues largely floated above such earthly distractions.

This story originally appeared on Fortune.com

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