Motley Fool Hidden Gems Investing - Would You Buy the SpaceX IPO?

Starting point is 00:00:00 Would you buy the SpaceX IPO? You're listening to Motley Fool Money. Welcome, Fools. I'm your host, Tim Byers. And with me are two old friends and teammates, Rick Minares and Carl Thiel. We've been on Rule Breakers together. Guys, give it a couple more years and our tenure on Rule Breakers will be retirement age. That's real. Should we be signing up for AARP? I don't know. But we're looking at the youth today. So I hope you're fully caffeinated because we got to talk about SpaceX here and the prospective IPO. Bloomberg has reported that the company could go public at a $1.5 trillion valuation. We'll talk a bit more about that report and then answer some mindset questions you sent us. But first, we need to start with

Starting point is 00:01:03 the SpaceX news. So let's quickly review what we've heard. But I'm going to start with a question for each of you before I give you some data. What do you know about SpaceX? Carl, I'll start with you? Like, what do you think this thing is? So SpaceX is obviously the, you know, closely associated with Elon Musk, you know, certainly gets a lot of publicity for its rocket launches. Sometimes they go great, sometimes not so much, but they certainly capture a lot of attention. What maybe isn't quite as widely known is that about 70% of SpaceX's revenue comes from Starlink. And Starlink is the network of satellites that allows people to essentially make an internet connection, even when they are not near the infrastructure that usually allows that

Starting point is 00:01:58 to happen here on firm Earth. Yeah, it's satellite internet. Rick, how about you? What's your indelible memory of SpaceX? Yeah, again, you think of the spaceship because that's what we see in the news. But Starlink is up to eight plus million subscribers now. It was just like a million just a few years ago. So it's a fast-growing global telecom platform. So that's definitely a viable part of the story. The whole space part of it, yeah, there's payload to take up there. But frankly, I'm not 100% sold on the whole throwing AI data centers up into space or colonizing Mars when there's no beachfront property, Tim. Tim, there's no beachfront property on Mars. I think you need to know that right from the get-go. So my travel

Starting point is 00:02:38 agent lied to me. But yeah, it is a very wide, varied company with a lot of optionality, surprisingly enough. But it's not just this one-dimensional company. We launch spaceships into skies, and that's it. Let's talk a little bit more about what this is. The closest comparable from a public market perspective, I think, would probably be Rocket Lab. Rocket Lab, is ticker RKLB, is a much smaller company at a market cap of just about $30.3 billion. As of this recording, SpaceX wants to go public, if Bloomberg is to be believed, at a market cap of $1.5 trillion, trillion with a T. That would be the biggest of all time, raising somewhere over $30 billion. There are three pieces to this business. And the most interesting one to me,

Starting point is 00:03:34 you both mentioned the rocket launches. So they do launches for NASA, for example. They do a lot of payloads. They get satellites up into space. They get paid for that. They get paid for Starlink, satellite, internet. But the thing that's most interesting to me, and I'm going to have a follow-up question about this for each of you, is this idea of the spaceship. The spaceship which is you go up, you launch, and then you come back down and you land and you have a reusable rocket. That is not something we have had in rocket science ever. Like everybody's working on this. SpaceX is working on this. Um, we hope that, you know, at least a couple blue origin is a competitor. That's also working on this, but presumably SpaceX thinks they can do this,

Starting point is 00:04:23 that they can take down. I'm just looking at a number here, which I found somewhat remarkable that the payload launch cost is somewhere around, I believe it is $1,500. Yeah, here it is. I said spaceship. It's starship. I got that wrong. Apologies. $1,500 per kilogram for payload. if you have a reusable rocket, if you have a reusable Starship, they believe they could get that down to less than $100 per kilogram. That's insane. That's some serious economic power here. So given that, Rick, I'll start with you. SpaceX, this is a big IPO, but is it a rule breaker? If it can achieve that, of course. I mean, the whole Starship, formerly known as Jefferson Airplane, if Starship can actually get this to happen, obviously, the cost dynamics of everything

Starting point is 00:05:26 and the fact that everything's reusable, it's a game changer, of course. But again, saying you want to get there and being able to actually prove you can do it are two different things. But yeah, definitely, it would be a game changer. And it's how quickly can the competition and catch up. Not that there are that many competitors doing this anyway, but yeah, I'm still skeptical, but definitely an interesting wrinkle. And again, you know, turning this ceiling into, you know, a retractable roof sometimes. Right, right. Carl, let me give you some numbers and then the same question. So this is, I pulled these numbers, bear in mind, this came from Gemini, so let's not call it perfect. These are estimates, but the sourcing

Starting point is 00:06:07 that Gemini gives me is that in 2020, SpaceX had $1.4 billion in revenue and net loss and a private market valuation of $44 billion. As of this year, the estimate is for $15.5 billion. So five years later, $1.4 billion to $15.5 billion, positive cash flow, and an $800 billion private market valuation. So they want to go public at about double that private market valuation. So same thing now. Presuming that scale is roughly right, is SpaceX a rule breaker? SpaceX is sort of synonymous with breaking the rules. I mean, the idea of a reusable rocket is a massively rule-breaking idea. It's obviously disrupted its industry. I don't think we're really going back in the foreseeable future to government-funded, completely government-sponsored

Starting point is 00:07:11 space program. In that sense, it's absolutely a rule breaker. That does not mean I'm necessarily interested in the IPO. You mentioned $15 billion in revenue. A $1.5 trillion valuation on IPO would mean that they're trading at 100 times sales. I don't think that there's anything remotely in a company as it exists today that justifies that. I don't even think that if you take the current trends and project them forward linearly, it justifies that. To justify that, you need to see a meaningful acceleration of a number of trends, which means that you need to be betting that things that have not happened are going to happen, and they become increasingly riskier. I mean, the, the, the one big thing is that Starship needs to work and Starship is the

Starting point is 00:08:06 fully reusable rocket, right? So, so yeah, Falcon nine, um, which is, you know, commercially used, uh, is partially reusable. Uh, Starship is supposed to be entirely reusable. And if that happens, it's a game. I mean, the, the, the two things about Starship is, you know, one, it's entirely reusable and two, it's absolutely massive, can carry a huge payload. and critically, can carry satellites into space that currently cannot be carried by Falcon 9.

Starting point is 00:08:37 So, that becomes a game changer for the company. And can SpaceX do that? You know, I believe they can. I mean, this isn't just on paper. This is actually being tested. I mean, it's not sort of fully ready for primetime, but they've had some successful tests with Starship. And so, I believe they can get to that part of it in all likelihood. And that itself is kind of a game changer. The second part, though, really involves taking Starlink to a new level that I have some doubts about, and we can talk about that further, Tim. Maybe you can talk about this in your answer, because the final question on this, and I'll give you a lead-up to this, Rick. Carl said 100 times sales. Now, that would be 100 times 2025 sales, but the projected revenue for

Starting point is 00:09:22 2026. The target date for the SpaceX IPO would be like summer 2026. And the implied revenue growth from what I'm seeing here, again, these are Gemini estimates pulled from different sources, between $22 and $23 billion in annualized revenue, so about 65x forward sales. So there's your multiple. We've talked about the business. Are you a buyer? of the SpaceX IPO, Rick. And this multiple is just for Starlink? Or you're talking about Starlink and everything else that's there? No, that is all of SpaceX. Yeah, all of SpaceX. So, yeah, I mean, I'm hesitant to say yes. Add a $1.5 trillion valuation. Because paying 65 times for a global telecom company is not something very smart. But again,

Starting point is 00:10:12 it's all these unknown variables, again, that the story will change over time. And we see this even with Tesla company. The stock has pretty much doubled since April. But if you bought it a year earlier, you're not doing so well. So I think it's a matter of finding the right spot to get into SpaceX. There's going to be a lot of hype when the IPO happens. But out of the gate, knowing that there'll probably be an IPO pop and take it even higher, at least temporarily, I'm not into chasing that kind of rocket. Yeah, I agree with that, too. And I will say, just to take a populist bent here for a moment. The question of will you buy the IPO is largely an irrelevant one for us. You can't really buy the IPO in all likelihood. You can buy the post-pop IPO. I would say for

Starting point is 00:10:56 most people, it probably makes sense to just sit back and see what happens for a while. It could continue to go straight up, but I would suspect that there would be a better opportunity if you're interested in the company. I think if you want an opportunity in this, And again, not that this is, but I mean, again, so 10 years ago, Google, Alphabet, through Google Ventures, paid $900 million, got a 7% stake, a little more than a 7% stake in SpaceX. If it is a $1.5 trillion company, this is basically a 100-plus bagger, 120-bagger, $110 billion stake that Alphabet will have in SpaceX.

Starting point is 00:11:33 Not going to move a lot, need a lot in Malfoy's massive world, but at least that's a safer way to potentially play SpaceX. so rick with the reckless prediction here your other bets line item in the next alphabet earnings call is gonna look a lot better yeah i think i'm with you guys but we want to know what you think let us know leave a comment are you buying the spacex ipo up next we are going to answer some mindset questions you're listening to motley fool money the 2026 chevrolet trax is the stylish suv for those on the move and with the standard chevy safety assist package you have the backup to handle every turn with confidence the 2026 tracks start your build at chevrolet.ca

Starting point is 00:12:20 all right fools welcome back tim byers with carl teal and rick munarez and we're going to talk mindset uh thank you so much for answering the call for mindset questions as a reminder this occasional segment will be aimed at helping you master the most important skill in investing, keeping the discipline to get in the market and stay in the market for the long term. So we've got a question from Mark. I hope I'm pronouncing your last name correctly here. I'm going to say Mark Degner, but Mark is asking, Rick, what's the harm in sprinkling a few dollars on FOMO stocks as long as it's done with funds I'm not relying on to fund my retirement? and can afford to lose in the worst case. What's the difference between FOMO? For those who don't

Starting point is 00:13:08 know what that is, FOMO is fear of missing out. So fear of missing out investing and seeking a bright future for a company whose stock is gaining momentum. So Rick, what advice do you have for Mark? I want to say that again, at Rule Breakers, we tend to swing for the fences. So FOMO, I know it almost seems like a demeaning thing, but it's not necessarily a bad thing. Fear of missing out. But the caveat here is fear of missing out is one thing. Oh, I want to buy this because I want to keep up with the Joneses. I see something shiny. I have to chase that before it gets away from me. That's bad. But to me, FOMO, what it really needs is FOHO, which is fear of homework omission. So if you're going to just buy FOMO without doing your due diligence, that's where

Starting point is 00:13:52 you get messed up. So FOMO without FOHO is a no-no in my book. But FOMO, as in finding an exciting stock and you want that to be part of your portfolio, I do not have a problem with that, especially with a small part of your portfolio. Swing for the fences just next time you're up to plate. Maybe try to be a contact hitter to balance things out. I like this. FOMO without FOHO is a no-no. Carl, what do you got for Mark here? I guess not saying anything radically different than Rick, but just calling it a FOMO stock implies that you are buying it for no reason other than that you are chasing momentum and you're fearful. And the same stock might actually be a good investment if you have a thesis that you're watching play out. So basically the same

Starting point is 00:14:39 thing Rick is saying, have a reason that you're buying it. And then I don't think there's anything wrong with that. Yeah. I mean, the main issue here, Mark, is if you are interested in a stock, What you want to know is what you want to see so that you can follow the stock accordingly. If you go in like, I don't know, this thing could be amazing. I have no idea what I'm getting into. That's probably suboptimal. But if you have an idea of what it is you think you're going to see, so then you can measure it and follow it and be a curious investor, then I think you might be rewarded keep sending in your mindset questions i am at t buyers at fool.com so that's t-b-e-y-e-r-s at fool.com and you could be featured in a mindset question on a future show up next we're going to

Starting point is 00:15:36 preview tuesday's show with emily flippin you're listening to motley fool money all right welcome back fools for tuesday emily flippin has jason hall and san mateo so you are going to want to be sure to tune in as we start putting the wraps on not only another earnings season, but also another year. How did 2025 treat your portfolio? Let's just go around the horn on that. I feel like I did okay. Rick, how has 2025 treated your portfolio so far? A lot better than I thought it would be in early April of this year. So, yes, I'm pleasantly surprised with how my portfolio went up on a year I was braced for the worst. So, yes, well done. Well done, portfolio. Well done, markets. Yeah. Carl, how about you? It's been a pretty good year overall. I own a lot of biotech

Starting point is 00:16:26 stocks in number, not necessarily a huge part of my portfolio. They're not, but I do own a fair number of them. It's been a banner year for biotech. That's been helpful. Yeah. I like the way you do this, by the way, just as a pro tip on our way out here. Carl does, I think, what I like to do. Like I own a lot of tech, but I like to buy really small and then build positions up over time. So I don't think you're like overwhelmingly over-indexed on tiny speculative biotech. And I neither am like not over-indexed at all on tiny speculative tech, but I do have a fair amount of it. Fools, thank you for tuning in to Motley Fool Money. We hope you're getting ready for a fantastic holiday break. As always, people on the program may have interest in the stocks they talk about,

Starting point is 00:17:15 and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. fools this is a uh we're getting down to the last few shows here so thank you for tuning in our engineer today was annie pope our producer is anand chakbalu thanks very much to our guests carl teal and rick minares i am your host tim byers stay tuned for emily flippen jason hall and sammy deo tomorrow full on everyone see you soon

Starting point is 00:18:07 Thank you.

Motley Fool Hidden Gems Investing - Would You Buy the SpaceX IPO?

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