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- Jul 13, 2006
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But the P/E ratios are currently all out of whack, right?
https://historyofmarket.com/sp500/pe/
They're pricing in expectations of future growth not p/e.
That's a problem, but it isn't exclusive to spacex, right?
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SpaceX IPO
- Thread starter erek
- Start date
https://historyofmarket.com/sp500/pe/
They're pricing in expectations of future growth not p/e.
That's a problem, but it isn't exclusive to spacex, right?
- Joined
- Jul 25, 2012
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- 2,463
Anything hardware and space related has gone 'full regard' in the past 2 months, this small pic shows it all. INTC and AMD would be overvalued even after 60% drops...and don't even get me started on the 'non-cylical' memory names (coz data center build out will continue till Infinity and beyond...)
My father lived through the Great Depression and was always skeptical of the market but even before he died the p/e ratios drove him crazy. He was always talking about the speculators in the market and called Wall Street the Los Vegas of the East.
Yes, but SpaceX is worse than most. Not just because of the massively out of whack P/E but because of how they say they will make their money. nVidia's forecasts are overly rosy and depend on the market for datacenter hardware going up and up with no end, but at least it is a market they are in and making money on. They sell lots of datacenter hardware and it is massively profitable. SpaceX is not like that, not just because of lack of profitability but because of where they claim they will make their money. If you look at their prospectus they aren't saying it'll be on space, the entire space part is only $370B which is a lot more than they have now but nothing compared to their supposed total addressable market. Even when you add up all their existing markets they only claim it'll grow to a few trillion. The huge valuation, over $22 trillion, they claim will be from "Enterprise Applications" which is a market they aren't in at all at this point. So they justify their valuation with a total addressable market of $28.5T, of which $22.7T is in an area they don't even do.
That's... umm... well let's call it extremely optimistic if we wanna be nice. The plan is to get in to providing applications to enterprises using AI, a thing they don't do yet, and that will end up being 80% of their business. Ok. Sure.
Nothing's impossible, but you can see why financial experts are extremely skeptical and saying the price isn't defensible. Even in an overheated market, this is another level of crazy.
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That's fair....I suspect in 30 years a lot of the market space they're chasing will have players and profits, but its not there today and not there in 5 years.
I mean that kind of thing is normal for most IPOs, they are overly optimistic about things and what they'll chase. That's the idea of "total addressable market" is literally "If we get EVERYTHING in this space we think we can get this much." Hence the fact that SpaceX currently has like $19B in revenue but they think the TAM will be $370B. So they think that there will be a demand about 20x what they currently do for space launches. Probably a little overly rosy, and to be fair companies aren't saying they are going to capture the whole market, just that's how big they think it could be, but ok. They do the same for all their other businesses, which again, standard faire. The wild part is that "Enterprise Applications" part that is so huge, and something they don't do at all.
This would be like Walmart saying "We are going to get in to healthcare and we think we'll make 5x as much doing that as we do on everything else. No, we don't have any hospitals, doctors, imaging, etc, nor any experience with them, but we will totally start making the majority of our money on them so you should buy our stock!" While that isn't theoretically impossible, the total US healthcare market revenues is about 5x what Walmart makes in store revenues, you'd be quite right to say "Really? And how are you going to do all that?"
That's the other thing: Outside of space launch, the other markets they are chasing already DO have other players, lots of them. The big one on the sheet, Enterprise Applications, has tons of very established companies that they have to compete with like MS and Google. However even some others that might not seem like it, like communications. They project massive growth, but economists have a lot of questions about that. They think there's a billion potential customers for Starlink and that number is really questionable. First off there's the issue of how many people can even afford there $100/month fee but also there's the fact that while nothing competes with it directly in terms of satellite internet access, all other forms of Internet access DO compete with it. I have fiber optic at my house, I also can get cable or terrestrial 5G wireless. All are cheaper, faster, and lower latency then Starlink, meaning I have no use for it so they ARE competing. I am one of the people who could afford their service so I'm a "potential" customer, but the other options are WAY better than what they have so they can't get my business. That's an issue with it overall since the markets with the most customers, that being big cities, are the places that have the best buildout of other options. The markets where it has the least competition are by necessity the smaller areas, that's why there aren't other options.
I could go on for all their segments but really the only one that they can claim "We are pretty much it," for is space launch. If that was where they were putting all their value, well then fair enough, but it isn't. It is, in fact, their smallest "total addressable market" by a long shot. Their "communications" segment, which includes Starlink and "digital advertising" they but at $1.6T, then $2.4T in "AI Infrastructure" meaning renting out data centers and then the big $22.7T in "Enterprise Applications" that they don't do at all.
They aren't trying to justify their valuation on the one area they have little competition in, they are trying to justify it in areas they have plenty of competition in.