r/valueinvesting
SpaceX bonds must be normalized to distressed Junk (if we remove marketing fluff)
Based on negative FCF and massive debt, the author argues SpaceX's credit rating should be classified as distressed junk.
- SpaceX exhibits terrible financial metrics with a negative interest coverage ratio and FCF to debt ratio of -48%.
- The company has a massive accumulated deficit of $41.3 billion and negative free cash flow of $14 billion quarterly.
- If evaluated as a traditional asset-heavy business, its credit rating would be classified as deep, distressed junk.
SpaceX balance sheet and FCF explain everything I need to understand where it is heading
- Debt-to-EBIDTA 4.2
- negative interest coverage ratio
- FCF to debt -48%. Awful
- Retained earnings -40B!!!
- FCF -20B. with B!
If SpaceX were evaluated as a "regular" asset-heavy business like a traditional airline, automaker, industrial manufacturer, or telecom provider—its credit rating would not just be junk; it would be deep, highly speculative distressed junk.
If a credit analyst applied standard quantitative ratios to a regular company showing an accumulated deficit of $41.3 billion, a quarterly net loss of $4.28 billion, and a negative free cash flow of $14 billion, it would score a rating of CCC+ or CCC from S&P, or Caa1 from Moody’s.
- cremating money as a source of renewable energy!
What moat exactly lol
Avg cost per lb of delivering object into orbit
Not really a moat. Doesnt do them much good if xAI sucks away all their money
The size of a moat is a metaphor for how easy it would be for somebody to offer a similar/competing product. Doesn't have much to do with how you spend the revenue from that product.
That would come into play talking about defending the moat, but I still think they currently have a moat, regardless of how assanine their investment in xAI may be
how do you make money out of space again?
Suck in dark matter energy and bring it to us 👿
the ultimate intangible asset.
How do you even put a dollar amount on ensuring human consciousness reaches the stars???
Then a refinery in space, a call center, and finally a 7-11.
Give it up, dude. SpaceX is not a value stock. It is a high risk high reward type of gambling stock, nothing to do with value investing.
You guys hate spaceX but can't stop from talking about it.
This is how people learn - analyzing mistakes, outliers and risks in order to find and appreciate the value. Bad cases are also to study 👍
Objectively, they deserve a much better credit rating than these traditional metrics would suggest for a sector equivalent pier, because they have the ability to massively dilute existing shareholders or index fund investors she completely cleaned up their balance sheet.
This is the exact playbook Tesla used to flip from literal junk bond status with a substantial net debt position to having a persistent net cash position, even as they were still unprofitable: https://www.reddit.com/r/stocks/s/KwLpogSquX
The non growth capex that is “just maintenance “ is increasing data capacity like 20x per launch and 10x per sat
Even if the capacity per satellite is expanding, the physical replacement is still a hard maintenance requirement. If you do not launch, the constellation decays and you lose coverage. That means the launch and manufacturing costs are a recurring baseline cost to stay in business, unlike a fiber network where the physical cables last 30 years and upgrades are done on the ground. SpaceX has to spend that capital just to maintain its network footprint, even if the new hardware is more efficient.
I mean, F9 built Starlink as it exists today, largely at about $700-$1,000/kg to LEO. If not more. Those are current best guess estimates for Internal F9 costs and the payload. F9 also doesn’t have a reusable 2nd stage.
Starship aims to drop that to $50-200/kg to LEO (if not lower in the long term and maybe with V4). And again only Starship can launch V3 Starlink Sats, which are literally 10x more capable PER SAT. And each Starship can launch 2x more V3 sats than F9 could launch V2minis. And think of how dominant Starlink is already in such a short amount of time. What happens when they A) improve each Sats capability by 10x B) reduces the cost of delivering each Sat to LEO by say 2x per Sat, C) and just in general go from 10k V2mini Sats to 40k V3 Sats (or whatever V4 Sats too) as the operating constellation? That is going from a constellation today that is 960 Tbps to 40,000 Tbps (about a 42x increase in capability).
And while you say once the wire is installed, you don’t have to replace it for a while, but it leaves out the gigantic costs of installing in the first place. And for plenty of Aires they absolutely have maintenance- not everywhere has them installed underground. For major cities, Fiber specifically obviously may still be better. But it leaves out one major other factor - Starlink covers the entire globe the same way for the same cost. The way they cover New York, gives them coverage over the oceans, in some random city in Argentina, for the planes and boats transporting in between, the random researcher in the arctic, etc…
And then they will begin rolling out their DTC says far more which will serve as competition for MNO….
The main issue for a bondholder is that satellite capacity is geographically locked. While Starlink gets global coverage, a huge percentage of that 42x capacity increase is over oceans and empty land where there are no customers to buy it. You have to build the constellation to handle density in New York or Chicago, which means you have massive idle capacity elsewhere. Terrestrial fiber has high initial trenching costs, but those assets sit exactly where the customers are, and they last 30 years. Even at $100/kg on Starship, replacing 40k satellites every 5 years means a permanent Capex treadmill. If a satellite has a 5 year lifespan, that is 20% of the constellation de-orbiting every year. That maintenance Capex behaves more like an operating expense than growth capital. For equity holders, the massive capacity increase looks like growth. For bondholders, the recurring cash drain to just preserve the existing revenue stream is a risk because it eats into the free cash flow available to service the debt. How are you modeling the utilization rate of that LEO capacity when comparing it to fiber?