I already own Scottish Mortgage Investment Trust (LSE:SMT) shares, but I didn’t buy them because of SpaceX. But things move quickly in the world of technology — the main focus of Scottish Mortgage’s investments.
SpaceX’s now a household name, the company’s doing incredible things, and it currently represents 4% of the Scottish Mortgage portfolio — the sixth largest holding.
So should I buy Scottish Mortgage shares for SpaceX exposure? The short answer, in my opinion, is ‘no’. If I’m going to invest in Scottish Mortgage I need to have confidence in the fund as a whole — which I do. However, I do think SpaceX could be a company to drag the fund forward. Here’s why!
SpaceX: what we know
According to reports from December, the valuation of Elon Musk’s SpaceX hit $180bn based on an ongoing secondary share sale. That makes it one of the most valuable companies globally, let alone in the private market.
That obviously sounds like a huge valuation. And for context, it would be among the top three most valuable firms on the FTSE 100 — not that Musk would consider listing in the UK.
So is SpaceX really expensive? Well, it was expected to generate $9bn in revenue for 2023. That would mean it’s trading at 20 times revenue, which is expensive.
However, it’s clearly growing quickly and projections suggest that sales are set to increase to around $15bn in 2024 — that’s more than three times revenue for 2022. In which case, the firm would be trading around 12 times revenues for 2024.
As SpaceX isn’t a listed company, there’s a lot we don’t know about the firm. We’ve also heard that it made a profit in one quarter of last year, but know nothing about margins and the rest of the business. That’s a big risk.
Although the firm’s suggested it’ll be targeting 60% operating profit margins on Starlink once that side of the business is operating at full scale.
Burgeoning industries
According to reports, Starlink — the part of the company offering high-speed broadband — is likely to be spun-off and go public at some stage. The unit offers internet access at a premium to conventional fibre, but Starlink allows customers to access from anywhere in the world, including remote places and for those on the move.
At the end of 2023, there were around 5,000 Starlink satellites in orbit and the SpaceX business unit had around 2m subscribers. It’s clearly still a long way away from the business unit Musk wanted it to be. His early forecasts suggested that the business would have reached $12bn in revenue, positive cash flow, and would have gone public by now.
Meanwhile, the global space economy is expected to grow at around 41% over the next five years, and this includes space exploration and cargo transportation. SpaceX has spent billions on its Starship rocket as it looks to validate its cargo technology with the US military.
The bottom line
As said, there’s a lot we don’t know about SpaceX, but I’d suggest it’s not overvalued if the current rate of growth is sustainable. However, I wouldn’t invest in Scottish Mortgage purely because of SpaceX. Although I do believe the Musk company is one of the stronger parts of the portfolio.
