Latest / trading places / I Read the 308-Page SpaceX S-1 So You Don’t Have To

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I Read the 308-Page SpaceX S-1 So You Don’t Have To · trading places

0:00
Well Oh my God, first of all, let's have 308 page documents.
0:03
I've read it so you don't have to.
0:05
I'm going to go through all the highlights, some of the fun
0:07
financials and surprises, and some Nuggets in the S1.
0:10
It's exciting. What else does Elon say?
0:13
We do not want humans to have the same fate as the dinosaurs.
0:16
Flowery language. Colorful language from a
0:18
visionary investor. How many mergers has Elon been
0:21
involved in in the last like 6 months?
0:23
And in the next 6 months I feel like we're just like merging
0:27
everything together. All right folks, welcome back to
0:44
another episode of our very Bad, Horrible No good podcast,
0:48
Trading Places with my partner in crime.
0:51
I'm on Virgie. The Holy Trinity of AI, SpaceX,
0:55
Anthropic and Open AI are in the news again.
0:58
I guess. It seems like all three of them
1:01
are going to try and pull off IP OS this year.
1:04
A month, a trio of trillion dollar IP OS is.
1:07
Have you ever seen so much money in public market all at once?
1:12
I don't think so. If I look at all the money
1:14
raised last year in USIPOS and I'm talking everything like not
1:18
just tech, but biotech and all the other IP OS, it was
1:21
something on the order of 77 billion last year.
1:25
It looks like SpaceX is now on, they're going to get to between
1:28
40 and 80, but the anticipation is 75 billion all by themselves.
1:32
And it seems like there's a lot of news for Anthropic and for
1:35
Opening eye this week. That was very favorable for
1:37
their I, I don't know that either one will be as big as
1:39
SpaceX, but we're, I think we're talking a year that could be
1:41
three times the amount raised in IPO proceeds.
1:45
And that's just those top three companies.
1:46
Forget about all the other companies this year.
1:50
Could be 150 billion just across those three companies, maybe
1:53
another 50 billion for the rest of the market.
1:55
What do you think? That's possible.
1:57
I guess we'll see how SpaceX goes.
1:58
They're planning on pricing Gene 12, but depending on how that
2:02
goes, I think that estimate sounds reasonable to me.
2:05
The big news is that SpaceX S 1 is out and those numbers are eye
2:12
popping. I'm on.
2:13
We're going to cover that later today in the valuation corner,
2:16
but anything you want to tease out of that initial S1 that
2:19
grabbed your attention? Well Oh my God.
2:21
First of all, let's have 308 page documents.
2:24
I haven't slept because I am. I am fresh off of reading that
2:28
this week. It is longer than The Catcher in
2:31
the Rye. It's a fast ingreed it's I'll
2:33
just tease a couple of the highlights.
2:34
We learned a bunch of things from Ilan's comp plan to what
2:38
their new partnership looks like with Anthropic.
2:40
It's a $15 billion a year business that they've now have
2:43
with Anthropics that came out in the, in the S1 they revealed
2:47
their new board of directors or we, we kind of knew who the
2:50
board was before, but now it's officials we know who is, who
2:53
was on the board. And everything we'll talk a bit
2:55
about is some bread crumbs and some clues and the S1 as to what
2:58
I think is a potential merger with Tesla maybe by the end of
3:02
the year. And there's some hints and some
3:04
bread crumbs if you look through the corporate governance and
3:07
how. Many mergers has Eli been
3:09
involved in in the last like 6 months and in the next 6 months
3:13
I feel like we're just like merging everything together.
3:16
Well, X aix.com, right and then which includes the the remnants
3:21
of Twitter cursor is not a officially a merger, but is an
3:24
option to buy, which I think is another one.
3:26
So he's remade the company in the past three months.
3:29
Cursor actually announced that they had a $3 billion annual run
3:33
rate and projected they might even get to 6 billion by the end
3:36
of the year. So that that's turning out to be
3:38
a pretty good deal, I think, for SpaceX.
3:40
Maybe if we were optimistic about what SpaceX revenue might
3:45
be, this, this has got to be the bowl case of all bowl cases
3:48
here. But here's a list of the
3:51
different product lines and segments.
3:53
Starling maybe 16 billion, the launch business, another 2
3:57
billion the XAI business that that one got a nice story, I
4:03
guess because previously had been losing a lot of money, but
4:05
you know, maybe 5 billion there. Entropic compute business that
4:10
announcement happened and supposedly $15 billion a year
4:14
for three years. I don't know if we'll see all of
4:16
that in the this year, but that was a good shot in the arm for
4:20
SpaceX. And then maybe if they expand
4:22
and do another maybe not quite that large a deal, but you know,
4:25
try and find another compute the cursor deal.
4:28
So in the most optimistic scenario, we're talking, I don't
4:32
know, 3035 billion in revenue, maybe a 50 billion plus run rate
4:36
by the end of the year. Yeah, obviously a lot of things
4:39
have to go right for this doll to happen.
4:41
I think in the S1 they were suggesting they could get on
4:44
$100 billion run rate in a few more years.
4:47
But 2030? Yeah, but I don't know what do
4:51
you what do you think? Are we are we in the land of
4:54
fundamentals or that completely off the table now?
4:56
We're we're basically projecting, You know, I think in
4:59
the S1 they were talking about the $28 trillion market for
5:03
SpaceX. Sure.
5:05
Does that include people on planet Earth?
5:07
Or we even discover a new race on Mars that we're going to sell
5:10
to? Maybe the Martians are part of
5:11
that that market tab now. Yeah, I think that Tam to get to
5:16
20 a trillion, I think you have to believe that all enterprise
5:18
applications fall into the market for SpaceX all all of
5:21
USGDP is like 35 trillion. So, so there you go.
5:26
It is the biggest Tam ever recorded in an S1.
5:28
It's also maybe the first S one I've ever seen that has
5:31
projections out five years. Like I've been doing this a long
5:33
time. I can't think of another
5:34
company. Maybe one of our viewers can
5:36
correct me. I can't think of another company
5:38
that put projections in there in their S 1.
5:40
So that's usually no, no, you don't do that for legal reasons
5:43
and and bankers are supposed to do projections and and do it off
5:46
to the side. But they went out and they said
5:48
they're aiming at 100 billion in 2030.
5:51
I think the 2030 number is actually conservative.
5:54
I think getting to 30 billion this year, you know, probably
5:57
getting to 50 billion by next year, maybe just because of the
6:00
cadence of the businesses. But this is a 5 year, it's a 5
6:03
year old or more. And if you think you get to 2030
6:06
a 100 billion or more, it's basically a mag 7 company at
6:09
that point. So that's that's the premise
6:11
behind the valuation, I think, but you have to believe that
6:13
fiber case all. Right.
6:15
Well, we'll talk more about this evaluation quarter, but I would
6:18
expect we're going to see a $2 trillion IPO.
6:22
Question is whether it holds that value through lock up or
6:24
not. Do you think you think it closes
6:26
day one at north of north of two?
6:29
You know, I, I think it's a nice shiny number.
6:32
I think people will be optimistic on the first day.
6:35
I, I just don't know what happens, you know, a week or two
6:37
later. We'll have to see where where
6:39
things settled out. Yeah, I think 2 is a pretty good
6:42
bet. I think 2:00 to 2:00 four is
6:44
where they're hoping they'll price around 175 maybe, maybe up
6:46
the range. I think if 30% pop day one, I
6:49
think that's a good, pretty good bet.
6:51
I think they really did themselves a favor by getting
6:54
the cursor deal done in the entropic deal done.
6:57
I mean, cursor deal doesn't, you know, actually close maybe until
7:00
next, next month. But still, you know, the
7:02
discussion about cursor coming in was a good story.
7:05
This anthropic deal is crazy. I mean, that almost like double
7:09
s the revenue of the company in a single partnership.
7:13
The only thing is there's only there's a 90 day out for this
7:17
deal, right? Yes, I just like to terminate,
7:21
but you know, there's no reason to think that they will.
7:22
That's just, it's a, it's a three-year deal and needs the,
7:25
they need the compute. They, they are, they are
7:29
constrained. They had a fantastic quarter or
7:30
the process of reporting or projecting a fantastic quarter,
7:33
but they're still compute constrained.
7:34
They could generate even more revenue if they have to compute.
7:36
So Colossus has what they need. And you know Anthropic is, is
7:40
now paying 1.25 billion a month and that's starting this month.
7:44
So I think that's real, you know, that's a win win for both
7:47
sides. Why?
7:54
10,000 years will give you a such a Crick in the neck.
7:59
Hang on a second. Wow, wow.
8:04
Well, I'm on moving on to our next story and throw picks had a
8:07
pretty good quarter. I guess they're closing this new
8:10
round in $900 billion valuation. They are announcing some revenue
8:14
numbers and some growth that look pretty good.
8:17
Seems like that price might actually even be cheap.
8:20
Let's let's take a listen from 20 BC.
8:23
We have Anthropic in talks for $30 billion at above a $900
8:27
billion price, nearly tripling from 380 in February.
8:31
Greenhouse, Sequoia, Altimeter, Dragon Air And then yesterday we
8:36
had Andre Capathi announcing that he was joining Anthropic.
8:40
So boys, over to you. How did we read this news?
8:44
Well, divide up the two. I mean, the financing, yes, you
8:47
know, we talked about it last week.
8:48
There's nothing more to say. They can pick their price, they
8:50
can pick their investors, they can tell the amount and they can
8:54
tell Evan the jump and Evan will say how high, Sir.
8:56
So it's all happening. They're going to raise 30
8:59
billion. We discussed, obviously the
9:01
question is, you know how those folks pencil out the return.
9:05
So Aman, while opening eye and SpaceX, we're fighting out in
9:10
court. Anthropic just keeps having good
9:12
news story after good news story.
9:14
They're having 130% revenue surge, almost $11 billion, you
9:19
know Q2, it looks like that's a doubling of revenue from quarter
9:23
to quarter. Quarter to quarter, yeah, yeah.
9:26
Sounds like they're going to be profitable.
9:28
And then, you know, former Opening Eye Co founder Andre
9:31
Carpathy decides to join them. The winners keep winning, man.
9:34
Yeah, it's an amazing quarter they had.
9:36
They're they're declaring 10.9 billion in revenue in Q2.
9:39
It's a projection. So they leaked this to the Wall
9:41
Street Journal, which just tells us that they're now planning on
9:44
their, their own IPO roadshow. They did make money, which is
9:47
great For all the people who are worried about ROI on, you know,
9:50
on spend, on AI spend. Is there an ROI like Anthropics
9:53
proving they're, they're profitable?
9:55
I don't think they'll be profitable for the whole year.
9:57
I think that profitability is going to bounce around, but it
9:59
just suggests that they're putting up revenue numbers
10:01
faster than they can spend right now.
10:03
And as you said, they basically doubled from Q1 to Q2.
10:06
So they I would expect that to continue through the the summer
10:09
now that they're solving some of their compute problems with
10:11
SpaceX. I feel like it's just a really
10:13
different story for Anthropic than either SpaceX or Open the
10:17
Eye. SpaceX, Open the Eye are trying
10:19
to sell the top line and as much of that, you know, stories they
10:22
can push when topics kind of almost the opposite.
10:25
They're not really trying to sell very hard.
10:28
They could probably be raising at a higher evaluation than
10:30
where they're pulling in, but they just sort of like quietly
10:33
announcing numbers, raise capital in a week and they're
10:35
done and back to business. Well at 900 billion at that
10:40
valuation, let's assume that their ARR is 44.
10:43
Now let's assume it's going to be 50 by you know the middle of
10:47
the summer or by the end of Q2. So we are talking then about 18X
10:52
ARR and this is for a company that's profitable and growing at
10:55
100% quarter over quarter. I don't even know what the year
10:57
over year number is going to be, you know, 10X or something like
10:59
that. And so you could argue that
11:01
that's a that's not an unreasonable evaluation at 900
11:05
billion, which I guess you know, begs the question like, why
11:08
aren't they racing at a higher evaluation?
11:09
Why aren't they like going public?
11:11
Why, why raise 50 now and and get the deal done?
11:15
Are they leaving money on the table?
11:16
I guess that's a question to you, Dave.
11:19
I think they are leaving money on the table, but I think that's
11:21
the whole point. I think they unlike, you know,
11:24
open AR SpaceX, right, they don't, they don't have to sell
11:27
very hard. The numbers are just absolutely
11:30
astonishing. This is a graph of anthropic
11:33
revenue over the last 2 1/2 years.
11:36
Have you ever seen anything like this?
11:39
Like, it's just absolutely crazy at, you know, $30 billion in AR
11:44
and accelerating. Yeah, never, never before I've
11:47
I've seen the hockey stick chart.
11:49
My daughter's lemonade stand went from $1.00 to $3.00.
11:52
So she, she's the scale's a bit different.
11:56
I've never seen anything like this in private or public
11:57
markets. No, not at this scale.
12:00
I guess it's not surprising that you see everybody like jumping
12:03
ship to go join Anthropic if if they can make the cut.
12:07
The story about Andre Kaprathi, who's, you know, admittedly one
12:10
of the leading lights in open AI in the past, he was actually
12:14
Tesla before that. The fact that he is joining
12:18
Anthropic, I don't know. It just seems like win after win
12:21
after win. Yes, and I think there's value
12:24
to your point about if you can do a rounded at 50 and just get
12:27
it done from top investors like you know, Dragonair and and get
12:32
the deal done with cash like and you're not pushing the
12:34
valuation, you don't have to sell that hard to get the deal
12:36
done in a week. That's a real sign of I think
12:39
strength and making it back to business.
12:40
Like contrast the open AI which did their last round with Amazon
12:44
and they, they pushed to get their evaluation at 8:52, but
12:47
their deal was much more complicated, right?
12:49
With Amazon, you're going to give us 15,000,000 now and 35
12:51
billion later. That 35 billion is going to be
12:53
contingent on us going public and us spending a bunch of spend
12:57
on your cloud services. And then it's only contingent
13:00
upon us hitting certain goals. NVIDIA, you're going to give us,
13:03
you know, 30 billion now. SoftBank, you'll give us money
13:05
later, but you have to finance it still give you 3 months.
13:08
Like that was a complicated deal.
13:09
And I think these guys are just like, let's raise the money,
13:12
let's not first evaluation, let's get back to work.
13:14
There's a real lesson in there for founders I think on, on
13:16
simplifying the process, getting great investors and not dragged
13:19
into contingencies and and all these other very, very
13:22
complicated arrangements that that involve financing.
13:26
There's a report that one institutional investor
13:28
reportedly offered $5 billion, you know, in investment, and
13:32
they couldn't even get a meeting with the CFO.
13:37
Wow, that is just astonishing. Well, I guess the third piece of
13:44
our Holy Trinity here is open AI.
13:47
And I guess Sam had a pretty good week.
13:50
You know, winning the lawsuits was certainly one big milestone
13:54
for the company. Even though Musk said that he's
13:57
going to appeal, that seems to have cleared the way for an IPO,
14:01
and almost immediately thereafter, Open AI released
14:06
their filing on Friday, Right? Well.
14:10
They didn't release their filing, they didn't flip the the
14:13
filing to public, but they did sort of leak that they, they are
14:16
now definitely going to try to go public as quick as they can.
14:19
Sarah Fryer, their CFO, has been a little bit reticent about
14:22
committing to a timeline, but I think she's going to get dragged
14:25
kicking and screaming now into, you know, getting the company
14:28
ready to go. Just on the lawsuit.
14:30
It was a win. An important distinction,
14:32
though, it was, it was a the jury was out for two hours.
14:35
We talked about this in our last talk.
14:36
We said that I think the likely way this goes is that open AI is
14:39
going to prevail, but on a bit of a technicality around either
14:42
statute of limitations or standing.
14:44
And indeed, it was a statute of limitations.
14:47
That jury decided, hey, Elon should have should have served
14:49
this lawsuit a couple of years ago and he's passed the Sol.
14:52
That's a finding of fact. And the judge made the decision
14:55
and kicked the kick the case out.
14:57
That's hard to appeal. I don't doubt that Elon will try
14:59
to appeal, but it's seemingly unlikely he'll win a finding a
15:02
fact on appeal. And I think what that means is
15:05
open AI now can go for their IPO.
15:07
They obviously want to go out as fast as possible before the
15:10
appeal gets filed and any other clouds appear over their
15:13
governance. And so I think this now suggests
15:16
that they will come hell, hell or high water.
15:18
They don't try to be out by September or October and and
15:21
really try to beat Anthropic to the punch.
15:23
I think that is their, that is their mission right now.
15:25
So I would not be surprised if we saw open AI, even though
15:28
they're not the strongest story relative to Anthropic, I think I
15:30
wouldn't be surprised if we saw them in the market in as early
15:33
as September. Well, they certainly seem to
15:34
have a decent quarter, nearly 6 billion in revenue in Q1.
15:39
Kodak's boosting some of their revenue.
15:41
Yeah, annualized revenue now you know, hitting 25 billion, that's
15:45
certainly not a terrible story. I mean, I guess there's there's
15:48
probably a lot of potential CapEx spend there and potential
15:51
losses that they have to figure out.
15:53
But at least the top line seems to be doing pretty well.
15:55
Only by comparison to Anthropic are they not doing so great.
16:00
And there's also the $852 billion value, so 6 billion of
16:03
revenue and a quarter, let's say their ARR is 25.
16:06
Let's say they get to, you know, 30 or 40 over the summer, but
16:09
they're losing money. Their management team is a
16:11
little bit of flux. A lot came out in the trial
16:13
about Sam Altman and his credibility and, you know,
16:16
management style. Is all that a trillion dollar
16:19
IPO. I don't know if I had to bet on
16:20
one, I'd say Anthropic and 900 billion is probably better bet
16:23
than open AI at 8:52. So it's just a matter of
16:26
evaluation. But I think for them at this
16:29
point, they just want to go and get this, get the deal done and
16:31
raise the money. And if they end up, you know,
16:33
pushing on the evaluation or having a volatile IPO, they
16:36
would rather take that than wait, have Anthropic beat them,
16:39
be able to raise all the money, suck the capital out of the
16:41
market and then take their chances at the end of next year
16:44
or delay any any longer than it is necessary.
16:46
So I think for them now it's all hands on deck to go.
16:49
Well, I think that the prediction marks is tend to
16:51
agree with you Aman. It looks like after the trial
16:54
dates the numbers have flipped on who goes out first.
16:58
That looks like open the eye is more likely to go public and if
17:02
we look over at Poly market, seems like that could happen as
17:07
soon as September. The markets are saying 51%
17:09
chance before the end of September.
17:11
I would say certainly it looks like it's likely to happen
17:14
before the end of the year. Right, right.
17:16
One of the remedies that Elon was asking for was a complete
17:20
governance change, right? He was asking to undo all the,
17:23
all the nonprofit transition to AB Corp and a nonprofit that the
17:26
that the company had done, I guess over the last two years
17:29
with Microsoft. And so if that governance ended
17:30
up changing, that would compromise the IPO.
17:32
But now that that's off the table, I guess that's that's the
17:35
cue now that that open AI needed.
17:40
Yo, Rodman, haven't seen you in a few millennia.
17:42
Give me some castle yo-yo. Say you're a lot smaller than my
17:48
last master. Either that or I'm getting
17:50
bigger. Look at me from the side.
17:51
Do I look different to you? That's our Holy Trinity of AI,
17:55
but there's still other companies in the news.
17:57
NVIDIA had a pretty good quarter.
18:00
I guess they had an $82 billion quarter and then also announced
18:04
that $80 billion share buyback. So I guess most of that money
18:07
that came in the door going right back out to buy their own
18:10
shares. NVIDIA stock I think continues
18:13
to get cheaper and cheaper Aman. Yeah, absolutely.
18:18
You said pretty good quarter. I think it was a great quarter.
18:20
They were there, they knew why there are numbers.
18:22
They reported 85% year over year growth on $80 billion of of of
18:30
revenue, 81 billion revenue growing 85% year over year.
18:34
Their net income is $58 billion. They annihilated the the
18:38
earnings estimates. The other thing that I think was
18:41
maybe a little under reported was their hyperscaler revenue
18:45
grew 115% year over year. So that is what they are selling
18:49
to the the big three like the Google cloud and Amazon and and
18:54
Azure. Those three companies reported
18:56
bank up quarters too. They're not growing 115% year
18:59
over year. So that means Nvidia's taking
19:01
share of hyperscalers, which is you know you got Cerebrous and
19:05
you have others like Corey that are in the space.
19:08
There's been this concern in the market about NVIDIA just losing
19:10
share of this market that they dominate, but that's not
19:13
happening. So All in all, I think it's a
19:16
fantastic quarter. Their stock price actually
19:18
traded down by about 1% after earnings.
19:21
A lot of questions as to, hey, how come the stock price didn't
19:23
reflect? Well, this chart shows all the
19:25
major tech companies and who's reported.
19:27
And you can see the green lines show how how the stock did since
19:31
earnings. The blue bars are showing how
19:33
they did in the quarter to date. So if you look at NVIDIA, they
19:37
did trade down after earnings, but they'd run up before
19:40
earnings by quite a bit over 20%, you know, quarter date.
19:43
So I think a lot of this was already priced in.
19:46
The one thing I'll just say then about the big tech, if you look
19:48
at the overall tech story, the markets rising and has been
19:51
every one of the top companies in the mag 7 and a few of these
19:54
other chip companies beat earnings.
19:57
Not only did they beat earnings, most of them blew them away.
20:00
The revenue growth across the MAG 7 and the, let's call it the
20:03
AI trade, the the semiconductors and the chip companies.
20:06
They're all double digits, NVIDIA at 85%'s the high point
20:09
you got everyone else in the in the mid teens or 20s, Intel at
20:12
7% year over growth and then the consensus earnings now that
20:16
we're seeing, I think, I think the consensus earnings are going
20:18
to get shifted dramatically after Nvidia's quarter, but they
20:21
are somewhere in the 14 to 18X if you believe the PE ratio for
20:25
the 27 earnings consensus around 18 times earnings for 2027.
20:30
I think they're more like 14 times when you actually bacon
20:33
what they just did and how they guided.
20:35
And so I think the whole the the companies in the space now using
20:39
NVIDIA 1415 times earnings. You're seeing Alphabet at 1415
20:42
times fully taxed earnings. You've got Amazon, Microsoft
20:45
around, you know, 16 to 21 times.
20:48
This is not a bubble. This is not what bubbles are
20:49
made of. These are not these are
20:51
profitable companies buying back shares, kicking off cash flow
20:54
trading at mid teens to high teens, low 20s multiples.
20:58
All things was like a like a sensational quarter for all
21:00
these companies, NVIDIA included and I think a lot of upside
21:03
between now and the and the end of the year for this sector.
21:06
I think you showed comparison of different like PE multiples
21:10
here, but certainly looks like with the exception perhaps of
21:14
Tesla that right, most of the mag seven are in this sort of 20
21:19
to 30X territory. NVIDIA kind of right there in
21:21
the middle. Do you think that tech is cheap?
21:25
Again, with the exception of Tesla perhaps, I would say, you
21:28
know, that's the one outlier here.
21:31
Yeah, I think they are. So the overall S&P is around 20
21:35
to 21 that's historically expensive.
21:38
But with interest rates where they are in the in the low to
21:40
mid fours for the long bond that seems, I wouldn't say cheap, but
21:45
it's that seems reasonable. I think big Tech is probably
21:48
cheap. I think now that they've
21:49
reported earnings in Q1 and we're seeing growth in their
21:53
EPS, I think they have these companies in the mid to high
21:55
teens on, you know, next year's earnings is AI do think that's a
22:00
buying opportunity. And I think when we see open eye
22:02
and Anthropic and some of these these are their big customers.
22:04
If those guys go public and have more capital to spend, I think
22:07
that cycle keeps accelerating. So I would say that I'm bullish
22:10
for a big tech between now and the at least the end of the
22:13
year. And then we'll we'll talk about
22:14
2027 when that when that comes around.
22:16
But I think for right now, this is a trend that's going to keep
22:19
moving in the right direction. OK.
22:21
Our our next story is about a firm that's actually in our
22:24
portfolio. Mercury Financial is raising a
22:28
new round, I guess or has raised 200 million at a $5.2 billion
22:32
valuation. That's up about 50% over its
22:34
last round. This round was led by TCV,
22:38
Sequoia, Andreessen Horowitz and CO2 pretty, pretty strong
22:41
investor group and the company continues to do well.
22:44
I guess they've been profitable for the last four years now
22:47
doing over 650 million in revenue And Aman, I guess we're
22:52
bullish on this. We we bought in.
22:54
What do you think? Yes, we are, we are conflicted,
22:58
you know, but our, our, our bulk case of the company was I guess
23:02
about a year and a half ago, they are now raising at a $5.2
23:05
billion evaluation. They did their Series C at 3 1/2
23:08
billion dollars beginning of 2025 and we'd invested at the
23:11
really in 2023 and our bulk case was they're a bank, but not
23:16
really a bank. They do the front end for a lot
23:18
of startups and leave the complicated part of banking,
23:21
treasury management and asset liability matching.
23:24
They leave all that to other regulated banks primarily now
23:27
Choice Financial, but they are generating 600 million plus in
23:31
revenue mostly from startups. When SVB went down bankrupt or
23:35
three reorganization and then First Republic went down, more
23:38
than half the startups in our portfolio and in fact in the in
23:41
the YC portfolio went to Mercury.
23:44
And so we can see the revenue trends materialize and that's
23:47
resulted in a like a really big spike in the revenue as if the
23:51
September 2025 they said they were at 650,000,000 in ARR that
23:55
was essentially doubled from a year ago.
23:57
They should be a lot north of that now.
23:58
So I think probably closer to a billion in, in revenue, four or
24:01
five times revenue multiple, which for a fintech company is,
24:05
is pretty good. But as I said, they're very
24:06
profitable and they're probably generating 20% plus profit
24:09
margins now. So you can think of this as a 25
24:12
X, you know, PE type ratio financial services company and
24:16
their lead investors are in this round looks to be Sequoia again.
24:20
And I think that's a really positive sign.
24:23
They've been backed with Sequoia in a 16.
24:25
So I think this is another, you know, great company and maybe
24:27
even on that IPO road map once you clear out the big three and
24:30
we'll see how they go and and you know, have the markets
24:32
clear, I think they could be an IPO candidate.
24:34
Yeah, I would. I would say it seems like
24:35
they've got all the right numbers to go public, probably
24:38
in 27. But CEO Ahmad Akhund has been a
24:42
very successful entrepreneur, had a previous exit acquisition
24:45
back in 2016 with a company called Hay ZAP.
24:48
I think they seem like they're on track.
24:50
I mean, no crazy stories here. This is a company that's
24:53
profitable and growing and seems like it's going to hit all the
24:56
numbers necessary to go public. We actually use them as our, I
24:59
was going to say banking partner, but I guess they're not
25:01
really a bank. I keep calling them a bank
25:02
because I just think of them as a banking partner.
25:04
But there are financial front end.
25:06
They do, you know, we do wire transfers, they manage their
25:08
fund, We do capital calls with them.
25:09
They're really good for a financial partner like that.
25:12
They're really easy to work with, highly automated, work
25:14
really well with startups and funds, just a outstanding
25:17
product, and that's showing up in their financials and traction
25:21
rule. Number one, I can't kill
25:25
anybody. Yeah.
25:26
So don't ask. Rule #2 I can't make anybody
25:30
fall in love with anybody else. All right, moving on to our next
25:36
story. It seems like the US government
25:38
is getting into the venture business. the US has announced
25:41
they're going to provide $2 billion in funding incentives
25:44
for 9 companies in the quantum business, but they're also going
25:48
to be taking equity stakes. And I don't know, I'm, I'm not
25:51
sure about whether the US should be in the investing business,
25:56
but it seems like we're jumping in with both feet.
25:58
Well, we're doing funding incentives, Dave.
26:00
Aren't those just grants? I think if you're taking equity,
26:04
you're not giving away money for free.
26:06
You're, you're definitely getting something in exchange.
26:09
OK. You know, $2 billion may not
26:11
seem like a a big number compared to all the other
26:13
numbers we were just talking about, but still, the government
26:16
deciding to award $2 billion of grants to 9 different companies
26:20
and take some equity, Yes, I feel like there's another
26:24
country in the world that does something like this whose
26:27
initials are China. Do we see any problems with the
26:30
government getting involved in capitalism and pissing winners
26:32
and losers? I was going to guess Canada is
26:35
giving, you know, I think Canada actually gives grants, but to
26:39
your point, they don't take equity.
26:40
So it's like a when a grant is in exchange for equity, that's
26:44
not really a grant, is it? That's like just taking straight
26:47
up equity. I guess the bottom line is, are
26:48
they taking these equity stakes in companies they fit the sector
26:52
to invest in that doesn't, that does sound like industrial
26:54
policy, not something I'd be supportive of.
26:56
The other danger is when you take equity, you know how equity
26:59
holders are, some of them are like silent and they're passive
27:02
and they don't like mess with hiring decisions.
27:04
They don't mess with, hey, are you investing to, you know,
27:08
create American jobs and politically favored districts?
27:11
The concern would be if they're taking more of an active role,
27:14
deciding what the companies do they work with, how they, you
27:16
know, how they do employment contracts when they start
27:19
getting into the management, I think that's really where
27:22
industrial policy kicks in. I haven't read through these
27:24
agreements, but I there's a huge incentive, obviously, when the
27:27
government starts taking equity, like you have to start following
27:29
their political dictates. And that's not a good idea.
27:32
That that just seems like against what a Republican would
27:36
would want. And you know that Trump does not
27:38
always act like a Republican now, but that seems like the
27:40
opposite of the free market capitalist spirit that that
27:42
party is has embodied since at least the 1980s.
27:45
I guess quantum has really taken a backseat to AI over the last
27:49
couple of years. But, you know, it wasn't too
27:51
long ago that people thought about quantum recruiting as the
27:54
next wave of technology innovation that was going to be
27:57
right around the corner and kind of critical to a whole bunch of
28:01
things, I guess, you know, all kinds of new innovation, drug
28:04
development, cracking, cryptography, you know, as a
28:07
potential, you know, area of risk.
28:09
So I guess I'm not surprised that the government decided this
28:11
was critical. But I again, I I agree with you,
28:14
taking equity in exchange for making those grants might, might
28:19
introduce some behaviors that we would have thought should be the
28:22
private market, not the public sector.
28:24
I also wonder how they chose these nine companies like the
28:27
the market should be picking winners and losers.
28:29
I understand if it's important technology into some
28:31
foundational research that then gets shared.
28:33
You know, that seems like that's how the Internet developed.
28:36
Think of like the federal Interstate highway system.
28:39
But when you're like laying track and and roads for everyone
28:41
to use and letting the market pick winners and losers, that's
28:43
one thing. But when you're picking equity
28:45
stakes in companies, like imagine the highway, highway
28:48
Interstate system and then having the government own like a
28:51
car company, right? Or own stakes and trucking
28:55
companies. And then obviously this
28:56
incentive to favor those companies, make sure they do
28:59
well and, and to disfavor others.
29:01
I think that's where this becomes too intrusive for my
29:04
taste. Our last story today is going to
29:06
be exclusively about the secondary market.
29:08
A friend of the pod, Emily Zhang, who does research over
29:11
Pitchbook has broken some news about NASDAQ private markets
29:15
suing Hive over a venture secretary patent.
29:18
And I I guess this is kind of about the plumbing and the
29:21
financial rails for the secondary market of bond.
29:23
Is that is that accurate? Yeah, I think it's an IP case at
29:26
bottom they've the defendant is Hive, but they don't think
29:29
they're the only ones that are potentially using technology
29:32
that NASDAQ Private Markets claims is happened to protected
29:36
Forge would be another one. They didn't go after Forge, but
29:39
I'm sure there's a conversation happening with Forge about, you
29:41
know, a settlement or how to use the technology, possibly equity
29:44
Zen or others, as well as Zenbato.
29:46
It's interesting to see how this will play out.
29:48
It just has a secondary market participants.
29:51
It would be great in my mind if this technology is widely used
29:55
to make markets more efficient to enable clearing and
29:58
settlement of trades. How the revenues get split up,
30:01
as you know, is one thing, but NASDAQ Private Markets is
30:04
actually suing. They're looking for an
30:05
injunction to to preclude Hive and others from using the
30:08
technology, which would really shut down a lot of the secondary
30:11
market. So that wouldn't be great for
30:13
secondary marketplaces in general.
30:15
It's something to watch. I don't really haven't followed
30:17
the merits of the case yet and and a lot of that hasn't been
30:20
revealed yet, but my hope is that it'll be settled and that
30:22
everyone will be able to use the technology for the betterment of
30:25
the whole marketplace. I hope it's not something that
30:27
gets consolidated into a couple of players.
30:30
All right. Well, that's our news for this
30:32
week. I guess we're going to dive into
30:34
the SpaceX S1 a little bit more. Deeper valuation corner analysis
30:38
coming up soon. No, I never actually wished to
30:46
get out of The Cave. You did that on your own.
30:51
Well, I feel sheepish. All right, you bad boy, but no
30:55
more freebies. Fair deal.
31:06
All right, welcome back to another valuation corner on
31:09
Trading Places. Well, we got a lot to cover this
31:12
week, the SpaceX S1. Absolutely got public this week,
31:17
Dave, SpaceX and their new S1308 pages.
31:22
Did you read it? Did you go through it?
31:23
Did you go through it word by word?
31:25
No, I decided to have some light reading this week.
31:27
I decided to pick up War and Peace instead.
31:30
Yes, don't worry, I've read it and that's why I haven't slept,
31:34
but I've read it so you don't have to.
31:35
I'm going to go through all the highlights, some of the fun
31:38
financials. We'll go through some corporate
31:40
governance stuff, some surprises and some Nuggets in the S1.
31:43
It's exciting and we'll talk about the lock up period and how
31:45
to trade the stock after the IPO.
31:47
You ready to jump in? Terrific.
31:49
Let's do it. All right, so let's start with
31:51
the the S1 is the document. Do you have to file?
31:54
It's basically prospectus that you've got to file with the SEC.
31:57
It's not public on their website.
31:58
I'll tell you what you already know is that SpaceX is a space
32:01
exploration company. It also turns out that it's an
32:04
AI company. Do you know how many times the
32:05
words artificial intelligence or AI appear in this document?
32:09
A lot. I did account Dave, it's 1114
32:13
times they mentioned AI or artificial intelligence to make
32:17
AIAI first generative AI, third AI deploying AIAI with AI with
32:23
AI power of AI, generative AI, AI platform AI.
32:26
The 1st 14 pages are pictures of rockets.
32:29
So that's kind of cool. It is a 200,000 Word document.
32:31
Get like a cup of coffee and or maybe a glass of wine and do
32:34
some bedtime reading. But I'll go through some of the
32:36
highlights that are just little surprises and Nuggets along the
32:38
way. First of all, the accounting is
32:40
a little bit weird. They use something called common
32:43
ownership accounting rules. I had to brush up on this, but
32:46
you remember they were SpaceX at the end of last year, right?
32:48
Which is basically your space launch business and then
32:50
Starlink and that's it. So I was expecting to hear about
32:53
what the business look like in 2025.
32:56
Then you get XAI and Q1 of 2026, which is the remnants of Twitter
33:02
and Brock and the XAI platform. Then they have a Cursor deal
33:06
that they announced in Q2, which is a merger or will be a merger
33:08
by the end of the year. And I was like thinking this is
33:11
going to be a real simple clean business that we're going to
33:13
have to pro forma into 2026. Well, it turns out there's a
33:17
thing called common common ownership, where if if one
33:19
person controls one company and another company and they merge
33:22
subsequent to the end of the year, you can put all that into
33:25
one set of financials. So the accounting is a little
33:28
bit weird. We still need to add Cursor to
33:30
the deal, right? That is not a completed deal,
33:32
but we can pro forma that in. That's going to be something
33:36
that the bankers have to do. That's how they're going to earn
33:37
their hundreds of millions of fees.
33:40
They did something I've never seen a company do before.
33:43
They put projections in their S1.
33:46
You can be AUS investment banker and do 100 deals and you will
33:49
never see anyone put projection in their S1.
33:52
If I get told by the lawyers you can't, you're told not to.
33:55
I've done this before. I was told do not put
33:57
projections into the S1. You will get sued.
34:00
Give your protection to the bankers.
34:01
Let the bankers talk to the investors.
34:03
But you, the CFO, do not talk about projected revenues.
34:06
Elon has broken all these, all these rules.
34:08
And the guest is CFO, Brett Johnson.
34:10
First rule of Fight Club, do not talk about Fight Club.
34:14
Unless you're Elon Musk, in which case I guess getting
34:17
stewed, it's not really going to, you know, dissuade you.
34:20
So I'll talk about all those things.
34:21
Let me talk about the financials first, then we'll get into
34:22
projections and and how all the other all these other deals
34:25
affect everything. So you can see on the page there
34:27
are three segments, the three key metrics they have a revenue
34:30
is 18.7 billion. I'm going to go, you know, right
34:33
to left because that's how they present in the financials.
34:35
I hate that, but they that's how they do it.
34:37
They did 14.5 billion in 2000 and 2418, seven last year,
34:41
growing top line of 33%. They went from being profitable
34:44
to being unprofitable. That's the impact of X AI
34:48
because the SpaceX business is profitable.
34:50
They went from 5.6 billion in CapEx to 21 billion in CapEx.
34:54
So a huge increase in their CapEx, and so they're now deeply
34:57
free cash flow negative again. That was the XAI story.
35:02
How do they finance that? Well, they have a bridge loan at
35:04
$20 billion at a cheap rate to pay off their XAI debt.
35:09
You could argue that SpaceX, a profitable company, took on an
35:11
unprofitable company at XAI, restructured their debt and
35:14
bailed them out. Not a very charitable way to
35:16
look at the XAI acquisition, but it is what it is.
35:18
A couple of highlights. I'm just going to read some of
35:20
these things for our, you know, our viewers who might be in
35:22
cars. Whatever.
35:23
This some just funny language. Here they go into the
35:25
opportunity. For decades, a reality where
35:28
humanity travels between the planets and the stars has felt
35:31
tantalizingly close, but still locked in the pages and screens
35:34
of science fiction. We are capable of veterans in
35:37
the universe exploring the universe and ultimately making
35:39
life multi planetary across the universe.
35:41
This isn't typical legal language in a in a legal
35:44
document. This is some visionary stuff.
35:47
What else does Elon say? We do not want humans to have
35:49
the same fate as a dinosaurs. That's right on Page 3 of this
35:53
right below segment Adjusted EBITDA, flowery language,
35:57
colorful language from a from a visionary investor, our market
36:00
opportunity, the Tam. You know what the Tam is total
36:03
addressable market. It begins with space enabled
36:06
solutions on the left, $370 billion.
36:09
They then go through every single other kind of business
36:11
they have. They get to enterprise
36:13
applications and the Tam, the total addressable market $28.5
36:18
trillion, which is basically USGDP or 80% of it.
36:22
It's the biggest Tam in the history of of S ones.
36:24
Dave, are you excited yet? Are you feeling like are you
36:28
feeling like are you feeling the excitement or do you feel like
36:30
maybe Elon was on some on something Ayahuasca induced
36:34
fervor to create the vision for? I think we are firmly in the
36:39
land of narrative and memes and storytelling there.
36:44
There's nothing here related to evaluation fundamentals or cash
36:48
flows that is connected to reality.
36:50
This is. This is all distortion reality
36:52
field this is. All distortion reality.
36:54
Field in an S1, no no less. In a legal document, well, we're
36:58
going to go through the numbers. So that's the first 30 pages.
37:02
The hallucinogen induced vision is fun to read, but as investors
37:06
like what am I, what am I buying?
37:08
Right? So let's get to the numbers now.
37:09
They spell out a number of business segments.
37:12
Connectivity, Starlink, 11.4 billion in revenue, growing 50%
37:16
year over year. They blew through their
37:17
subscriber numbers. They're actually doubling
37:19
subscribers year over year, 105% year over year, 10 million
37:22
subscribers within the Q1. Their monthly average revenue
37:25
per user has fallen dramatically.
37:28
It was 99 bucks per user back in 2023.
37:31
It's now 66. So a lot of promotional deals,
37:34
different price tiers moving to consumers, downward pressure on
37:37
the ARPU, but still they could be there are 10 million
37:40
subscribers, they could be at a couple 100 million in a 5 or 10
37:44
year time frame. So it.
37:45
Still seems like a big growth business for them.
37:47
I mean, whether the subscriber average dollars comes down or
37:50
not, like this is a business that's clearly making money and
37:53
growing. Definitely, definitely
37:55
profitable. The price point in 99 a month is
37:58
great for a business as they get to consumers and really other
38:00
countries not in the US. Paying 99 bucks a month for a
38:04
broadband, high speed broadband connection might seem like a
38:06
lot, but you know you go to $50 price points or sub that and
38:10
they open up a massive market where there are potentially
38:13
hundreds of millions of people who want this product and it's
38:15
the best in the space. Speaking of space, this is their
38:19
launch business which we invested in when we invested in
38:21
SpaceX. This was what they were.
38:23
It's a 4 billion in revenue business grew 25% year over
38:27
year. Most of that is the Falcon 9 165
38:31
launches last year. Now remember they retired the
38:33
Falcon One this year and they're just introducing the Falcon
38:36
Heavy and Starship. It's not even this year, it's
38:39
going to be next year. So I would expect this revenue
38:41
number is going to go way up because they're a little bit of
38:44
an off year as far as the transition of product.
38:46
It's like for historians, it's like the Ford Motor Company in
38:48
1927, they moved from the Model T to the Model A.
38:52
That shift was so big it put the economy into recession.
38:54
But but then in 1920s, after 27, they exploded in revenue and
38:58
obviously we're just a transitional thing.
39:01
I think that's where SpaceX business is now.
39:04
This feels understated to me as well.
39:06
It seems like we're still kind of in R&D for the next
39:09
generation of launch vehicles. And once you get all that stuff
39:12
worked out, and Elon has a pretty good history of getting
39:15
that stuff worked out, it feels like there's another leg up in
39:18
this revenue opportunity and even more launches.
39:21
And this is directly connected to Starlink, if not other
39:24
businesses that might come after this as well.
39:27
If you believe in data centers in space, then you know here's
39:30
all the launch vehicles for those data centers in space in
39:33
the future. That's right.
39:35
That's exactly the the premise behind this business.
39:38
Those two business seems like very rational, seem very
39:41
connected, seem like those, you know, I don't have a lot of
39:44
questions about them other than the valuations.
39:47
Yeah, exactly. Well, we'll get to, we'll get to
39:50
the valuation when we start talking about projections.
39:53
But so far growing profitable businesses, the AI segments a
39:57
little bit different. They did grow 23% year over year
40:00
last year. This is XAI and x.com.
40:03
A lot of ad revenue in there. That's what Twitter is.
40:05
The top line grew, but the CapEx spend and losses grew a lot too.
40:11
Yes, that's how that's all their losses came from this segment.
40:15
But now what they've also done is they've introduced a few
40:17
other what what this business segment concludes is X aix.com,
40:21
Grok, which is their AILLM and then a lot of hardware Colossus
40:25
is their supercomputer, which has two gigawatts of power.
40:29
They leased out 300 megawatts, so like 1/6 of their capacity
40:34
leased out to Anthropic. It's a $15 billion revenue deal,
40:38
1.25 billion a month. They also said their long term
40:42
goal is 100 gigawatts by 2030, which is crazy.
40:46
And then they have Cursor coming into the financials at the
40:49
middle of this year. So there's a lot of potential in
40:51
this business segment. The technology, the fact they
40:54
have two gigawatts now in Colossus is amazing.
40:56
Just just to translate this into some math, I guess for our
41:00
financially oriented users, what is a GW?
41:03
Anthropic operates on about one GW or maybe 1.3 right now, and
41:07
they're generating 44 billion in revenue and on their way to a
41:10
bigger number. So a GW is equivalent to 40 to
41:14
50 billion of a revenue. What does it take to generate a
41:16
GW? Well, a nuclear reactor would do
41:19
it. The Hoover Dam is 2 GW, so that
41:21
would do it. When you have that kind of power
41:23
like Colossus does, what do you, what do you do with it?
41:25
Well, the entire US power grid is like 1350 gigawatts.
41:29
So you could power, you know, half a million to 1,000,000
41:32
households in in the US with a GW.
41:35
Or if you, if you're like me, what I would do with a GW, I
41:40
would just. Buy a DeLorean.
41:41
I would think by 1985, DeLorean back to 1955, that's what that's
41:46
what I would do. But obviously Elon is going to
41:47
do something different. So he's going to power Anthropic
41:50
and he's going to power some other, you know, whales and
41:53
cursor and generate revenue off of that segment.
41:56
So that feels like that could be a major new business line for
42:00
the company. This feels a little bit
42:01
different than what X AI was previously doing where they were
42:05
trying to sell sort of AI capacity for computes.
42:08
Now they're sort of like doing AI data center provisioning, it
42:11
seems like, but then they're also, you know, further up the
42:13
stack with buying cursor. So it's almost like Eli's trying
42:17
to fill in that entire stack of like provisioning data centers,
42:21
running data centers, and then building and running
42:24
applications on top of them. Yes, I think that's correct.
42:27
And he'd bet ahead on compute and he'd bet on Grok.
42:30
But Grok has kind of underperformed expectations.
42:33
So the compute now has to go to other providers and he's leasing
42:37
it out and making money on it. So he's, he's able to cleverly,
42:39
he's figured out, I guess, how to get ahead of the compute
42:41
game, whereas Entropic was behind on compute and it turns
42:44
out to be a, you know, a happy marriage, or at least they're
42:47
dating. They're not married, they're
42:48
dating right now. Let's talk about 2030
42:51
projections. I want to hear your take on
42:52
this. So let's go through, they do
42:53
this in their S1, which again is a, a no, no, and we'll get them
42:57
sued, but they don't care about that.
42:59
So the benefit of when you go for a $2 trillion, a $1.75
43:03
trillion evaluation, you're not, you're not talking about 18.7
43:06
billion revenue. That's 100 times earnings.
43:09
You're talking about what are the next three years have to
43:10
hold. And what they're projecting is
43:12
connectivity at 50 to 60 billion in revenue.
43:15
So that's a 35% CAGR. I figure that's 100 million Subs
43:19
at a $49.00 ARPU. There's a lot of, you know,
43:21
variations in in how to get to that number.
43:23
Data centers in space, if you believe that's going to happen
43:25
in three to five years, will be part of that business.
43:29
And then the other thing that we haven't talked about, and they
43:31
do a little bit of this in the South.
43:32
One is Star Shields, which is working with the US government
43:35
to create a, a robust communications, national
43:37
security infrastructure, encryption proof, just the
43:40
United States with its trillion dollar defense budget.
43:43
And, and let's add in Europe and Australia and Canada and all of
43:47
our, you know, non NATO allies, SpaceX could be selling to a lot
43:51
of those guys. And if they have locked up
43:53
contracts for their classified, it's on the order of two to $3
43:55
billion and, and declared revenue so far, this could be a
43:59
huge, you know, multiplier on that.
44:00
So there's, there's a lot of growth coming from connectivity.
44:03
That's the that's going to be the core of their business.
44:05
That's number one #2 is space, which we you just talked about,
44:09
which I think has got a ton of upside.
44:11
I don't believe they don't need to be 15 to 20 billion.
44:14
They're projecting 15 to 20 billion.
44:16
I think it's much more likely they they blow that number away.
44:19
What would it take to get 20 billion, 225 to 275 Falcon 9
44:23
launches Falcon Heavy, You know, A120160 launches of the Falcon
44:27
Heavy Starship is going to change the game, I think for
44:31
launches as well. I'll talk about why in a second.
44:33
I'd be stunned if they only get to 15 to 20 billion and space
44:36
launch revenue by 20-30. This was the case that we used
44:39
to underwrite the business and then AI they're projecting 25 to
44:42
30 billion, which I guess is, you know, I don't understand how
44:46
it's that low. I think if you're talking.
44:48
About yeah, I was just going to say the same thing that feel
44:51
that number feels like it could be a lot bigger.
44:54
Like, you know, we're, we're kind of shitting all over all
44:57
this stuff in a couple places, but that one's the one that I
44:59
feel like he's underselling. This is actually kind of really
45:04
amazing because I actually was skeptical that Elon would be
45:08
able to catch, you know, open AI or Anthropic, you know, with
45:12
Grok, you know, all the founders of XAI left the building as soon
45:17
as the acquisition by SpaceX happened.
45:20
Right. But like, I think now he's
45:22
returning to his roots in, you know, hardware and engineering.
45:27
And yeah, I don't think he ends up competing as much with
45:31
Anthropic or other players as really provisioning for them.
45:35
That seems like a business that Elon can really, you know, dig
45:39
in and run with. That goes back to, you know,
45:41
building stuff, building physical things and you know,
45:45
exceeding expectations in building physical things.
45:48
I actually feel like CapEx and spend aside, this business could
45:52
get to 2530 billion a lot faster.
45:54
Like you're already at 15 billion a year just with
45:57
Entropic. Yes, and then add cursor,
45:59
cursor. You said 3 going to six at the
46:02
end of the year is what they've projected.
46:03
So you're already at 20 and set aside.
46:06
You know X Grok, if that's a total failure or maybe he
46:09
doesn't come up with the competitor to Open AI or Codex.
46:13
He can just provision the big players in the space and in the
46:16
next three years, I think hit these numbers.
46:19
So I I would concur. I think you've notified the big.
46:21
Opportunity. Here's something for you.
46:22
Let, let's suppose that we haven't really talked about the
46:25
Chinese open source AI models, but there's a lot of news about
46:30
them being pretty good at a lot less expensive prices, right?
46:34
And Anthropic and Open AI, but you probably still need dev
46:37
tools to build on those platforms, yes.
46:39
So what if the open source models really take off?
46:43
Yes. And you're provisioning data
46:45
centers and providing dev tools for those environments And now
46:48
you don't depend on Anthropic or even Open AI for that business
46:52
growing. You could depend on the rest of
46:53
the market growing. Yes, I guess that's why Elon was
46:56
in China last week, maybe came back to some relationships and
47:00
so on. But he's already selling Teslas
47:01
to, you know, the. China's no stranger to China.
47:04
No, they were here. Last big question here, One
47:07
other thing is missing from this business unit list, Amon
47:10
Robotics and Tesla. Yes.
47:14
I could see them getting to 100 billion revenue a lot faster if
47:17
they just merge with Tesla, which is already $100 billion
47:21
business. Yes, I'm going to.
47:24
What a pin in that one. I'm going to circle back.
47:26
Your role, Dave? Yes.
47:28
I'm going to give the lawyers and the governance folks on this
47:30
call a thrill. I'm going to go through a couple
47:32
of bread crumbs and some clues in this little whereas Waldo
47:37
reader name page document which suggests that that's exactly
47:40
what Elon is, is planning. But getting out.
47:42
Give me 5 minutes to get there because I want to go through one
47:44
more. I want to go back to the boring
47:46
space business for a second. And why I think 15 to 20 billion
47:49
on space is laughably, I think that is laughably small, but let
47:53
me tell you why. So what is the space business?
47:56
It is basically launches of the Falcon 9 and the, and the Falcon
47:58
Heavy now and then Starship in the next year or so.
48:01
What drives the adoption of the space technology business?
48:06
The cost of putting something into outer space.
48:08
The cost per kilogram payload is a critical variable here.
48:11
Back in 1970 when Saturn 5 was all the rage and we were
48:15
watching All in the Family and Mary Tyler Moore and and you
48:17
were probably watching Happy Days knowing you cost per
48:21
kilogram was $5400. OK, All right, Fast forward to
48:25
the space shuttle era in the 1980s and 90s and all the way up
48:28
to 2011, the cost skyrocketed to between 50 and $60,000 per
48:33
kilogram. That's what happens when the
48:35
government takes over an industry.
48:37
Costs just go up. And then after 1986, I think it
48:41
was when the space Shuttle Challenger blew up, Reagan
48:46
signed an executive order and essentially pushed the US back
48:49
to expendable rockets, trying to reduce dependency on certain
48:52
types of of shuttles. And they went to these
48:54
expendable rockets and the cost dropped, but it was still 18,500
48:57
per kilogram. So still way higher than the
48:59
Saturn 5 missions, even adjusting for inflation.
49:03
The Falcon 9 changed all that. OK, so when when the Queen's
49:08
Gambit was the biggest show on TV and the Falcon 9 in 1920
49:12
launched, they reduced it to $2700 per kilogram.
49:15
And in 2027, when the Starship becomes the major, the major
49:23
element of the fleet and my daughter and I'll be watching
49:25
the new Harry Potter TV series, the cost per kilogram is under
49:28
$100.00. So they have completely step
49:31
change now the cost of delivering payload in outer
49:33
space. And when these cost curves break
49:35
like that, typically the market expands.
49:37
Like think when the iPhone became, you know, ubiquitous, it
49:40
was because the cost, the price point fell below thresholds that
49:44
people could buy and they find new uses for.
49:45
This is Jevons paradox. Jevons is a 18 fifties 1860s
49:49
economist from England and he talked about coal and how we're
49:51
making coal more efficient. You think that would actually
49:54
make you lose, use less coal, But actually what happened was
49:57
demand went up so much it overrode the efficiency and
49:59
exploded the market. This happens in technology all
50:02
the time. So, so I feel like there's gonna
50:04
be a massive change step change in the cost curve for technology
50:07
and that could actually explode the space business.
50:10
OK, let's talk now about the board of directors.
50:12
Here's a similar information about the S1.
50:14
Who's on the board? Nobody really knew all these
50:16
answers up until this week. We kind of knew most of them,
50:19
but they declared publicly there were nine board members and this
50:22
is how it works. So Elon's on the board.
50:24
I think we knew that. We definitely knew that.
50:26
Gwen Shotwell, president and CEO of the company, she's on the
50:29
board and Tony Gracias from Valor Equity is on the board.
50:33
There what is known as non independent directors because
50:36
they own, they're rather in management or own a certain
50:38
share of the company. One other, the bottom non
50:40
independent director is Kimball Musk rather than Elon Musk.
50:43
So by familiar, just by being part of the family, he's not
50:46
independent. Who are the independents?
50:49
Independent, by the way, doesn't mean what you think it means,
50:51
Dave. It doesn't do this legal.
50:54
Aren't that independent. Well, there's a specific legal
50:58
test for whether you are independent or not.
50:59
So it doesn't mean that, you know, it doesn't mean that
51:02
they're entirely there's. It's supposed to mean that
51:04
they're exercising influence against the management team and,
51:07
and have shareholder obligations.
51:09
And that depends on whether you're on the management team
51:11
and how much of the company you own.
51:13
You're legally independent. And when you're independent, you
51:15
can serve on the comp committee and the governance committee and
51:17
the audit committee, which is really important for where we're
51:19
going. So Luke Nosek over at Giga Fund,
51:23
former former PayPal. Luke is one of our old
51:25
colleagues from PayPal and Founders Fund.
51:28
We know him, know him very well. Early investor.
51:30
He's on the board. He's on the common governance
51:32
committees. Randy Glein over at DFJ, Steve
51:35
Gerbertson. The future ventures are on the
51:36
board. Steve.
51:38
Is one of the most brilliant BCS on the planet and was an
51:42
extremely early investor in Elan and SpaceX.
51:45
Yes, definitely part of team Elon very early on.
51:48
Great investor, right? He's been, he's a Silicon Valley
51:50
legend. Don Harrison's a Google exec,
51:54
he's on the board, he's independent.
51:55
I want you to focus on the newest board member, Dave Ira,
51:58
Aaron Prize. He's great and another Silicon
52:00
Valley legend and he just joined in February.
52:03
He's going to be on the comp and the governance committee.
52:06
So that's the new board. Let's just wrap up with some of
52:08
these other, you know, Nuggets that we can talk about and what
52:11
the what the board is approving because this is also relevant.
52:14
So we talked by the Entropic deal being a big deal, very
52:17
profitable business given the sun cost of Colossus IRA and the
52:20
new board have put together a Musk compensation plan.
52:23
Get this, if the company only becomes a like a mag 7 company
52:27
and hits these projections, Musk gets basically nothing, OK?
52:32
However, if they get to a $7.5 trillion market cap and put a
52:37
permanent colony on Mars, Musk's plan is 583 billion dollars in
52:44
compensation. And there's a second tranche of
52:46
this where if they get to only 6.6 trillion but have a certain
52:49
number of orbital data centers in space that delivered 100
52:51
terawatts of computer year, well, he only gets 154 billion.
52:54
That's still still a pretty good payday.
52:56
So it could be that Musk is set up to be a trillionaire here.
53:00
But in order for that to happen, it would have to be the biggest
53:01
market cap company in the world and have a permanent colony on
53:04
space. So there's this incentive plan.
53:06
If you're wondering about how he's getting compensated there,
53:08
there it is. That was approved by the new
53:10
comp committee with I were leading it.
53:12
OK. And then on ownership, here's
53:14
what we found out in the S1. I think no surprise Elon Musk
53:18
owns 41.2% of the company. Little bit of a surprise.
53:22
Antonio Gracias and Valor owns 7.3% of the company.
53:26
So they will they will be the the biggest equity winners.
53:29
Musk owns 85% of the voting shares, which are kind of Class
53:33
A and Class B similar to, you know, to Meta, similar to
53:36
Google, similar to Snapchat. Very unusual.
53:39
But it has been done before these dual classes of voting
53:41
shares. So as the company goes public,
53:43
Elon will be the person making all the decisions, like it or
53:47
not. Let's talk about the lock up
53:49
period. If you are a day trader or you
53:52
own shares in SpaceX or an options trader, you should pay
53:54
attention to this part. So how does the lock up period
53:57
work? It's 180 day standard lock up.
54:00
OK. First of all, there are some
54:02
exceptions. Musk, Shotwell and Tony Gracias
54:05
and then Valor Equity Partners are on a 366 day lockup, so they
54:09
cannot sell in the first year of the company.
54:11
That's over half the market cap of the company.
54:14
If you are in a select group of significant investors, Fidelity,
54:17
Founders Fund, Sequoia and Andreessen, I think those are
54:19
the, I think those are the only ones that qualify.
54:22
You get to sell some of your shares early, you get a
54:25
staggered lockup, so you'll be able to sell some of your shares
54:27
early, and then there's a whole liquidity ladder.
54:30
The way the latter works is there's a 20% immediate sale
54:33
after Q2 earnings. There's another 10% potential
54:36
sale if the stock goes up 30% above its IPO price for five out
54:40
of 10 trading days. So let's say the price at 1.75
54:43
billion, they pop up that 2.2 to 2.4 trillion and the stock price
54:48
holds. There'll be a 10% additional
54:50
release and then there's five blocks of 7% that stagger
54:54
through the end of the year and then another 20% chunk after Q3.
54:59
So let me just visualize this for you.
55:00
Here's how it works. So let's assume they price on
55:02
June 12th. Q2 earnings will be somewhere in
55:06
the end of July, maybe early August.
55:08
I don't know. Tesla normally reports around
55:11
July 25th. If it were me, I would probably
55:13
push it out for a new company. I would go to, you know, August
55:16
14th or whatever day 44 is. I would take as much time as I
55:20
can to report earnings. Elon and Brett may jump the gun
55:23
a bit and go around the same time as Tesla, but let's assume
55:25
they do Q2 earnings on July 25th and after that they will be a
55:29
20% release of shares. There might be an additional 10%
55:32
if the stock price goes up. So now you're at 30% of the
55:35
company trading around about September 23rd, another 7%.
55:40
There's going to be a, there are a couple of holidays here, so
55:42
that the, the way it's calculated is a certain number
55:44
of trading days, but you have to exclude Juneteenth and July 3rd,
55:46
which is our Independence Day. We're July 4th, but it'll be on
55:49
a Friday and so those get excluded another 7% around
55:53
October 21. Labor Day is a holiday.
55:55
November 11th there'll be another 7% for our Europeans.
56:00
You might be telling me, wait a second, November 11th must be
56:02
holiday. It's Armistice Day.
56:04
It's veteran's day. You're right, it is veteran's
56:06
day. It turns out veteran's day is
56:07
not a a equity holiday in the US, it's a bank holiday.
56:11
Bonds don't trade, but the equity markets do.
56:13
So that comes in trading. Around November 11th, there'll
56:16
be another big slug. And so by then, by November
56:19
11th, 80% of the shares will be out of lock up at that point.
56:22
And then there'll be a few other periods, Thanksgiving and and
56:25
then up until December 23rd and then the remainder will vest on
56:28
day 180. So if you're an options trader,
56:30
write this down because these are the dates when additional
56:33
liquidity is made available. On the flip side, there's some
56:36
buying that's going to happen. So the company aims to be
56:39
included in the index in the NASDAQ 100, FTSE and Russell
56:44
indices have global benchmarks that are equity based.
56:46
And then there's a bunch of index funds run by CRSP around
56:50
about July 25th, 15 trading days after it goes public.
56:53
These will be eligible for all these indexes.
56:55
And so they'll be forced buying coming in between July 25th and
56:59
September 23rd. And that's you can see how the
57:01
lockup period is now designed to match I think some of the forced
57:04
buying coming in towards the end of the year, probably December.
57:07
The S&P 500 is going to become they make it included in the S&P
57:11
500 as early as. December, that would be a big
57:13
win for the company if that happens, right as the rest of
57:16
that lock up is. Expiring.
57:18
Exactly. I think that's my intention.
57:19
And the S&P 500 has a lot of rules that would preclude the
57:23
company, like you have to be profitable, you have to go for a
57:25
year. They're in the process of
57:26
waving. Rules, Elon.
57:28
You don't need those stinking rules.
57:30
No, not when you can change them all.
57:33
So what does that mean for the company?
57:34
So the S&P 500 index is a float adjusted fund.
57:37
That means that if you have higher float or lower float it,
57:40
it changes how much you're supposed to include in the
57:42
index. But I just did some math and I'm
57:45
going to credit Alexandra Mertz, who was a really fun lead Tesla
57:48
boomer Mama. If the public float is 5% of the
57:52
company, which is where it'll start, it's about 100 billion in
57:55
market cap. It's very low float.
57:57
That means these path to funds, the S&P fund have to buy 19
57:59
billion. So 19 billion is a lot, right?
58:02
In the 7500 IPO, 19 billion is is a big chunk.
58:05
If the increase the float to 10%, which I think is more
58:08
likely, the index fund comes in for 39 billion.
58:11
If the increase the float to 40 or 50%, I don't expect that to
58:13
happen, but I have the numbers in here.
58:15
This is a multi $100 billion equity buyer who comes into the
58:18
market. So the locked up release is
58:20
really designed, I think to stagger the sales and then bring
58:23
in these index funds to pick up, which is I think is really,
58:26
really, really smart. OK, you ready for the Tesla,
58:29
SpaceX? I promised you, Dave, if you are
58:33
the most successful entrepreneur in the world, what do you care
58:36
about? If you want to take one big
58:37
company and make it your own, I would submit that you care about
58:40
control and compensation, right? All the all the most important
58:44
Titans in U.S. history got both of both of those right.
58:47
You get one right, but you lose control of the company like
58:50
Edison. You know you're you're probably
58:52
not in the best entrepreneur of all time list.
58:55
Elon is very carefully thought through control and
58:57
compensation. He owns 85% of SpaceX.
59:01
He owns about 20% of Tesla voting power.
59:05
Assume these two companies go public at equal market caps.
59:08
Guess how much of the company Elon Musk will own?
59:12
More than half, yeah. 51%, not 49.
59:16
Great number. What a great.
59:18
Number. Is that a coincidence or is that
59:21
by design? I think.
59:22
He I think it's a coinkudic, not a coincidence.
59:25
You think it's a coincidence? Yeah, I think if you assume he
59:28
cares about control, he's got the math exactly right.
59:31
So that's one Easter egg that maybe there's a Tesla merger in
59:34
the future. Here's another, here's another
59:36
Easter egg. So we talked about IRA Aaron
59:38
Price. He's now the the chairman of the
59:39
compensation committee on the board which controls Elon's
59:42
comp. Tesla is a public company.
59:44
They have a board of directors. They also have a compensation
59:47
committee. There is one director who is in
59:49
common between the Tesla board and the SpaceX board.
59:53
Besides Elon Musk. This person is also the chairman
59:57
of the compensation committee at Tesla.
59:59
Can you guess Dave, who is the comp committee chairman at?
1:00:02
Tesla right now I'll give you 3 guesses, but you probably only
1:00:05
need one. Ira, don't know.
1:00:10
Is that a coincidence or is that maybe by design?
1:00:14
So there you have it. There's the S1 Fabulous read.
1:00:18
A lot of interesting information in there about the company and
1:00:22
some Easter eggs for you beyond the beyond the financials and
1:00:25
the vision, I think some Easter eggs for you on.
1:00:27
But this is going to be a potential merger with Tesla down
1:00:30
the road. I think it's probably a pretty
1:00:32
good bet that there's going to be a a, an attempt to convince
1:00:35
shareholders that the combined SpaceX Tesla entity is the Elon
1:00:40
Musk corporation that he wants to get people into by the end,
1:00:42
by the end of the year or early next.
1:00:44
Well, that was a very meaty valuation corner of on and
1:00:47
exciting. I guess we'll we'll have to see
1:00:50
what happens in the next months or so, but certainly seems like
1:00:53
we're in a whole new world. Absolutely.