Latest / Bloomberg Intelligence / Earnings Special: SpaceX Profit Beats Estimates on Big Jump in AI Revenue

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Earnings Special: SpaceX Profit Beats Estimates on Big Jump in AI Revenue · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios.
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  Speaker 2: Podcasts.
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  Speaker 3: Radio.
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  Speaker 2: News. This is a breaking news update from Bloomberg.
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  Speaker 4: Instant reaction and analysis from our 3,000 journalists and analysts
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  Speaker 4: around the world.
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  Speaker 3: We did see that third quarter revenue for SpaceX came
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  Speaker 3: in at about $ 14. 58 billion, topping expectations of $ 12. 87 billion.
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  Speaker 3: We're seeing a bit of a reaction in the stock.
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  Speaker 3: Talk to us about what you're taking away from what
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  Speaker 3: you're seeing thus far.
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  Speaker 4: Yeah, I mean, well, the net income number is a
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  Speaker 4: lot higher than we thought. And a lot of people
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  Speaker 4: went into this print saying, okay, SpaceX has a very
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  Speaker 4: high capital expenditure story.
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  Speaker 2: Capital expenditures in the quarter came in at $ 19.
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  Speaker 4: 6 billion. which was pretty much in line, 19.59 instead
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  Speaker 4: of 19.6. And then you scroll down and you're like
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  Speaker 4: net income, $ 4. 4 billion. The estimate was for 1.8. This
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  Speaker 4: is their first quarter. Again, they only had two quarters
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  Speaker 4: as a public company. They're reporting for the second time,
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  Speaker 4: but they are reporting profit basically on an EPS basis,
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  Speaker 4: 35 cents a share ahead of the estimates, 15 cents
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  Speaker 4: a share. And a lot of people ask me a
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  Speaker 4: really simple question. I'm not an accounting expert, by the way,
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  Speaker 4: nor am I an analyst.
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  Speaker 2: I'm a reporter.
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  Speaker 4: But capital expenditures, a big bulk of that gets depreciated
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  Speaker 4: over a longer time horizon. And that answers, it's purely accounting,
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  Speaker 4: how you could have CapEx at that level and still
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  Speaker 4: see them massively outperform on their income, with revenues also
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  Speaker 4: outperforming on the top line against those different segments that
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  Speaker 4: they have, AI connectivity and space.
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  Speaker 5: What about Tesla, SpaceX, the merger, if, when? I guess
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  Speaker 5: it's not if, right? It really is when at this point.
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  Speaker 5: And I'm wondering, I don't see any headlines regarding that.
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  Speaker 5: I'd have to imagine Elon Musk will be asked about
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  Speaker 5: it during the call.
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  Speaker 4: I mean, they have issued a press release so far, right?
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  Speaker 4: And the press release has the numbers in it. What
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  Speaker 4: SpaceX does, very similar to what Tesla does, is they
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  Speaker 4: offer retail investors the chance to submit questions in advance
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  Speaker 4: of the earnings call. And they dedicate a portion of
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  Speaker 4: the earnings call to those retail investors. And how it
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  Speaker 4: works is it's a forum, and then registered retail investors
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  Speaker 4: get to upvote the questions they're most interested in. By
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  Speaker 4: the time I ran to set to talk to you guys,
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  Speaker 4: when will SpaceX merge with Tesla was question number two
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  Speaker 4: by votes. That happened last quarter as well. But IR,
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  Speaker 4: investor relations, did not put that question in front of management.
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  Speaker 4: And sell-side analysts who participate in the call, as is traditional,
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  Speaker 4: did not ask. Different to Tesla's last quarterly earnings call,
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  Speaker 4: where a brave sell-side analyst just asked Elon outright. And
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  Speaker 4: Elon Musk had some prepared remarks about it, saying that,
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  Speaker 4: you know, that they, the companies work closer together, but
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  Speaker 4: that wasn't the appropriate forum.
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  Speaker 2: For them to discuss it.
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  Speaker 4: So the answer in short is we don't know, but
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  Speaker 4: I just wanted to lay out like the state of play,
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  Speaker 4: which is the market thing is going to happen imminently.
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  Speaker 4: And it's just whether or not it gets put in
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  Speaker 4: front of management as a question today through those two mechanisms. Yeah.
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  Speaker 3: And, you know, just kind of building off of that,
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  Speaker 3: we know that SpaceX has become the main driver of
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  Speaker 3: Elon Musk's wealth since his IPO and now makes up
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  Speaker 3: about more than three quarters of his net worth, actually,
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  Speaker 3: according to the Bloomberg Billionaires Index. So really helping make
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  Speaker 3: him the world's first trillionaire. How do you think about
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  Speaker 3: the focus, the split, really, when you're an investor, maybe
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  Speaker 3: in SpaceX or Tesla? How do you think about the
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  Speaker 3: split in Elon Musk's focus between these companies?
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  Speaker 4: So far, it's not been a concern. You know, if
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  Speaker 4: you look at the disclosures, risk disclosures in the annual
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  Speaker 4: regulatory filings that both companies put out Elon Musk's centrality
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  Speaker 4: to the future of both SpaceX and Tesla has been
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  Speaker 4: sort of codified for quite some time. The question does
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  Speaker 4: come up from time to time in sort of more
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  Speaker 4: ad hoc settings. But then the other thing to remind
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  Speaker 4: yourself of, and this was very evident in last quarter's
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  Speaker 4: SpaceX earnings call, its first ever earnings call, is that
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  Speaker 4: there are at least two but many more very competent
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  Speaker 4: executives at SpaceX. Gwynne Shotwell, the president and COO. Brett Johnson,
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  Speaker 4: the CFO. They are very hands-on, present. Gwynne Shotwell spent
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  Speaker 4: a lot of the time speaking about SpaceX's ambitions in telecommunications, right?
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  Speaker 4: Direct-to-cell connectivity, something that rocked the carriers. If you remember,
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  Speaker 4: she said explicitly, we're going to try and take customers
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  Speaker 4: from T-Mobile, Verizon, AT & T, and those stocks fell
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  Speaker 4: as a result. That was during last quarter's call. And so,
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  Speaker 4: you know, Elon Musk lets those operators do their thing.
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  Speaker 4: And he is kind of seen as the sort of
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  Speaker 4: brain that drives the bigger picture and the vision.
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  Speaker 2: But, you know, SpaceX AI.
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  Speaker 4: as part of SpaceX now, SpaceX SI, as it's now known,
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  Speaker 4: is full of very talented people as well, like on
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  Speaker 4: the AI engineering level. So I think that kind of
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  Speaker 4: answers it, right?
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  Speaker 3: And I'm happy that you brought that up because, you know,
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  Speaker 3: just talking about the pressures that we did see on
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  Speaker 3: the telecom stocks, Verizon, T-Mobile, AT & T, more broadly,
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  Speaker 3: what is the expectation for SpaceX and its push into
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  Speaker 3: just mobile services? Is this something that it's expected that
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  Speaker 3: SpaceX should excel at, excel in rather?
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  Speaker 4: Yeah. So the story started with satellite constellations that were
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  Speaker 4: for internet, right?
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  Speaker 2: Starlink.
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  Speaker 4: Very simply, you had a ground receiver, a little dish
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  Speaker 4: in your home or in your business or on your boat,
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  Speaker 4: and it was really amazing, super fast internet. And that
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  Speaker 4: was on the business side, the cash cow. And very quickly,
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  Speaker 4: the story grew and evolved into ambitions around direct-to-sell. And
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  Speaker 4: what has happened in the last quarter, the last 90
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  Speaker 4: days since that last earnings call is SpaceX moved very
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  Speaker 4: quickly and very aggressively to buy terrestrial assets and to
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  Speaker 4: buy spectrum necessary for them to basically offer themselves as
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  Speaker 4: a more complete carrier, offering not just constellation space based internet,
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  Speaker 4: but direct to cell services as well, guaranteeing cell coverage,
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  Speaker 4: whether you're out in the Rockies or in the wilderness
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  Speaker 4: of California, where I like to go, or you're in
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  Speaker 4: a blind spot in Manhattan. And so we're waiting for
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  Speaker 4: the continuation of that story to kind of present itself
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  Speaker 4: as a business model.
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  Speaker 2: You know, what SpaceX Mobile looks like. And we're not
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  Speaker 2: quite there yet.
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  Speaker 4: And obviously, in the earnings statement, the press release, there's
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  Speaker 4: nothing about that sort of codified.
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  Speaker 5: I'm going to just step back from the earnings for
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  Speaker 5: a moment and talk to you about another story regarding
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  Speaker 5: SpaceX and Elon Musk that made news this week on X.
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  Speaker 5: He said he wants to give a share of SpaceX
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  Speaker 5: to every kid in America next year. He didn't really
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  Speaker 5: say how he was going to do it. He suggested
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  Speaker 5: maybe like through the Trump account program, but I know
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  Speaker 5: that also comes with restrictions on when you can sell.
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  Speaker 5: Have you heard anything at all? We also know that
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  Speaker 5: Elon Musk doesn't always, you know, doesn't materialize everything the
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  Speaker 5: man says, but yeah, what have you heard?
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  Speaker 4: Well, so this played out on X as well, right?
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  Speaker 4: So once we ran our story with the update, which
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  Speaker 4: I'm about to give you, then the president of the
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  Speaker 4: United States weighed in and said, thank you, this is
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  Speaker 4: what Trump accounts was all about. And then there were
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  Speaker 4: other people replying to Elon Musk about Trump accounts. But
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  Speaker 4: based on a source and some reporting that we did
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  Speaker 4: just before that, Elon was meeting with administration officials, others
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  Speaker 4: involved in the Trump accounts program for about the last
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  Speaker 4: 18 months, you know, in the run up to this
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  Speaker 4: behind the scenes.
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  Speaker 2: And the tipping point.
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  Speaker 4: Was when they basically did 70 million auto account setups.
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  Speaker 4: And once Musk had seen those 70 million accounts, many
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  Speaker 4: of which were auto set up, as I say, he
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  Speaker 4: was like, okay, this is the mechanism.
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  Speaker 2: It's the only.
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  Speaker 4: Mechanism in which you could distribute a share to those children.
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  Speaker 4: And the math, by the way, like census data, I
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  Speaker 4: think there are, between 72 and 73 million eligible children
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  Speaker 4: in the United States anyway. So all that was was
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  Speaker 4: the Trump Accounts Program basically providing an account for almost
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  Speaker 4: every child in America by default. And that got the
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  Speaker 4: world's richest person committed. That's my understanding of how that
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  Speaker 4: played out.
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  Speaker 3: Yeah, we want to bring George Ferguson into the conversation,
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  Speaker 3: and he is Bloomberg Intelligence Global Head of Aerospace Defense
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  Speaker 3: and Airline Analysis. So we want to talk to you
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  Speaker 3: a bit about SpaceX. That's what we've been talking to
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  Speaker 3: Ed a lot about. Right now we see shares that
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  Speaker 3: are higher. Tell us kind of what you're taking away
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  Speaker 3: from these numbers.
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  Speaker 1: Yeah, so I think what stood out was a couple
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  Speaker 1: of things. There was more profitability that flowed through both
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  Speaker 1: the connectivity business and the AI business than we originally expected.
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  Speaker 1: One of the things that sort of came out to
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  Speaker 1: me was that it looks like there are some decent
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  Speaker 1: economies of scale inside Starlink. So it looks like they
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  Speaker 1: grew revenues pretty well. And we didn't see sort of that,
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  Speaker 1: you know, a similar increase in the cost, which is
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  Speaker 1: probably no surprise, right? Starlink should have a fair amount
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  Speaker 1: of scalability to it. And maybe one of the reasons
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  Speaker 1: why you saw them go in and buy more spectrum
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  Speaker 1: so it could fix some of the challenges with Starlink
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  Speaker 1: for being in buildings and such. So a push, I think,
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  Speaker 1: to enhance the profitability of Starlink, probably because in the
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  Speaker 1: near term, that's going to be important to the SpaceX story.
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  Speaker 1: It's going to be important to generating cash flow, showing profitability.
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  Speaker 1: But again, I think we saw both in Starlink and
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  Speaker 1: in the AI business, we saw better profitability than we expected.
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  Speaker 5: When you talk about catalysts for this stock, it continues
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  Speaker 5: to be an unfolding story, George, but with SpaceX, we've
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  Speaker 5: got Morgan Stanley analyst Adam Jonas saying that the Starship
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  Speaker 5: rocket's next launch could be a catalyst for SpaceX's valuation.
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  Speaker 5: What are your thoughts on that?
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  Speaker 1: Look, I get calls after every Starship launch, right, asking me,
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  Speaker 1: was it a good one? Was it a good one?
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  Speaker 1: Was it a good one? Look, I think that SpaceX
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  Speaker 1: has gone a long way with space launch. And everything
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  Speaker 1: they do is very impressive. They talk about it here
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  Speaker 1: as well in their 10Q. And the amount of satellite,
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  Speaker 1: the size of the satellites they can get up, the
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  Speaker 1: increased power of that satellite they can get up, it
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  Speaker 1: improves the Starlink business tremendously. I think it's great, right?
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  Speaker 1: But I think that we need to see sort of
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  Speaker 1: Starship come more repetitively. I'd like to understand better whether
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  Speaker 1: or not they had any problems with the heat shields
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  Speaker 1: on the last launch so that we could understand what
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  Speaker 1: kind of cadence they can get out of Starship. Again, look,
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  Speaker 1: it's amazing what they're doing with launch, but they'll need
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  Speaker 1: more of that to get data centers in space. They'll
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  Speaker 1: need more launch faster turnarounds to get data centers in
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  Speaker 1: space and keep building out the constellation. One quick thing
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  Speaker 1: I'd mention before I go back for another question. I think,
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  Speaker 1: you know, we saw, I think, 11.1 thousand, so 11,000
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  Speaker 1: plus satellites in orbit. I think last time we saw
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  Speaker 1: about 10-ish thousand. So they're building the constellation. Starlink looks
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  Speaker 1: like it's building out. That's good stuff.
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  Speaker 3: Yeah, I mean, I'm also just curious how you're thinking
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  Speaker 3: about SpaceX right now. When you think about its launches,
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  Speaker 3: you think about the Falcon 9 and how it's really
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  Speaker 3: matching up against competitors right now.
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  Speaker 1: So again, Starship is much larger than Falcon 9. And
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  Speaker 1: to me, Starship is the more important story on launch
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  Speaker 1: for this company. Falcon 9, great rocket. They're using it
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  Speaker 1: for some NASA missions and such. The space business actually
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  Speaker 1: lost a little bit of money Less money than we
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  Speaker 1: expected to lose. It was very nominal. Less money than
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  Speaker 1: we expected to lose. They're spending a lot of money
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  Speaker 1: in R & D in the space launch business. Again,
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  Speaker 1: to me, the future of this business is Starship and
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  Speaker 1: not Falcon 9. Falcon 9, I think they got down
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  Speaker 1: to a really nice science for usability, but Starship reuses
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  Speaker 1: everything and has much more volume so they can replenish
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  Speaker 1: the constellation and get data centers in space. To me,
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  Speaker 1: that's more important to the story than Falcon 9.
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  Speaker 5: So I want to bring Ed Ludlow, the host of
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  Speaker 5: Bloomberg Tech, back into this conversation. To your mind, Ed,
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  Speaker 5: what is the next big catalyst for SpaceX? We were
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  Speaker 5: talking a minute ago with George about Starship and the
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  Speaker 5: Starship launch being that catalyst.
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  Speaker 4: Yeah, I've said on this program so many years now,
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  Speaker 4: Elon Musk's great skill is with the investor base is
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  Speaker 4: keeping them looking to the horizon, to the next thing.
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  Speaker 4: You know, George explained very clearly that all of these
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  Speaker 4: future business lines are predicated on the success of Starship.
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  Speaker 4: You know, orbital data centers do not happen without Starship.
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  Speaker 4: The scale of the Starlink constellation and future generations where
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  Speaker 4: that constellation contributes to a direct-to-sale service, i.e. Starlink Mobile,
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  Speaker 4: It doesn't happen without the capacity of Starship.
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  Speaker 2: So that is.
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  Speaker 4: Our ongoing track of progress Starship makes.
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  Speaker 2: They're also on the hook for NASA, right?
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  Speaker 4: But for me, it's just continued consistency and update of
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  Speaker 4: when we get the first deployment. of a data center
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  Speaker 4: in space. Because again, if you just go back two
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  Speaker 4: quarters to the IPO, the prospectus could not have been more.
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  Speaker 2: Clear that all of these future total addressable
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  Speaker 4: Markets, 26.5 trillion of them, that they don't happen without
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  Speaker 4: data centers in space and as a step before that
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  Speaker 4: Starship being a rapidly reusable and economically viable launch system.