Bank: "Unknown Unknowns for SpaceX"

In recent days slew of banks have issued their valuation forecasts on SpaceX following on from its Initial Public Offering (IPO). The range was extremely wide, from $143 per share from Deutsche Bank to a staggering $800 from Raymond James. However, analysts at technology research company Moffett Nathanson took a more modest view and their share price guidance was $131, and said there was no credible financial model to support anything higher.

Moffett Nathanson issued a comprehensive 93-page report where they compared and contrasted the prospects for SpaceX and its rival AST SpaceMobile. They stated: "Never before has so much attention been lavished on a company in advance of its IPO. And no company, in the weeks following its IPO, has been treated to more withering scrutiny. By now, you will surely have read umpteen articles and reports poking and prodding every aspect of the largest IPO of all time."

"By and large, the coverage has been split into two camps. One camp has fawned over the sheer audacity of the enterprise and the spectacular size of SpaceX's addressable market. The other has relentlessly lampooned the utter ridiculousness of so many of the numbers thrown around in the company's S-1 and analyst commentary," continued Moffett Nathanson. "We're in neither camp."

"To be sure," the report added. "There is plenty to poke fun at. SpaceX's assessment of its total addressable market (TAM), at almost $30 trillion, is absurd. So too are its forecasts for a mobility (D2D wireless) segment that is, to us, likely little more than a niche market. Founder and CEO Elon Musk has called for launching compute into orbit at a rate of 100 GW annually by year-end 2029, an amount that exceeds global in-service data centre capacity today and for which sufficient material inputs will not exist in three-and-a-half years. There is simply no credible financial model that can support what is at the time of this writing a roughly $2 trillion valuation. Our own certainly does not. On this basis alone, it would be easy - some might argue prudent - to initiate coverage with a flashing red 'Sell' rating."

Moffett Nathanson admitted that SpaceX has fashioned a monopoly in the rocket segment, with Blue Origin the only competitor but probably 10 years or more behind. The researchers look at the other key expectations outlined by SpaceX, not least its Starlink service and in particular the prospects of orbital data centers.

"There are 'unknown unknown' opportunities that will inevitably arise from SpaceX's advantaged position, and those opportunities should appropriately be rewarded in SpaceX's valuation, even if there is, admittedly, no rigorously quantifiable approach to doing so," says the report, and adds that "SpaceX faces significant regulatory, antitrust, and political risk. It is perfectly legal to establish a dominant position in a business, as SpaceX has done in its Space segment, by innovating, taking risks, and driving down costs. Leveraging that dominant position into dominant positions in adjacent businesses, however, introduces antitrust risk. Overseas governments may also be hesitant to rely on foreign-owned critical infrastructure."

"We expect significant volatility in SpaceX shares. Much has been made of technical factors such as index inclusion and lock-up expirations. These are not our specialty, nor our focus. What is more important, in our view, is the yawning disconnect between valuation and actual forecasts. We suspect - but we certainly can't be sure - that the market will be inclined to give SpaceX the benefit of the doubt when it is feeling generally ebullient. We further suspect that it will not give SpaceX the benefit of the doubt if sentiment for the broader market turns generally skeptical," stated the firm.