SpaceX Is Raising $500 Million Amid Internal Questions Over Satellite Internet Business
Company president recently sounded cautious note about Starlink project expected to power growth
Elon Musk’s Space Exploration Technologies Corp. is raising another $500 million in funding amid internal questions about the viability of an internet-via-satellite business considered key to the company’s growth.
The fundraising, outlined in a regulatory filing last week, comes four months after a similarly sized deal for the closely held company, which is trying to accelerate development of its ambitious satellite venture, called Starlink, along with work on various rocket and spacecraft projects.
Mr. Musk, the CEO of SpaceX, and his team have been telling investors for years that Starlink is expected to power the company’s bottom line well into the future.
Gwynne Shotwell, SpaceX’s president, chief operating officer and a trusted longtime lieutenant of Mr. Musk, raised questions in an interview with The Wall Street Journal in February about the financial prospects for the proposed multibillion-dollar Starlink venture.
“I’m pretty sure we can launch satellites into orbit,” Ms. Shotwell said. But one question SpaceX is still asking itself, she said: “Can you make money out of it?”
She also struck a broadly optimistic note about the industry overall. “I think global internet and telecommunications is something like a trillion dollars. So it’s worthy of the hard thought and the hard work we’re putting into it. But is it feasible with our approach or not? It’s still TBD,” she said.
SpaceX representatives didn’t respond to several requests for comment in recent days.
Ms. Shotwell’s remarks appear to be her most ambivalent public comments yet about Starlink’s future. They come as the satellite industry is roiled by differing opinions about the likely success of plans to use low-Earth-orbiting satellites to provide internet service.
Some industry estimates suggest it will cost $10 billion to launch Starlink, a proposed constellation that eventually could amount to many as 11,000 interconnected satellites providing ubiquitous broadband connectivity world-wide. The largest such network operating today has fewer than 100 satellites aloft.
Adding pressure for SpaceX’s business is a proposed rival satellite internet network from Amazon.com Inc. and its chief executive, Jeff Bezos. Last month Amazon disclosed in regulatory filings plans for its own constellation of more than 3,000 satellites to provide internet service.
Mr. Musk recently took to Twitter to call Mr. Bezos a copycat. The two tycoons are longtime rivals, as Mr. Bezos separately runs his own rocket company, Blue Origin.
SpaceX has previously shared rosy projections for Starlink, telling investors in 2015 to expect it will generate more than $30 billion in revenue by 2025. That would dwarf revenue from its core rocket business, which Ms. Shotwell said in the interview has a stable addressable market of roughly $6 billion a year. But over the years, Ms. Shotwell has publicly talked about the financial challenges of internet-via-satellite ventures, citing ground terminal costs.
SpaceX’s rocket business impressed observers on Thursday, landing the three boosters of its Falcon Heavy rocket back on Earth after it delivered its first commercial payload.
Ms. Shotwell estimated that less than 5% of SpaceX’s roughly 6,000 employees are currently assigned to Starlink and said that the project remains in the initial stages, focused on the technology. The company earlier projected it would have 400 satellites aloft by the end of last year but only had two prototypes at that point.
Last year, Mr. Musk in comments to the Journal signaled that Starlink’s development was emerging as seemingly more complex than many inside and outside SpaceX originally anticipated.
Even so, Mr. Musk has strong support among venture investors. The latest fundraising was disclosed in a corporate filing obtained by Lagniappe Labs LLC, publisher of the Prime Unicorn Index that tracks valuations of private companies.
New shares in this round are priced at $204 each, according to the filing, a 10% uptick from the $186 where the company sold shares in December. That $500 million round of funding, which Ms. Shotwell said was fully raised, valued the company at $30.5 billion.
The new funding would bring the company’s total equity capital to $3 billion, according to Dow Jones VentureSource. The new valuation couldn’t be immediately determined.
Ms. Shotwell said management is closely monitoring its level of investment for the satellite business. “We can’t be unwise in what we spend on that,” she said, especially “if we’re not sure about whether we can make money or not.”
SpaceX faces new competition. To help lead its initiative, code-named Project Kuiper, Amazon hired a former SpaceX executive, CNBC first reported, and Amazon this month posted dozens of job openings for the project in Bellevue, Wash., a few miles from Starlink’s office.
An Amazon spokesman called Project Kuiper “a new initiative to launch a constellation of Low Earth Orbit satellites that will provide low-latency, high-speed broadband connectivity to unserved and underserved communities around the world.”
Masayoshi Son, the billionaire leader of SoftBank Group Corp. , has also backed a proposed satellite internet service company, OneWeb Ltd., which launched its first batch of small satellites in February. OneWeb has adjusted its own business plan following cost overruns and longer deployment times.
Facebook Inc. has also proposed launching a satellite internet service.
For its part, SpaceX is still focused on figuring out how Starlink will work, said Ms. Shotwell. “We’re not really focused on the business side of things right now,” she said. “We’re really still focused on the technical side, which will drive business, right?”
Hedge funds' oil positions start to look stretched: Kemp
Hedge fund managers continue to accumulate positions in crude and gasoline in the most sustained bull market since 2017 but the market is starting to look stretched and the balance of risks is shifting to the downside.
Hedge funds and other portfolio managers have boosted their net long position in the six most important petroleum futures and options contracts by 503 million barrels over the last 13 weeks.
Fund managers have added 294 million barrels of bullish long positions since Jan. 15 while trimming 215 million barrels of bearish short positions since Jan. 8, according to exchange and regulatory data published on Friday.
Bullish long positions now outnumber bearish short ones by a ratio approaching 7:1, up from less than 2:1 at the start of January (tmsnrt.rs/2VPrFFO).
Since 2015, the accumulation of a large concentrated long or short position has often heralded an impending turning point in the petroleum price trend.
In early January, the large number of hedge fund short positions signaled an approaching rally in prices from the lows late last year, as fund managers covered short positions.
By April, however, the concentrated long positioning started to signal a likely reversal in the rally, or at least a pause, if fund managers attempt to take some profits.
The biggest positioning imbalances are concentrated in crude and U.S. gasoline; there is no sign of similar imbalances in middle distillates such as U.S. heating oil and European gasoil.
CRUDE AND GASOLINE
Portfolio managers have raised their combined net long position in Brent and WTI in 11 out of the last 13 weeks by a total of 397 million barrels.
Long positions in Brent and WTI outnumber short ones by a ratio of almost 8:1, up from less than 2:1 at the start of January.
In addition, funds have raised their net long position in U.S. gasoline in nine out of the last 10 weeks by a total of 58 million barrels.
Long positions outnumber short ones by more than 26:1, up from just 2:1 in late January, one of the largest imbalances on record.
Bullish long positions in gasoline and crude are still below the record levels set earlier in 2018, so there is still scope for fund managers to increase their long positions.
But most of the short positions in crude and gasoline initiated during the fourth-quarter sell off have now been closed out, removing an important source of buying.
From a fundamental perspective, the balance of the risks still appears tilted to the upside, with the global economy so far avoiding recession, continuing supply disruptions in Venezuela and Iran, and output restraint from Saudi Arabia.
From a positioning perspective, however, the balance looks different. Long-short ratios that signaled a rally in January now imply that the balance of risks has started to shift to the downside.
If funds continue adding to their long positions, the risk of a future reversal in prices will only increase.