Does anyone think it's crazy that a glorified messaging app is valued at $16B and that SpaceX, a company that puts things into orbit and literally does rocket science, is only $10B?
I'm sure WhatsApp is an outlier because I see it brought up all the time when the topic of valuation arises but it still seems like SpaceX should be worth a lot more to me.
I'd say (without much knowledge of SpaceX's financials) that it probably shouldn't be valued any higher. I'd argue it's fallacious to compare with WhatsApp because it's obviously overvalued.
Audi looks to be about right, and Ferrari is still a private company so their EV is a bit harder to quantify. The rest of your numbers are also harder to quantify; so I won't take issue with them.
I agree with you that it's fallacious to compare SpaceX to WhatsApp because the vast majority of WhatsApp's valuation comes from the terminal value. Given that WhatsApp was purchased largely with Facebook stock (which also derives its high price from a large terminal value) I would say this is a case where Facebook basically paid for WhatsApp in "Facebook bucks", not actual US dollars. Since Facebook and WhatsApp are in largely uncharted economic territory, there is a large degree of potential error in the terminal value. SpaceX, meanwhile, is in an industry that existed prior to 10 years ago, and is thus a lot easier to accurately peg a terminal value to. Additionally, SpaceX requires a significant amount of capital investment to grow and perform additional research, while WhatsApp can scale enormously with very little capital needs.
I get most of those except for the college football programs.
But I do see why for others there is value there, bread, beer and entertainment (or, as it was in the old days, bread & circuses) have been able to capture very large audiences for millennia. (And the Music Industry and Heineken are reprentatives of the same category.)
It is my opinion that it is generally fallacious to compare Market Cap with GDP.
Why?
Cuz GDP is a measure of economic output (throughput, generally per annum) whereas Market Cap is a measure of worth at a moment in time. The units don't match up but since they are frequently omitted we get unlike things being compared.
Agreed - GDP is a historical record of a year's worth of activity. Therefore GDP more accurately corresponds to a company's net revenue - a net of what the country produced/consumed/spent/imported/exported/invested over a year.
Market cap takes future earnings and total value into account. There is no such calculation for countries, but a country's "Market Cap" (potential) should, in most cases, be higher than its "Net Revenues.
There is such a metric - it's called national wealth [1] and it functions much like market cap on a national level. The mechanisms are different as countries can't be "valued" because they can't be bought and as such have no market price. Regardless, economic health is taken into account because the underlying asset values ARE calculated based on market price. National wealth is largely seen as an indicator of ability to pay off debt because it provides a tax base.
As an example, the national wealth of the US in 2014 was $81.8 trillion, while our GDP in 2013 was $15 trillion. So your intuition is correct; GDP is a horrible way to value a country. Though in practice, GDP tends not to vary a lot in mature economies (i.e. inflation tends to stay roughly the same year to year), so you can do a relatively simple NPV calculation on the GDP to approximate the national wealth.
There is actually. When a country issues bonds you can see some of the future value of the country's output reflected in the interest rate they can get their loans at.
For fun, WhatsApp was acquired for what, $16b? With 400m users? Or $40 per user.
Even if the user base continued to grow to 1/7th of all humans on the planet, that's still $16 per user. Over 5 years that's about $3.2 per user per year. Can they monetize that much?
Their fee is $1/year with the first year free. So assuming a billion people use it, it would take 17 years to get their money back in gross revenue terms. Who knows how long in net revenue.
FB has a little over a billion users, and makes about $6 per user per year in gross revenue with tons of advertising.
Mark Zuckerberg made the decision of WhatsApp deal. In this planet he probably has the best visibility on revenue opportunities of mobile social networks.
Facebook market cap is around 190 billion as of writing, and they have +1B monthly actives. WhatsApp had around 400M monthly actives when the deal was announced. If Facebook can implement ad model to WhatsApp as succesfully as it has implemented it to Facebook mobile app, it is totally possible that WhatsApp $19B deal was fairly valued. Maybe a bit overvalued as a defensive move, but not out of proportion.
I think that both WhatsApp and Facebook are significantly overvalued, but some very smart people not only disagree with me, but also put their money where their mouth is.
Worldwide commercial launch revenue in 2012 was $6.5 billion. Growing, but unlikely to explode any time soon. Global advertising spending worldwide was $509 billion. The valuations make total sense in the context of those figures.
Until there is something useful in space other than satellites, market value for space companies won't be that high.
Well that one word also applies to valuation as well, exploding is something an App doesn't need to worry about. The failure opportunities for Space X are much more crippling and public in scope. They are operating in a very risky technology area and it may be that its hard to get investors to just throw money at it.
It may. Given that claims of cheap access to space have been around since the 60s, however, people are understandably cautious about this one. Everyone talks about economically recoverable expendable liquid boosters (planned for Saturn V derivatives, as an upgrade for the Energia Zenit boosters, and so on), but no-one had done it yet, never mind established that it can actually be done cheaply.
In July, SpaceX successfully soft-landed a Falcon 9 first stage in the Atlantic. Now that they've proved they can do it, they're going to try over land next.
So they're already very close to the dream of a liquid booster that you can just land, refuel, and relaunch.
The Soviets were also very close to that dream for some time, without ever getting it economical. The US was kind of doing it with solid boosters for decades, but again the economics were dubious; it would practically have been cheaper to build new ones (and I believe that's the plan for the SLS; the solid boosters won't be recovered).
Don't get me wrong, it'll be great if they manage it, but I don't think it's as easy as people seem to assume.
Advertising is a zero-sum game and is in theory capable of consuming (i.e. wasting) an infinite amount of resources, so it's not really good for comparing with space launches.
It is true that ad spends generally result in diminishing returns, however diminishing returns are far from zero sum.
In industries subject to economies of scale advertising is actually really good for economic efficiency and does not at all waste resources rather causing them to be used more effectively.
Because after the initial period of your customers not knowing about a whole category of products, you're just spending money on getting people come to you instead of to a competitor. It's zero-sum, because what you and your competitors spend on ads mostly cancel out - you're competing for a limited, finite pool of customers.
It's zero sum for the advertisers - for each ad spot, there can only be one ad, so if I win the auction, you lose. Of course, since it's an auction, the winner will be spending increasing amounts of money on it, with no real upside (still the same amount of ads displayed).
It's all very good money for the ad platform/brokers.
Which one has most revenue potential, though? SpaceX makes medium-heavy rockets, and will soon make a super-heavy. This means that their primary competition is the Ariane 5 (especially once they have their super-heavy, which will allow them to compete in the heavy GTO market). Ariane 5 is currently on about 5 launches a year costing 140m euro a shot, and SpaceX plans to undercut it. Let's say they take the whole Ariane 5 market, and also the whole commercial Proton market. That's probably about a billion a year, in a fairly low-profit market.
Of course, they also make some money on NASA contracting and grants, but I don't think anyone has ever managed a huge valuation on being a government contractor.
It's entirely possible that SpaceX will open up whole new fields of space industry, but at this point it's hardly something that most people are going to bet on.
Sorry, should have been clearer; I don't think anyone has ever managed a huge speculative valuation. Lockheed Martin has a normal big-company P/E (~16, about the same as Apple or Microsoft, or half of Google's); their price is justified by earnings. Now, if they had a Facebook-like (88) or Amazon-like (880) P/E, that'd be different.
Keep in mind that much of Facebook's purpose in buying WhatsApp was protection against it becoming the dominant player in social media. Facebook is always needing to protect itself against being overtaken by the Next Big Thing, so their strategy is to buy potential competitors before that happens. WhatsApp had a steep upward velocity, so the price Facebook paid for it was based less on its current worth and more on its trajectory.
I think the two sides of this discussion are battling between current economics vs. ROI for humanity.
WhatsApp adds almost zero because there are many other options to text everybody. So it's just another company that got traction. It could die tomorrow and nobody would worry much. It can be easily replaced. There is no long lasting value (again, due to so many other options and the easiness of creating it from scratch again). Text chatting is a exhausted marketed, in terms of innovation. If WhatsApp is secretly working on hologram technology then it'd be another entirely different matter, but I doubt that's their focus.
SpaceX, on the other hand, is making breakthroughs in engineering and science. What they create will be with us for a long time, can yield multiple patents, can feed into other inventions.. I think it's very difficult to argue that creating technology that allows us to go to other planets has little value. I think it has a lot.
So I think we're substituting the question "where should humanity invest money?" for "which companies are correctly valued". The latter is much easier to answer based on economics. The former, quite difficult to agree on.
It's a side effect of incremental margins on different goods/services. Selling physical things has a lot of overhead, requires lots of big, expensive capital equipment, has a modest profit margin, and has a narrow range of scalability. Selling virtual goods and services has a small overhead, huge scalability range, and potentially enormous profit margins (approaching 100%).
This leads to weirdness as you've described where the fact that a billion people deriving marginal utility from something is far more valuable than a much more "important" market where the utility is much higher but the volume is low. But this isn't a new phenomenon, there's also the situation of movie/tv/music stars related to industry, for example, which we've largely come to accept as normal but is equally bizarre. There are stars who are multi-millionaires despite having sort of sub par work, but because it appeals to such a large market and because scaling and incremental profit can be so high in media it's much easier to get rich. Johnny Knoxville has more annual revenue than lots of small companies working on very hard and interesting problems, that's just the way the economics works out.
What does SpaceX do as a business? Sell a few super expensive products per year. The number of governments and companies that can afford their product will never be large, ever. What does WhatsApp do? It hooks millions of consumers on freemium offerings and sells cheap add-ons to hundreds of thousands a year. Users often use it multiple times a day. WhatsApp sounds like a much better business.
Unfortunately that's not how economics works. Inbuilt into your statement are a couple of biases. Chiefly, that on the basis of total economic value:
glorified messaging app < puts things into orbit and literally does rocket science
...which is not necessarily the case.
Now, we can talk all day about whether EMH is accurate or not and if the investors in these companies have "perfect information" or not, but there would have to be pretty conclusive evidence that there is something other than economic forces impacting investors valuation of these companies.
> glorified messaging app < puts things into orbit and literally does rocket science
This is obviously not true if you count economic value, and obviously true if you count "value" as in something good and useful for humanity. In our economy, the former is a proxy for the latter, but both forms of "value" are getting more and more misaligned nowdays.
hell yeah, a messaging app won't save the human race. If Elon is successful in his endeavor, we won't have to worry about a single planet-event wiping out the human race.
Elon is building a satellite launching company. Nowhere in that endeavor is the technology to permanently move a sufficient number of people to some other planet.
The differences between what SpaceX does today and a self sufficient permanent colony on Mars are far far greater than the difference between what SpaceX does today and and the fireworks I shot off last weekend.
Spacex is definitely not limited to satellites, they are planning to launch people in space and are currently delivering cargo to the space station.
There are plenty of information, some by Spacex, that show how their technology could be used for a permanent settlement on mars.
Their goal:
SpaceX designs, manufactures and launches advanced rockets and spacecraft. The company was founded in 2002 to revolutionize space technology, with the ultimate goal of enabling people to live on other planets.
> Nowhere in that endeavor is the technology to permanently move a sufficient number of people to some other planet.
Nowhere in 1999 Google was the technology to autonomously drive cars, either. Yet, Google's cofounders explained their vision in 1999 to collect and organize the world's information. Vision and leadership is an important part of predicting a company's future, and Elon is very clear about this: The purpose of SpaceX is Mars colonization.
If some sort of event (nuclear war, giant asteroid, whatever) killed everyone on Earth then everyone who lived in a theoretical colony on Mars would die too. Maybe not immediately, but the gulf between our current capabilities and what it would take to build a permanent self sufficient colony on a planet like Mars is absurdly large.
It is possible to build a self sufficient colony on Mars and it is also Elon's stated intention. It is not an easy task and we will have a permanent colony before we have a self sufficient one, if we have a colony at all. 66 years passed between the Wright brothers first powered flight (which lasted only 3 seconds) and landing a man on the moon. That is a huge gulf in technology. Perhaps we will have a self sufficient Mars colony in another 66 years.
In 1999 it was pretty obvious that if Moore's Law held up as expected, you could do all kinds of stuff within a few years.
Until we see rocket fuel doubling in energy every eighteen months, any idea of a Mars mission (let alone colony) paid for with private money is wishful thinking.
That's assuming conventional rocketry all the way.
Have you heard of the phrase "once you're in orbit, you're halfway to anywhere" (Robert Heinlein)?
The delta-v from LEO to mars is only ~4.6 km/s assuming you aerobrake once you're in orbit. Or 3.8 if you're doing aerocapture.
For comparison, it costs ~10 km/s just to get into LEO.
Remember the tyranny of the rocket equation. Saving the rocket fuel required to get into orbit drops the total fuel cost by an absurd proportion.
We already have the tech for being able to do at least an order-of-magnitude drop in price to orbit, if not more. Launch loop, etc. (With a launch loop you need ~120m/s additional to get into LEO, but that's peanuts comparatively.) The biggest issue currently is that it's a lot of money to potentially build. And the political components.
Yeah, it'd be a huge chunk of change to build. But it's potentially worth it.
As crackpot ideas go, the launch loop (or variants thereof), is the one that I am (still) most excited for.
The 'microwave thruster' article posted recently circumvents that problem - no reaction mass necessary. A Mars mission is now supposed to be practical, energywise.
I don't think the people downvoting you realize just how big of a project a self-sufficient off-planet colony is. Nobody really knows how many people it would take to be self-sufficient, but I'm guessing that it's at least 100,000. The total number of people who have been to space, from all countries' space programs over the course of ~60 years or so, is 536, and not one of them has left Earth orbit.
Looks like we need at least 3 orders of magnitude of improvement before we can even start to think about it. If SpaceX's program for reusable rockets succeeds beyond Musk's wildest dreams, we might get like 1 order of magnitude of cost reduction. There's still a hell of a long way to go, and that's if everything works perfectly.
A semi-permanent colony might be doable, but anyone there wouldn't last long without regular resupply from Earth.
Just the difference in energy budget is enough to prove your point. But there are additional issues like radiation exposure to astronauts that make travel to Mars prohibitively difficult even with the biggest rocket imaginable.
Realistically, the only hope we have of seeing astronauts on Mars is if China and the US (or some other pair of countries) gets in a Cold War-style pissing contest.
but look at our personal expense.. how little do we spend on life insurance premium vs. entertainment? That's a reference point for what we would consider as value of protecting a human race wipe out event vs. a messaging app.
Besides the other comments, it seems like a mistake to compare purchase price to investor valuations. Buying control of a company is worth a lot more than buying part of it.
Value here is defined by how much it's worth to one (or more) people. Think of it as a price. It does not represent an objective contribution to humanity.
Is a seat in Orchestra section really worth 3 times more than one in balcony? Hard to tell, but some will pay that difference because they consider it worth it FOR THEM, therefore that's the valuation of that seat.
The reason facebook is worth that much is because its network effects have been realized. The social utility of 1 person on a network is nothing, but with 1 billion it's incredible.
Humans can't perceive exponential effects intuitively and on the scale of SpaceX its almost impossible.
Definitely agree and that was my first thought after reading this headline. I'd say that it's due to delayed gratification/not seeing the forest for the trees.
> Much of the future of communications is in space.
Not obvious. This month Google announced a big trans-pacific underwater internet cable system, for instance. Although it is clear satellites still have a major role in intercontinental communications, it's not clear to me whether this role will prevail in the future.
Yeah, but that's nothing new, and there still isn't much money there. And space colonization is so far in the future it gets discounted down to zero. If SpaceX is mispriced, it's on the high side if you ask me.
Only at first glance. They are valued at 10B$ and they still only launch less than 10 rockets per year. When they reach 100 or 1000 launches, their value will go up with the same ratio or even more.
This is something WhatsApp can't possibly do, as their market can't grow much more, but space is only starting to.
Will Elon maintain a controlling interest? I'd imagine going to Mars won't be very profitable, how does that goal jibe with being a for profit company with large investors?
I predict Elon will sell off pieces of SpaceX to pay for his going to Mars.
SpaceX, as you say, will need to be profitable. It won't invest money into a place where it cannot plausibly break even.
Elon Musk, on the other hand, will be consuming his personal fortune when he goes to Mars.
TLDR: Musk is building the company that can sell him a trip to Mars. In the end, investors will own most of SpaceX, Musk will be a pauper relative to his current wealth but on Mars, and everyone will be happy.
Elon has said he intends to bring the cost down to $500,000 per ticket. His current net worth is $12 billion, before Spacex, Tesla, and SolarCity have even really taken off mass market. Am I missing something here?
"$500,000" is not the cost for a ticket on the first mission, it's the eventual cost in the steady-state.
There are a lot of pieces left that need money dumped into them. Musk seems to be building all the technology pieces needed for a Zubrin "Case For Mars" trip. [1] Not all of those have immediate market needs that SpaceX can justify, such as artificial gravity. (NASA is extremely reluctant to have anything to do with this. Their tune might change if someone else can demonstrate it safely, but for now NASA policy is to only talk about microgravity, not artificial gravity.)
SpaceX needs to stay profitable. That is extremely important, because people need to be able to build plans around the company continuing to exist. It can't have loss-leaders.
However, Musk can be a loss-leader: he can hire SpaceX to (say) research, develop, and build artificial gravity labs. SpaceX would be hard pressed to find a business reason for building those in the intermediate term.
The "Case For Mars" got a ~$30 billion price tag from the same committee that gave the 90-day report a $450 billion price tag. SpaceX has demonstrated the ability to significantly aerospace costs, but even if they cut it by a factor of 6, that's still $5 billion in development costs that a company with a total valuation of $10 billion somehow has to support. (And "selling tickets to Mars" won't give them revenue for at least a decade.)
[1] The rough list of big technologies needed is about 5 elements long: 1. Heavy lift. 2. Methane-burning rockets. 3. In-situ resource production. 4. Artificial gravity. 5. Mars EDL. SpaceX is working directly on #1 and they have a nice research project going on #2. Methane rockets are justifiable by SpaceX because they have (some) practical advantages over LH/LOX rockets.
Good points, though I don't see why artificial gravity makes the list. Not only is it already a solved problem (centrifuges are easy enough to make) but it is also not necessary. People already live in space without the benefits of gravity for longer than the trip to mars would take.
Centrifuges in space are not a solved problem. AFAIK there has been exactly 1 experiment in space with artificial g, at very low levels of g. You want to be able to maneuver and orient your ship even while it is spinning, and you want to study the failure conditions (most plans call for two tethered modules held by cable -- you want to experiment with what happens if that cable under tension breaks).
Also, we just don't know what 3 years of Martian gravity does to a human. It would be good to see just how much better 3/8 g is against 0 g.
That's an interesting question. Part of the answer here is that I suspect that Elon is not driven by money other than as a tool to achieve his goals. In other words, even if he loses control or if profiting from his creations is not his personal goal he still will make a bunch of investors with some probability quite rich as long as they let him move towards his own goal.
In a way for an investor it is very nice to know what makes the founder(s) of their portfolio companies tick because it makes them more predictable.
If the route to Mars for Elon goes through profitability of SpaceX then I would hate to be in the way of his particular brand of steamroller, regardless of whether or not he himself benefits from that in a financial way.
The story so far has been that SpaceX will go public to raise the money to get to Mars. Theoretically it jibes well because there'll have to be a ton of launches to get there and establish a self-sustaining colony.
What hasn't been talked about much (probably because it's a decade or two away and thus quite speculative) has been the economics of colonization. Yes, money can be raised for an expedition perhaps with public/international/crowdfunding assistance, but then what? What profit or economics will drive colonization? Would the chance of establishing their own new country be enough? How do you convince ~100k people to pay 500k each to go there?
> The story so far has been that SpaceX will go public to raise the money to get to Mars
The idea of SpaceX being public makes me very nervous about the future of commercial space (though I really, really want them to succeed). Think back to when NASA lost people (Apollo 1, Challenger, Columbia) - these were seen as huge national tragedies followed by years of public scrutiny and gov't inquiry. But work pushed on, because their funding and momentum to continue with operations was decoupled from these reactions.
Now, imagine the first time SpaceX loses a human. If they are public, that could kill the entire company right there. Stock traders are not rational actors.
Drawing up those insurance contracts is a non-trivial endeavour too. There are specialist space divisions of major insurers who can package up space reinsurance as a nice investment whose returns are uncorrelated with market returns, but they're already in a situation where in years where one launch incident involving a sufficiently expensive satellite payload can wipe out the profits for the whole space insurance industry in a year. They make it back in future years because of the continuing demand for satellite launches. Now imagine there are people on board, the rocket is headed to colonise Mars and the CEO is on board. Not all of that risk to the future of private sector space industry as a whole is insurable.
If the ticket is only $500k, I don't see it being limited to the top 1% richest. Given that you're making a one way trip to another planet, you no longer have need for any of your property including your car and home. If a middle class person making $80k - $150k were to save for 10 - 15 years then sell all their property then they certainly would be able to put together $500k. I know I'd be willing to go if Musk is able to pull this off.
In terms of compensation for the colonists, what are you going to do with money when you're on a dead rock 225 million kilometres from Earth?
Or 1 in a million. Or 1. Its a chancy proposition. Wealthy Americans are a very narrow demographic. Their risk-taking gene may be very correlated. I think you'd get either a lot of them, or almost none.
We live in a strange time when a company that has successfully flown useful cargo into space on their own hardware has a valuation around 50% of the most popular messaging app.
Or to put it another way, we live in a relatively normal time, when a product used by a double digit percentage of every living human on the planet is worth more than a high capital expense gov't contractor.
I love space, I love SpaceX in particular. That doesn't mean I think this valuation is out of whack. Facebook and Whatsapp have literally unprecedented reach. It's easy to hand wave off as 'just a messaging app', or 'just a social network', but we're talking about brands that achieved the global reach of Coca Cola in under 10 years. That's nothing to sneeze at.
Meanwhile, SpaceX is making something roughly as technically difficult as stuff Boeing, Lockheed, General Dynamics are all doing. Should those companies be worth more?
>"We live in a strange time when a company that has successfully flown useful cargo into space on their own hardware has a valuation around 50%"
We continue to live in a strange time where people speak of "deserved" valuations without ever talking about future potential profits, both for space companies and even messaging apps.
Elsewhere in the comments, someone said that SpaceX will will simply "go public" to raise the money for Mars (sidenote: that must be an SV thing, to talk as if "going public" is like going to the ATM). Well, who in the public is going to invest without having some idea of what the business model here is, with a reasonable expectation of profits for the undertaken risk?
Look, I'm fascinated by the work SpaceX is doing too, but I need something more concrete than a bunch of loose ideas ("Mine asteroids! Launch satellites!") before I'd turn over my money. It will probably (hopefully) happen eventually, but until then any valuation is meaningless, high or low.
It's a lot harder to grow a hardware company. Especially if the market for your services is limited, so you need to develop new hardware (like the Falcon Heavy) in order to expand the market.
How is it strange? A service that's used by maybe <.00001% of the human population, compared to a service used by 500 million+ of the poorest population. How can they even compare?
Sigh, in this new world of multiple series I don't think I'll get a chance to invest at all "early" in this company but I would if I could :-). One of those companies that I really like the product. So I continue to wait for their IPO if they decide to go that route.
I think of Spacex being more like the rail roads in the 1800's. Elon is building the infrastructure so that when launch costs do come down, there will be an explosion of off Earth economic activity. And Spacex will be there with the tickets.
Colonizing Mars may be a driver and talking point now, but will be minor in the long run. Asteroid mining, orbital habitats, Moon resorts (with flying domes ala Heinlein), Comet water chasing, it's all open. Mars' role may be huge, it's sooo much easier to get to orbit from Mars than it is from Earth.
> SpaceX has raised $245.5 million in private backing
Looks like SpaceX's total funding is $400-500 million (private + Musk + VCs and excluding income). It's astounding what they've accomplished with such a relatively small amount of money compared to NASA's budget.
I doubt SpaceX would care whether the entity was a corp or an individual, but if you have enough money to invest in SpaceX why are you holding it personally instead of via a holding company, etc?
I don't think small (only a few million dollars) investors can invest in SpaceX. They are not publicly traded, so any investment must be specifically negotiated.
I'm sure WhatsApp is an outlier because I see it brought up all the time when the topic of valuation arises but it still seems like SpaceX should be worth a lot more to me.