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

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We did see that third quarter revenue for SpaceX came in at about $ 14. 58 billion, topping expectations of $ 12. 87 billion. We're seeing a bit of a reaction in the stock. Talk to us about what you're taking away from what you're seeing thus far.

Yeah, I mean, well, the net income number is a lot higher than we thought. And a lot of people went into this print saying, okay, SpaceX has a very high capital expenditure story.

Capital expenditures in the quarter came in at $ 19.

6 billion. which was pretty much in line, 19.59 instead of 19.6. And then you scroll down and you're like net income, $ 4. 4 billion. The estimate was for 1.8. This is their first quarter. Again, they only had two quarters as a public company. They're reporting for the second time, but they are reporting profit basically on an EPS basis, 35 cents a share ahead of the estimates, 15 cents a share. And a lot of people ask me a really simple question. I'm not an accounting expert, by the way, nor am I an analyst.

I'm a reporter.

But capital expenditures, a big bulk of that gets depreciated over a longer time horizon. And that answers, it's purely accounting, how you could have CapEx at that level and still see them massively outperform on their income, with revenues also outperforming on the top line against those different segments that they have, AI connectivity and space.

What about Tesla, SpaceX, the merger, if, when? I guess it's not if, right? It really is when at this point. And I'm wondering, I don't see any headlines regarding that. I'd have to imagine Elon Musk will be asked about it during the call.

I mean, they have issued a press release so far, right? And the press release has the numbers in it. What SpaceX does, very similar to what Tesla does, is they offer retail investors the chance to submit questions in advance of the earnings call. And they dedicate a portion of the earnings call to those retail investors. And how it works is it's a forum, and then registered retail investors get to upvote the questions they're most interested in. By the time I ran to set to talk to you guys, when will SpaceX merge with Tesla was question number two by votes. That happened last quarter as well. But IR, investor relations, did not put that question in front of management.

And sell-side analysts who participate in the call, as is traditional, did not ask. Different to Tesla's last quarterly earnings call, where a brave sell-side analyst just asked Elon outright. And Elon Musk had some prepared remarks about it, saying that, you know, that they, the companies work closer together, but that wasn't the appropriate forum.

For them to discuss it.

So the answer in short is we don't know, but I just wanted to lay out like the state of play, which is the market thing is going to happen imminently. And it's just whether or not it gets put in front of management as a question today through those two mechanisms. Yeah.

And, you know, just kind of building off of that, we know that SpaceX has become the main driver of Elon Musk's wealth since his IPO and now makes up about more than three quarters of his net worth, actually, according to the Bloomberg Billionaires Index. So really helping make him the world's first trillionaire. How do you think about the focus, the split, really, when you're an investor, maybe in SpaceX or Tesla? How do you think about the split in Elon Musk's focus between these companies?

So far, it's not been a concern. You know, if you look at the disclosures, risk disclosures in the annual regulatory filings that both companies put out Elon Musk's centrality to the future of both SpaceX and Tesla has been sort of codified for quite some time. The question does come up from time to time in sort of more ad hoc settings. But then the other thing to remind yourself of, and this was very evident in last quarter's SpaceX earnings call, its first ever earnings call, is that there are at least two but many more very competent executives at SpaceX. Gwynne Shotwell, the president and COO. Brett Johnson, the CFO. They are very hands-on, present. Gwynne Shotwell spent a lot of the time speaking about SpaceX's ambitions in telecommunications, right?

Direct-to-cell connectivity, something that rocked the carriers. If you remember, she said explicitly, we're going to try and take customers from T-Mobile, Verizon, AT & T, and those stocks fell as a result. That was during last quarter's call. And so, you know, Elon Musk lets those operators do their thing.

And he is kind of seen as the sort of brain that drives the bigger picture and the vision.

But, you know, SpaceX AI.

as part of SpaceX now, SpaceX SI, as it's now known, is full of very talented people as well, like on the AI engineering level. So I think that kind of answers it, right?

And I'm happy that you brought that up because, you know, just talking about the pressures that we did see on the telecom stocks, Verizon, T-Mobile, AT & T, more broadly, what is the expectation for SpaceX and its push into just mobile services? Is this something that it's expected that SpaceX should excel at, excel in rather?

Yeah. So the story started with satellite constellations that were for internet, right?

Starlink.

Very simply, you had a ground receiver, a little dish in your home or in your business or on your boat, and it was really amazing, super fast internet. And that was on the business side, the cash cow. And very quickly, the story grew and evolved into ambitions around direct-to-sell. And what has happened in the last quarter, the last 90 days since that last earnings call is SpaceX moved very quickly and very aggressively to buy terrestrial assets and to buy spectrum necessary for them to basically offer themselves as a more complete carrier, offering not just constellation space based internet, but direct to cell services as well, guaranteeing cell coverage, whether you're out in the Rockies or in the wilderness

of California, where I like to go, or you're in a blind spot in Manhattan. And so we're waiting for the continuation of that story to kind of present itself as a business model.

You know, what SpaceX Mobile looks like. And we're not quite there yet.

And obviously, in the earnings statement, the press release, there's nothing about that sort of codified.

I'm going to just step back from the earnings for a moment and talk to you about another story regarding SpaceX and Elon Musk that made news this week on X. He said he wants to give a share of SpaceX to every kid in America next year. He didn't really say how he was going to do it. He suggested maybe like through the Trump account program, but I know that also comes with restrictions on when you can sell.

Have you heard anything at all? We also know that Elon Musk doesn't always, you know, doesn't materialize everything the man says, but yeah, what have you heard?

Well, so this played out on X as well, right? So once we ran our story with the update, which I'm about to give you, then the president of the United States weighed in and said, thank you, this is what Trump accounts was all about. And then there were other people replying to Elon Musk about Trump accounts. But based on a source and some reporting that we did just before that, Elon was meeting with administration officials, others involved in the Trump accounts program for about the last 18 months, you know, in the run up to this behind the scenes.

And the tipping point.

Was when they basically did 70 million auto account setups. And once Musk had seen those 70 million accounts, many of which were auto set up, as I say, he was like, okay, this is the mechanism.

It's the only.

Mechanism in which you could distribute a share to those children. And the math, by the way, like census data, I think there are, between 72 and 73 million eligible children in the United States anyway. So all that was was the Trump Accounts Program basically providing an account for almost every child in America by default. And that got the world's richest person committed. That's my understanding of how that played out.

Yeah, we want to bring George Ferguson into the conversation, and he is Bloomberg Intelligence Global Head of Aerospace Defense and Airline Analysis. So we want to talk to you a bit about SpaceX. That's what we've been talking to Ed a lot about. Right now we see shares that are higher. Tell us kind of what you're taking away from these numbers.

Yeah, so I think what stood out was a couple of things. There was more profitability that flowed through both the connectivity business and the AI business than we originally expected. One of the things that sort of came out to me was that it looks like there are some decent economies of scale inside Starlink. So it looks like they grew revenues pretty well. And we didn't see sort of that, you know, a similar increase in the cost, which is probably no surprise, right? Starlink should have a fair amount of scalability to it. And maybe one of the reasons why you saw them go in and buy more spectrum so it could fix some of the challenges with Starlink for being in buildings and such. So a push, I think,

to enhance the profitability of Starlink, probably because in the near term, that's going to be important to the SpaceX story. It's going to be important to generating cash flow, showing profitability. But again, I think we saw both in Starlink and in the AI business, we saw better profitability than we expected.

When you talk about catalysts for this stock, it continues to be an unfolding story, George, but with SpaceX, we've got Morgan Stanley analyst Adam Jonas saying that the Starship rocket's next launch could be a catalyst for SpaceX's valuation. What are your thoughts on that?

Look, I get calls after every Starship launch, right, asking me, was it a good one? Was it a good one? Was it a good one? Look, I think that SpaceX has gone a long way with space launch. And everything they do is very impressive. They talk about it here as well in their 10Q. And the amount of satellite, the size of the satellites they can get up, the increased power of that satellite they can get up, it improves the Starlink business tremendously. I think it's great, right?

But I think that we need to see sort of Starship come more repetitively. I'd like to understand better whether or not they had any problems with the heat shields on the last launch so that we could understand what kind of cadence they can get out of Starship. Again, look, it's amazing what they're doing with launch, but they'll need more of that to get data centers in space. They'll need more launch faster turnarounds to get data centers in space and keep building out the constellation. One quick thing I'd mention before I go back for another question. I think, you know, we saw, I think, 11.1 thousand, so 11,000 plus satellites in orbit. I think last time we saw about 10-ish thousand. So they're building the constellation. Starlink looks

like it's building out. That's good stuff.

Yeah, I mean, I'm also just curious how you're thinking about SpaceX right now. When you think about its launches, you think about the Falcon 9 and how it's really matching up against competitors right now.

So again, Starship is much larger than Falcon 9. And to me, Starship is the more important story on launch for this company. Falcon 9, great rocket. They're using it for some NASA missions and such. The space business actually lost a little bit of money Less money than we expected to lose. It was very nominal. Less money than we expected to lose. They're spending a lot of money in R & D in the space launch business. Again, to me, the future of this business is Starship and not Falcon 9. Falcon 9, I think they got down to a really nice science for usability, but Starship reuses everything and has much more volume so they can replenish the constellation and get data centers in space. To me, that's more important to the story than Falcon 9.

So I want to bring Ed Ludlow, the host of Bloomberg Tech, back into this conversation. To your mind, Ed, what is the next big catalyst for SpaceX? We were talking a minute ago with George about Starship and the Starship launch being that catalyst.

Yeah, I've said on this program so many years now, Elon Musk's great skill is with the investor base is keeping them looking to the horizon, to the next thing. You know, George explained very clearly that all of these future business lines are predicated on the success of Starship. You know, orbital data centers do not happen without Starship.

The scale of the Starlink constellation and future generations where that constellation contributes to a direct-to-sale service, i.e. Starlink Mobile, It doesn't happen without the capacity of Starship.

So that is.

Our ongoing track of progress Starship makes.

They're also on the hook for NASA, right?

But for me, it's just continued consistency and update of when we get the first deployment. of a data center in space. Because again, if you just go back two quarters to the IPO, the prospectus could not have been more.

Clear that all of these future total addressable

Markets, 26.5 trillion of them, that they don't happen without data centers in space and as a step before that Starship being a rapidly reusable and economically viable launch system.

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

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