- 2 days ago
Category
🗞
NewsTranscript
00:00On the SpaceX Mega IPO with our panel of guests, Michael Monaghan is Partner and Portfolio Manager
00:05of Founder ETS, which operates actively managed investment funds focused exclusively on founder-led
00:12companies. Andrew Manitala, Partner and CIO of True North Advisors, has a long-term private
00:18market exposure to SpaceX. Michael, let's start with you. You're the bull here. We have
00:23an ultra-rich valuation, yet we're expecting it to pop. I mean, why the optimism for you?
00:31Look, it's got three or four businesses embedded inside of it that each could be a Fortune 50
00:36to 100 company standing on a loan. And I don't think I've ever seen a company growing this
00:42fast. For example, $18 billion in revenue ending last year, and they added $27 billion during
00:49the two- or three-week roadshow. I can't think of a single company in history that grew their
00:54revenues two and a half times in the middle of the roadshow. Lots of, you know, long-term
01:00opportunities between Starlink, the growth in AI and data, and a very big defense business.
01:08And of course, the valuation assumes perfection. Ruv, you're the opposite. You're a seller,
01:14not a buyer. You say it is a one-way ticket to Mars.
01:18Well, there's an ancient Chinese proverb that basically says, those who have knowledge don't
01:25try to predict, and those who predict don't have knowledge. So we, our first crunch in
01:32SpaceX was at a valuation of $33 billion. And so for us, we've already experienced a 50,
01:3860x in our position. And so for us, in a private strategy, we just don't want to have public
01:44exposure. So it's not so much that I'm bearish, but it's not a great fit for us. And then it
01:51is
01:51price to perfection. Because to Michael's point, if you look at the metrics implied in the valuation,
01:59your satellite business has to grow by 10x over the next 10 years. Your launch business basically
02:05assumes that you would be having, you know, not lunar colonies, but flights to moon pretty frequently.
02:13And then the AI business is really interesting, because it's an amalgamation of XAI and Twitter,
02:21company formerly known as Twitter together. And you would expect that to be up 200x in the next 10
02:29years. So I think Elon Musk has done some great things. This is an inspirational, it's almost an
02:35event, like you said, in terms of the popcorn eating, etc. But it is price to perfection.
02:43But Dhruv, I mean, you can't use traditional valuation measures for a company that's looking
02:51in the future. These are, you know, models which have yet to be proven, yes, but they also hold a
02:57lot of potential styling, case in point. 100%. And I agree with that. I think it's not so much. So
03:04that's why I'm not talking about price to earnings or price to revenue. Let's just put that aside.
03:09I'm just talking about, look, if you expect the AI business for SpaceX to grow 100x in 10 years,
03:19and they can compete with Anthropic and OpenAI effectively, right now I'd put them at number three
03:25in that business. And they can keep up with the capex of 25 to 30 billion just to keep up
03:31from a cash flow
03:32perspective, then yes, it's going to do all of those things and more. So from our standpoint,
03:38it's not that we are bearish. In fact, I would expect it to be up meaningfully, you know, in the
03:45short term. But it's just, I think, we don't want to predict. We've made our, I guess, returns. And
03:53from our standpoint, we are more looking to exit at some point over the next year, I would say,
03:58rather than just hold on to it. Right. Well, Michael, Drew said he's not buying into
04:05SpaceX's AI story. Let's take a look at the numbers. Three billion revenue,
04:09six billion operating laws. It burns two and a half billion every single quarter. It does look like
04:15it is a risky business. What do you see in that? So we're buying it. And we remember that
04:22you look forward in valuing securities, especially gross securities,
04:26looking forward. Remember, they just added 27 billion in revenue in the last two weeks. So
04:33they'll likely be cash flow and revenue positive for this year. And from a valuation perspective,
04:39we don't think it's a stretch to some of the the naysayers have said you can easily get prior to
04:46Goldman and Morgan Stanley releasing their estimates. We were easily at 200 billion of total revenue for
04:522029, 2030, depending on how conservative you want to be. It looks like we think we can get to 50
04:58billion in Starlink. We could get to 50 billion in defense. Remember, Elon has direct access to meet
05:05some of the United States Defense Department's most important goals. So we think 50 billion in revenue
05:10on the defense side isn't a stretch. And then the biggest factor for us that we were unsure of
05:15was data and AI. Well, with the 20 again, the 27 billion sign between Anthropic and Google,
05:23we were at 100 billion for 2029, 2030 revenues. And now that looks conservative. So at 200 billion of
05:30revenue, it's coming at 10 times sales. Talking to my peers, institutional money managers, most of them
05:36are using the Morgan Stanley numbers at 330 billion. So you're maybe coming at five or six times sales
05:41for a company that should eventually be able to deliver tokens at the lowest possible price
05:48and solve the energy cooling and siting issues into artificial intelligence and creating work
05:56through artificial intelligence. So we think given it's going to be the low cost provider in artificial
06:00intelligence and a sovereign AI closed network, we're very bullish on the stock. We'll be buying it on
06:07on the open tomorrow. And we actually hope that folks are a little sanguine going into the open
06:12because it'll give us time to buy more stock. The thing is, Michael, we're talking about
06:18an environment where people are already questioning the AI CapEx play and questioning whether or not we
06:25have a bubble on the brink of bursting. Shouldn't you perhaps hold back, see how it all pans out before
06:34jumping in? So we've done a lot of work on this. I'd say I've probably done 200 hours of work
06:41between
06:42SpaceX and looking at about six to seven major evolutionary technology changes. So we've not
06:48only looked at SpaceX and the opportunities at SpaceX, I've gone back and looked at changes like
06:53steam engine, electricity, internet, PC, mobile, and we've looked at what those adoption curves have
07:01been like and the growth that come from them. And certainly in any of these adoptions of these
07:06new technologies, you have high CapEx, but three, four, five years later, you have the productivity
07:13gains. And it ties into our thesis why we invest in founder led companies. They have the vision to see
07:19where it's going and they execute against it. And I don't think anyone has ever had a bigger vision
07:24than Elon and had the grit to bring those visions to reality. That's what we're banking on. And we
07:31don't think it's a stretch to get there by 2029, 2030 and really start putting up some high revenue
07:36growth. Well, Dhruv, you say that, you know, the reason why you're not really buying into space access
07:43AI story is that because it's lagging behind the likes of OpenAI and Anthropic, it cannot win. It can,
07:49right? I mean, as long as it takes a different path, maybe not software, but also perhaps a data
07:54first ecosystem, that it can chart the way forward, correct? Yeah, the compute infrastructure is the
08:02biggest story, because I think if it can put up sort of data and bypass the whole sort of energy
08:10story
08:11in the US, then yes, absolutely, there is something there. But if you look at the revenue of 3.2
08:17billion
08:17that you said, I think almost all of that, except for maybe 500,000 was coming from the advertising
08:24revenue from Twitter or from X as opposed to XAI. There has been contracts signed with Alphabet of
08:33about 15 billion a year in terms of just providing compute. But it is a little ironic that your biggest
08:41check so far is coming from your biggest competitor. So look, at some point if SpaceX becomes
08:47enough of a threat, there is competition. Look, this assumes, this path for SpaceX assumes there's no
08:54competition. We live in a highly competitive world. There are going to be players where nationally
09:00subsidized launch companies that are not going to let an American company just go and take the entire
09:06market share. So again, it does not imply that SpaceX is not going to be successful. It just means
09:11it's not just a given, as some assume. Michael, how are you looking at the company's profitability?
09:19I mean, some say that Starlink's massive profit will be gobbled up by, you know, its AI investments.
09:30So that certainly hasn't been the case over the last several weeks. Again, Starlink's been highly
09:36profitable. It'll likely be more highly profitable as they're able to get more bandwidth into space at
09:43a lower launch cost. I think we saw orders of, we'll see an order of magnitude change on reducing
09:48launch costs and increasing bandwidth as we move from V2 to V3 satellites and fly on Starship.
09:56That's number one. And then number two, again, I would gently guide folks to the fact that rather
10:03than their AI business be money losing, Elon, again, this founder vision, he saw ahead of everyone
10:11else. He built Colossus 1 and Colossus 2. He executed. He built them faster than any data centers
10:16have ever been built before. He was ahead of the crowd. He had excess compute that he was able to
10:22sell
10:22into the market. And so he's taken a business that the naysayers thought was money losing and has
10:28turned it into money profitable. That $27 billion of revenue, $15 billion from Anthropic and $12 billion
10:35from Google is likely 60, 70% EBITDA margin business. So it's not a story of losing money. It's a
10:44story of
10:44taking compute that he built first through vision, grit and execution and turning it into cash flow.
10:52Dhruv, you're nodding. You're agreeing?
10:55Yeah, I mean, I think there are positives. I mean, I don't think the world is stupid. Like if
11:00no one comes out with a $1.8 trillion IPO, there isn't some truth to that. So it is. I'm
11:06just trying
11:07to frame this in a way that, look, if you assume that 100x on revenue in the next 10 years,
11:14or SpaceX as
11:16a company growing by 30x in the next four years, it seems reasonable, then it's a great investment,
11:22then you should do it. And if you think there are roadblocks to that, if there's going to be a
11:26competitive friction to get there, then you probably shouldn't. So there is truth to it. So
11:33that's kind of part of it. And I think the supply demand story is also not super negative in terms
11:38of just demand for shares over the next year or so. So there are definitely some positive aspects to that.
11:45How about in terms of founder risk? Yes, Elon Musk is a visionary. He is, you know, a leader that's
11:53hard to find some say in terms of just division alone. But there's also founder risk. He holds 80%
12:00of the
12:02voting power right there. And he is a man involved in several enterprises. So how are you assessing
12:08that founder risk, Dhruv? Yeah, I have a problem with that. I think, look, I don't care what kind
12:17of a visionary you are, you do need some checks and balances. So to the extent you have 80%
12:23of
12:24basically the voting rights means no shareholder can never can ever really affect any change if
12:31something goes off track. And so you do see with visionaries, and it's, it's as much of a, you know,
12:38gift as a curse, which is, if they are bought into a certain vision, then they will go, you know,
12:45to the
12:46ends of the earth, so to speak, and to go and and fulfill their vision. So does that mean, you
12:53know, pursuing
12:55more money losing businesses because of just the vision, sometimes a little bit of a rational reality check
13:00also helps. If you look at the case of Alphabet, founder led company, amazing business, but it caught
13:07on and did really well when it got real operating expertise with Eric Schmidt, and now Sundar Pichai
13:12coming in as a CEO and have some professionalization behind the business. So there is a nice balance there
13:17that would be nice to have. I just don't see Musk ever giving it up. So it's a little bit
13:23of an issue
13:23from me personally. Is it an issue for you, Michael? It's absolutely not an issue for us.
13:30The biggest companies have been built by strong willed visionaries, whether it was Steve Jobs at
13:35Apple, Jensen and NVIDIA, and it's going to be Elon at SpaceX. As a shareholder, we have a remedy. If
13:43we
13:43don't like where the company is going, it's a public stock, we can simply sell it. So I think these
13:49board
13:49concerns are overdone. And we would actually point to a contra example. We think that Daria at Uber is
13:56one of the best board hired public company CEOs. But I would posit that if Mr. Kalanak was still
14:03running the company, it'd be worth a trillion dollars. So the board of directors caused the
14:07other shareholders probably to miss out on $900 billion. So I'm not concerned about the best
14:13visionary with the most grit and the best execution costing shareholders money. I would be concerned
14:19about a board making a mistake that could impair my value. So I'm very happy with the structure of the
14:25voting.
14:27Dhruv, do you think this is a stock that's going to be volatile? I mean, it is pretty much a
14:31thin float.
14:32The risk of its spiking is really high.
14:36Yeah, it probably would be. But at the end of the day, if you look at the index inclusion with
14:41Russell and NASDAQ coming up, both coming up within the next month, and NASDAQ being two,
14:46about three times float. So as you go through the lockup process, and probably a year or so down the
14:52road, you would have the S&P inclusion, which has, by some estimates, $10 to $20 trillion of,
14:59you know, assets indexed to it. So inclusion into that is going to provide some potential headwinds.
15:05And if you can, if the insider lockup will expire roughly around the time of S&P 500 inclusion,
15:12or somehow the sales happen around that time, and I think they'll be intentional about this,
15:17you can have, you know, given the thin float, I think it's probably a positive right now,
15:22I'm not a negative.
Comments