SpaceX: A Gem But It Will Not Skyrocket Your Portfolio

| About: SpaceX (SPACE)

Summary

Space is hot at the moment, but there is no possibility to invest in visionary companies directly.

SpaceX will not be publicly traded until it has put people on Mars.

Cost savings hinge on reusability.

SpaceX (Private:SPACE) is one of the companies that is watched by many and I am sure many, including me, would be more than willing to invest in the company. However, there is 1 main reason why SpaceX will not be part of your portfolio now or anytime soon.

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IPO after SpaceX visited mars

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The main reason why SpaceX shares will not be boosting your portfolio any time soon is the fact that Elon Musk is not planning on an IPO for SpaceX until 2023-2025. At that time SpaceX plans to have put the first humans on Mars. The entire project will be costly, but there are enough big parties that are willing to invest in SpaceX.

If a Mars mission would fail, this would be a blow to stock prices. That is why an IPO would take place after a succesful mission or multiple missions. So currently and in the foreseeable future there simply is no reason to assume that an initial public offering is near.

What if…

Having had multiple discussions about SpaceX with friends, family and people from the field of aerospace, one question kept popping up:

What if an IPO happens this year or within 3-5 years?

If an IPO happens, I will be buying SpaceX shares for sure. At the same time there is one thing that you should understand about SpaceX and that is its business model and its vision.

SpaceX aims to decrease launch costs, enabling it to offer lower prices to companies. At the same time the company wants to improve access to space and improve reliability. Reusability accounts for a large percentage of the launch cost savings. Currently SpaceX is still working on optimizing reusability.

Looking at the launches from 2010 until 2016, there have been 28 flights and 1 planned flight in October. Of these 28 flights and 1 planned flight, there were 3 failures or a success rate of 90%. So in terms of reliability SpaceX is not there yet. Over the past 20 years the success rate has been closer to 95%. Hull losses are one reason why you should be happy that SpaceX is not public yet, a hull loss could easily set shares down 10%-20%. This is also what happened to Orbital ATK (NYSE:OA), when its rocket exploded just moments after liftoff in October 2014.

Cost savings for SpaceX hinge on reusability. In order for that to happen the booster stage needs to make a successful landing on a drone ship. For the 8 flights so far in 2016 there have been 3 failures to preserve the booster stage. So the success of cost savings related to reusability this year is 63%.

So although I like SpaceX, I can only conclude that in terms of successful landings which is a condition in order to be able to cut costs the success rate is not desirable at the moment. If SpaceX were publicly traded, it would suffer drops in share prices which would not be beneficial to shareholders or the company itself. Next to not needing additional funds, I think this also is one of the main reasons why the company is not publicly traded.

Conclusion

One thing that is clear is that space is hot at the moment, but it is not possible to acquire shares of visionary companies such as SpaceX or Blue Origin (Private:BORGN). Investors tend to be too 'trigger-happy' when it comes to buying and selling shares on news events, that is one of the reasons for shares of companies such as SpaceX not being traded publicly.

At some point there likely will be an IPO, but that is almost a decade from now. You should ask yourself the question whether space is still as popular in ten years from now and also what competition does. Boeing (NYSE:BA) believes it could put a rocket on Mars, even before SpaceX does.

For now, SpaceX is a wonderful visionary company but investing in it is something you can only dream about.

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Disclosure: I am/we are long BA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.