This is a bit lengthy, but I wanted to explain why I have confidence in my financial analysis of SpaceX.
I believe I have created a crude but justified proforma forensic financial analysis of SpaceX and their Starlink business. It is crude but is at a far more instructive level of detail than most other analysis that I have seen in Bloomberg, Forbes or the Wall Street Journal. I think it is at the right level for useful analysis, conclusions and insights. Most other analysis does not incorporate the impact of reusability at all.
A proforma financial statement is one based on upon certain assumptions and projections. Financial forensics is the specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. The forensics involves dissecting statements, the business and the company for accounting and financial truth.
Corporate Finance Bootcamp is Where I Developed a Skill of at-a-Glance Financial Intuition
Several paragraphs describe the corporate finance Bootcamp part of my work career.
I worked in Corporate Finance at $50+ billion revenue companies for over ten years. It was in healthcare, biotech, finance and semiconductor companies.
I was forced to develop the skill of scanning financial statements, financial reports and
executive strategic planning decks for errors at a glance. The CFO, CEO and the board would be looking at these documents. I was responsible for systems that gathered results from regional or departmental finance. If the wrong numbers went out then people like me would get fired. I could not allow numbers that did not make sense to be passed higher up. No matter what the source of the error was.
I had to look at 50-200 charts and slides of financials and proof them in one to several hours. Then the reports went out to meetings with the CFO, CEO and the board. VPs of Finance, EVPs were buzzing around wanting to get their story and numbers right.
I would support regional and department finance people and determine from a dozen possible inputs areas what was not entered or calculated correctly.
There would be many questions about some wrong numbers. Some typical answers were -“you copied default numbers in on input screen 5 and did not put actuals in” or “you did not trend it correctly”. I was under extreme pressure to give the right answer in minutes. The finance execs were working nights and weekends to hit deadlines.
I am done with describing the crucible that I went through to get some of the skills that I am applying.
SpaceX and Elon Musk
I have run my SpaceX calculations by a guy who closely analyzes Ukrainian and other aerospace firms. He was at GE in corporate finance and Healthcare Finance.
His feedback was that I was assuming the most favorable efficiency for SpaceX. Yes, I am assuming the most favorable efficiency, but I believe this is how SpaceX has sold the funding to their investors.
The cost of satellite development will be coming from admin and research and development overhead. Yes, this is a deduction but it makes sense based upon the evidence of what is public.
The 12 month budget up to Sept 2018 was released publicly for SpaceX funding and financing talks.
They had $2.5 billion in revenue with $270 million in profit but the profit included pre-payment deposits for future launches.
Without deposits, they were at breakeven after admin, R&D etc…
SpaceX did talk about raising $750 million in loans. This would have been a safer financial strategy. But Elon does not play it safe. He created Paypal etc… He knows finance at a high level. Elon knows what the safer moves are.
I have an article on what I believe about Elon’s personality. The song “The Man” is more useful than the 60 minutes interview in understanding Elon.
I think Elon thinks he can get to meaningful risk reduction, higher valuation or even all the way to 800 satellites with $500 million. I have some experience in startups and fundraising. I took a Stanford extension course from a practicing Venture Capitalist. I have spreadsheet models that the Venture capitalists believe is acceptable for a funding pitch.
I think Elon thinks with 3 reuses of the first stage instead of the Sept-2017 to Sept 2018 at most one reuse that he will have more profit in 2019 ($200M-300M per year). Plus he is counting on $160 million to 250 million per crewed launch four times per year starting mid-2019 and his higher value military launches.
I think I am correctly modeling the logic behind his risk-taking and the nature of the gambles he is making. Maybe I am still wrong.
I think I am correct in scoping the size of the risks. I think the risks are reasonable. Getting most of the way to full execution allows for a new fundraising round at a far better valuation.
Hot Structures Gamble
Elon also appears to be making an engineering and technical gamble on x-plane hot structures for his airframe and heat shield for the Super Heavy. This has not officially announced but Elon tweeted about heavy metal and separately about the airframe and heatshield.
I believe Elon is depending on an internal SpaceX Skunkworks team to make the hot structures technology successful. The team was described in a Mars Society presentation.
I do not Think My Analysis is Lining Up at Random
I think the numbers line up because I have derived the correct models. I do not think it is random. I am open to considering possible errors.
Besides the forensic proforma analysis, there was the journalistic detective work to find the relevant information about SpaceX’s finances and business.
By Brian Wang