Veteran British economist Andrew Smithers once quipped that “stockbroker economics” rested on two principles – all news is good and the stock market is always cheap.
Elon Musk’s much-hyped SpaceX may have inspired a third: the more exciting the story, the further into the future analysts are prepared to look, and the wilder the numbers become.
The investment banks that underwrote SpaceX’s flotation are – surprise, surprise – unanimous in recommending the shares, which have now fallen below the $150 (€131.11) mark where they began trading.
Citi values them at $200, Goldman Sachs at $205, JP Morgan at $225, Deutsche Bank at $255 and Morgan Stanley at $300. Raymond James, another member of the underwriting syndicate, goes further, arguing they are worth $800 – almost six times the IPO price.
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By the way, that’s the firm’s base scenario; the bull case has shares topping $1,000.
So everyone is bullish, but the bulls can’t quite decide if SpaceX is worth about $2.5 trillion or more than $10 trillion.
Analyst rhetoric is similarly expansive, with Deutsche Bank describing SpaceX as “the apex of civilisational ambition, oftentimes expressed in steel and fire, bending the arc of history to make humans multiplanetary”.
Behind the grand vision lie forecasts that are, well, ambitious.
Raymond James forecasts revenue increasing more than fortyfold, from $18.7 billion last year to over $837 billion by 2031. Earnings are expected to reach $696 billion, up somewhat from the $4.9 billion loss reported last year.
Raymond James may look like an outlier, but Morgan Stanley’s Adam Jonas demonstrates that the issue is broader than one adventurous price target.
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Goldman Sachs is actually more optimistic than Jonas about SpaceX’s near-term financial performance, forecasting stronger profits and earlier positive free cash flow. The difference is that Jonas, best known for his futuristic Tesla forecasts, is looking much further out, saying revenues will hit $3.3 trillion by 2040.
Yes, $3.3 trillion. And yes, 2040.
Indeed, he is admirably specific as to how much of that will come from Starlink, forecasting revenue of $687.7 billion in 2040. The extra decimal place is impressive, displaying a level of precision that exceeds our ability to know what the satellite internet market will look like 14 years from now.
The only safe prediction may be that, by 2040, investors will look back at these forecasts either as a triumph of imagination or as a reminder of a particularly enthusiastic moment in markets.
