Phillip Securities Research has initiated coverage of Space Exploration Technologies Corp. (SpaceX) with a SELL recommendation and a DCF-derived target price of US$75.00, based on a WACC of 10.0% and terminal growth rate of 3.5%. The research highlights significant concerns about the company’s financial trajectory despite its market-leading positions in space launch and satellite connectivity.
Company Overview and Business Performance
SpaceX operates as a diversified space technology company with two primary revenue streams: its dominant launch franchise and rapidly expanding satellite broadband business through Starlink. The company’s connectivity division has emerged as the clear profit engine, generating substantial growth with revenue climbing 50% to US$11.4 billion and achieving an impressive 39% segment operating margin. However, launch services now represent only 22% of FY25 revenue, indicating the company’s strategic shift towards connectivity services.
Financial Challenges and Cash Flow Concerns
Despite strong growth in connectivity, SpaceX faces substantial financial headwinds. The company recorded an operating loss of US$2.6 billion and net loss of US$4.9 billion in FY25, accompanied by negative free cash flow of US$14 billion. Phillip Securities forecasts that SpaceX will continue generating negative free cash flows through at least FY30, with cumulative outflows expected to reach approximately US$90 billion over this period.
AI Ambitions Face Uncertainty
The company’s artificial intelligence initiatives, whilst positioned as a growth story, present mixed prospects. AI revenue reached only US$3.2 billion in FY25 against a segment operating loss of US$6.4 billion. Critically, the AI business relies heavily on compute contracts that are set to expire by the end of 2029, creating uncertainty about future revenue sustainability. Phillip Securities projects group revenue will peak at US$58 billion in FY28 before declining.
Investment Outlook
The research presents a cautious view of SpaceX’s investment prospects, with the SELL recommendation reflecting concerns about the company’s path to profitability despite its technological achievements and market positions. The significant capital requirements and extended timeline to positive cash flow generation appear to weigh heavily on the investment thesis, even as the connectivity business demonstrates strong operational performance.
Frequently Asked Questions
Q: What is Phillip Securities' recommendation and target price for SpaceX?
A: Phillip Securities has initiated coverage with a SELL recommendation and a DCF-derived target price of US$75.00, using a WACC of 10.0% and terminal growth rate of 3.5%.
Q: Which business segment is driving SpaceX's profitability?
A: The connectivity segment is SpaceX's profit engine, with revenue growing 50% to US$11.4 billion and achieving a 39% segment operating margin, whilst launch services now represent only 22% of FY25 revenue.
Q: What are SpaceX's current financial losses?
A: SpaceX recorded an operating loss of US$2.6 billion and net loss of US$4.9 billion in FY25, with negative free cash flow of US$14 billion.
Q: How long will SpaceX remain cash flow negative?
A: Phillip Securities forecasts SpaceX will generate negative free cash flows until at least FY30, with cumulative outflows expected to reach approximately US$90 billion over this period.
Q: What are the prospects for SpaceX's AI business?
A: AI revenue was only US$3.2 billion in FY25 against a US$6.4 billion segment operating loss, with the business dependent on compute contracts expiring by end-2029.
Q: When is SpaceX's revenue expected to peak?
A: Phillip Securities Research forecasts group revenue will peak at US$58 billion in FY28 before declining thereafter.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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