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Analyst Read: SpaceX’s Starlink Network

Let’s take a look at SpaceX’s “Better Than Nothing” Starlink network, from my Oct. 29 Daily Read.
(rafapress)
(rafapress)
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Let’s take a look at SpaceX’s “Better Than Nothing” Starlink:

Starlink is SpaceX’s project to launch tens of thousands of lower-orbit satellites to offer high-speed, low-latency internet access to anyone with a ground terminal and view of the sky. SpaceX has launched nearly 900 satellites and has applied for permission to launch 42,000 for global coverage. SpaceX has said the Starlink network will cost about $10 billion or more to build but could earn as much as $30 billion a year, more than 10x their rocket business. 

The company started rolling out private beta tests in the U.S. and Canada in July, and speed tests show download speeds of 30 to 60 megabits per second (Mbps). SpaceX claimed it had reached speeds of over 100 megabits per second and said to expect rates between 50 to 150 Mbps, with the end goal to hit 1 Gbps. SpaceX cautioned beta testers to lower their initial expectations. 

Starlink requires a $499 Starlink kit and will initially cost $99 per month. The average cost of internet per month in the U.S. is $50 for cable or fiber and $100 for satellite. Americans are currently getting average speeds of 135 Mbps to download and 52 Mbps upload through fixed broadband. But at least it has a latency of 20 to 40 milliseconds, much lower than other satellite providers in the triple digits.

Here’s my take on the internet landscape and internet stocks ($VSAT, $VZ, $T, $TMUS, $CMCSA, $CHTR, $ATUS).

SpaceX (and Elon Musk) has willpower and competitive cost advantages in satellite launches to make this a big business for rural markets and will eat other satellite providers’ lunches. So I wouldn’t touch Viasat stock ($VSAT) with a ten-foot pole.

But I don’t believe that Starlink will be able to compete in major cities. The price is higher, and the speeds are slower than urban options, not to mention signal interference. If 5G is for real and can get high broadband speeds everywhere in urban and suburban markets, I predict that 5G will cannibalize broadband internet. If 5G is so fast, why do I need both a cable internet connection and wireless? Why can’t I get an unlimited wireless plan and buy a tethering modem? 

If that’s the case, over a 5-10 year period, pure-play broadband providers like Charter Communications ($CHTR), Comcast ($CMCSA), and Altice ($ATUS), currently trading at 9 to 10x forward EBITDA, might have their businesses eroded by 5G. 

Suppose you want to invest in communications stocks. In that case, it might be better to invest in wireless providers like T-Mobile ($TMUS), Verizon ($VZ), or AT&T ($T), trading 7.7x, 7.0x, and 6.4x forward EBITDA, respectively. T-Mobile would be the wireless growth play, and AT&T is a value, turnaround play. $VZ should be considered a solid dividend stock for those looking for retirement or supplemental income.

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