Analysis

You Won’t Believe How Much the Pentagon Is Paying This Billionaire’s Space Company

The Pentagon planned to spend $900 million in 10 years on satellite services. It’s already spending at two to three times that rate.

Elon Musk’s Starshield business is taking off like a rocket.

Not to be confused with Starlink (SpaceX’s satellite internet system for civilian applications), Starshield is a militarized offshoot of the famous satellite network. It’s designed to provide the military and government with “high-assurance cryptographic capability” and Earth observation services (spy satellites) as well as carry unspecified “hosted payloads.” Only a handful of dedicated Starshield satellites are thought to have launched under a National Reconnaissance Office program, but don’t be fooled into thinking this program is small. SpaceX seems to be piggybacking at least some of its Starshield work atop Starlink civilian satellites.

Last year, the U.S. Space Force launched a trial run of Starshield, awarding SpaceX a $70 million contract to provide secure communications services. Rumors, however, have since emerged that the Pentagon’s patronage of Starlink and Starshield may already be much bigger than initially thought.

And we got our latest evidence of this last week.

Image source: Getty Images.

$900 million for Starlink

As SpaceNews reports, the Pentagon plans to launch at least 100 dedicated Starshield satellites through 2029, under a program dubbed (what else?) “Satcom 2029.” Beyond just the satellites themselves, the Pentagon is also spending heavily on purchases of communications services from SpaceX.

How “heavily,” you ask?

Citing a 2023 Space Systems Command memo, SpaceNews notes that the Defense Information Systems Agency has a $900 million, 10-year indefinite delivery, indefinite quantity (IDIQ) contract in place to purchase satellite communications services for the military from a list of 20 providers, on which list SpaceX figures prominently. But “by this time next year” (i.e., less than two years into the 10-year contract), the Pentagon expects to have already spent $500 million of that authorized sum.

Space Force Commercial Satellite Communications Office Chief Clare Hopper describes military demand for space communications services as “off the charts,” and predicts the IDIQ contract will need to be expanded “into the billions” of dollars to meet demand.

Pentagon space math

Let’s break those numbers down. In two years, Space Force thinks the military will buy $500 million worth of satellite communications services. That’s $250 million a year, growing at “off-the-charts” rates into the “billions,” and primarily from SpaceX, although there are other providers.

At a minimum, this implies that Starlink and Starshield — both owned by SpaceX — already account for about 4% of the subsidiaries’ total estimated revenue of $6.6 billion for this year. It also implies that SpaceX will collect at least $2 billion or $3 billion in total revenue for satellite communications services over the next 10 years — two or even three times more than previously thought.

And with 100 more dedicated Starshield satellites going up over the next five years, it’s logical to think the spending might grow even faster than that.

What it means for investors

All of this, I think, bodes well for the upcoming Starlink IPO. Although Elon Musk hasn’t yet set a date for this event, he has promised that he will IPO Starlink once the subsidiary’s “revenue is reasonably predictable.” Furthermore, he predicted that this would happen within “a few years” — and he made this prediction three years ago.

Adding to the good news, Musk revealed in November that Starlink has already reached positive cash flow — and as revenues soar to $6.6 billion and beyond, free cash flow levels could be mind-blowing.

All of which is to say, all the pieces now seem to be in place for a successful IPO of Starlink, and in theory at least, Musk could announce this will happen at any time. It remains to be seen what kind of valuation Musk will seek for the subsidiary (at last report, all of SpaceX was valued at $200 billion), and whether this valuation will be attractive for individual investors.

But as soon as I have the data on that, you’ll be the first to know.

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