SpaceX is way ahead of competitors with Starlink, but growth is harder heading into IPO

As investors line up to buy SpaceX stock in the largest IPO on record, about the only real business they have to evaluate is Starlink, the company's satellite internet division. It's by far the biggest by revenue, the only piece of the company that's profitable, and it boasts a dominant market position, with consumer broadband customers more than doubling over the past year to 10.3 million, SpaceX says.

Meanwhile, the company's space, and artificial intelligence segments generated a combined $1.4 billion in first-quarter revenue, while their operating losses totaled $3.1 billion in that stretch.

But even for Starlink, there are significant hurdles to expansion, making it harder for prospective investors to determine a reasonable price to pay for shares. SpaceX is still targeting a market cap of $1.77 trillion.

SpaceX is relying on its Starship rockets, the largest ever built or launched, to begin flying and deploying its new V3 satellites to massively expand their Starlink service. The rockets are still being tested and have mostly carried dummy satellites to space so far.

According to its IPO filings, SpaceX has accumulated a deficit of $41.3 billion since it was founded in 2002, and recorded an operating loss of $1.9 billion in the first quarter. The company has spent more than $15 billion developing Starship.

SpaceX CFO Bret Johnsen said during the investor roadshow that "10 million customers can become hundreds of millions of customers around the world in time, because it's so much more efficient to deliver to so many different locations from space than it is terrestrially." Johnsen also said SpaceX plans to bring 5G-equivalent service to consumer devices within two years.

Based on the figures SpaceX is putting out now, average revenue per using is dropping. The number fell to $66 per month in the first quarter from $86 a year earlier. For all of last year, ARPU slid to $81 from $91 in 2024 and $99 in 2023.

Even as the number of subscribers doubled in the first quarter, operating income barely budged, going from $1.03 billion to $1.19 billion.

"Extra customers have not been generating much incremental revenue," said Tim Farrar, president of satellite and telecom industry research firm TMF Associates. That can necessitate price increases, which Starlink rolled out last month, raising the risk of customer churn.

The cost of producing Starlink terminals also remains a challenge for SpaceX as the company scales. Farrar estimates that the devices are typically about three times more expensive to produce than modems for terrestrial internet.

Meanwhile, Starlink is moving into a more competitive space. The company's advantage to-date has been its ability to reach customers in regions that aren't served by traditional internet providers. Starlink has 9,600 satellites in low Earth orbit, serving customers in 164 countries and territories, SpaceX said in its IPO filing.

By contrast, Amazon Leo still doesn't have a satellite internet product on the market, and the company just started sending operational satellites into orbit in April 2025.

But Starlink is now targeting more developed and urban markets, where it has to go up against traditional broadband providers, creating a whole new level of price sensitivity.

"People underestimate the ability of terrestrial competitors to respond with pricing, bundling, and the like," Farrar said, noting that the costs of terminals make it difficult for Starlink despite its ability to offer high-bandwidth services. "Defending existing fiber customers isn't going to be that hard for telcos by cutting prices for existing customers."

A SpaceX spokesperson didn't respond to a request for comment.

American Airlines is the latest airline to ink a deal with Starlink, announcing plans last month to use it for Wi-Fi service on more than 500 of its narrow-body aircraft. United, Southwest Airlines and Alaska Airlines, which merged with Hawaiian Airlines in 2024, have also selected Starlink, while Delta said in March it would use Amazon Leo starting in 2028.

James Ratzer at New Street Research is bullish on Starlink's prospects. His firm initiated coverage of SpaceX with a $165 price target, above the $135 planned IPO price. Ratzer told CNBC via email that a key question for SpaceX with Starlink is whether it can "achieve the most efficient route" to the exponential growth it's promising.

When Starship and the new V3 satellites start working, Ratzer wrote, "capacity explodes," for Starlink. He said the satellites are "10 times more powerful" than what SpaceX is using today, and that Starship plus V3 could make the service very competitive with terrestrial broadband.

Thus, a bet on Starlink is a bet on Starship. And there can always be setbacks when it comes to new rockets. The company's other route to boosting its constellation is through Falcon 9, its current rocket.

"That is a very viable route but would be less efficient and it would take more time for their available capacity to grow," Ratzer said.

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