A recession can hurt almost any business, but some companies are better equipped to handle one than others.
Space Exploration Technologies (NASDAQ: SPCX) has several advantages on that score. Its Starlink satellite broadband business generates recurring revenue, its operations are growing rapidly, and it has substantial financial resources.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
The company’s latest results make the case even stronger. In the third quarter, revenue surged 161% year over year to $14.6 billion, and the company earned $4.4 billion in net income.
Yet investors should not confuse a resilient business with a safe stock. SpaceX’s business could continue to grow during an economic downturn, but its shares could nonetheless fall sharply. The question is whether its future profits will justify the price investors are paying for its stock.
Starlink gives SpaceX a defensive advantage
Starlink is one of SpaceX’s most important assets. It provides internet connectivity to households, businesses, ships, government agencies, and customers in remote areas.
Unlike a company selling luxury goods or other discretionary products, Starlink provides a service that many of its customers rely on every day. Even during a recession, people still need internet access for work, education, and communication.
Its subscription model also provides recurring revenue, giving SpaceX’s financials a degree of predictability. Also, the business is growing rapidly. In the third quarter, connectivity revenue increased 69% year over year to $5.2 billion. Its Starlink subscriber base surged to 13.6 million, up from 7.2 million a year before.
However, there is an important detail investors should not overlook: Starlink’s average monthly revenue per subscriber fell from $83 to $69 over the same period, partly due to its international expansion and lower-priced plans.
This does not necessarily signal trouble. Offering cheaper plans can help Starlink attract more customers and expand into new markets. But it shows why subscriber growth alone is not enough. Investors also need to consider how much revenue and profit each customer generates.
In short, Starlink could help SpaceX weather a downturn, but its long-term success depends on turning subscriber growth into sustainable profits.
