SpaceX has filed a confidential application to go public, seeking to raise up to $75 billion at what has now grown to an estimated valuation of more than $2 trillion. The company, which includes its flagship rocket building and space exploration business, its low-Earth orbit satellite internet operations, artificial intelligence (AI) lab xAI and social media company X (formerly Twitter), is one of the most anticipated initial public offerings (IPO) in history.
But investors can gain exposure to the company before it makes its public debut. Perhaps one of the best ways to buy SpaceX before its IPO is by investing in ecostar(NASDAQ: SATS). The satellite communications company now finds most of its value tied to its future stake in SpaceX, meaning its share price is moving in line with expectations for SpaceX rather than its core business operations.
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Investors may be eager to get into SpaceX ahead of its initial public offering, but they may be better off waiting to take direct ownership of the shares.
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Last September, EchoStar reached a deal with SpaceX to sell some of its wireless spectrum licenses in exchange for $17 billion, half in cash and half in stock. It sold another $2.5 billion in spectrum in November in an all-stock deal. At the time, SpaceX had a valuation of between $400 billion and $800 billion.
It’s unclear exactly how much future EchoStar stock is worth based on a $2 trillion valuation for SpaceX’s initial public offering. This is because the shares were diluted in the merger with xAI. But with the $1 billion valuation used in that deal, EchoStar shares could be worth up to $27.5 billion. Add in the $8.5 billion in cash it will receive once the deal closes, and the company’s $35 billion market cap looks like it’s practically being paid to wait for the deal to close.
In addition to that, EchoStar is also scheduled to sell spectrum worth $23 billion to AT&T. But that is offset by the $24 billion of net debt on its balance sheet at the end of 2025.
But what isn’t reflected in those numbers are the tax obligations EchoStar faces. The administration lowered its tax estimate on spectrum sales from a range of $7 billion to $10 billion to a range of $5 billion to $7 billion last quarter. However, he did not explain why he expects more favorable tax treatment. What’s more, if EchoStar ever wants to realize the profits from its SpaceX shares, it will have to sell shares and incur taxes on the profits, which are already quite substantial. That could add billions more to your tax bill.
So it’s not necessarily a home run as it might seem at first glance, but investors may still be getting a fair deal. Additionally, EchoStar has an operating business worth considering in addition to its future cash and SpaceX capital.
EchoStar reabsorbed Dish Network in early 2024, acquiring its television, wireless, and broadband Internet services, along with its large number of wireless spectrum licenses. But all three services face significant challenges in increasing their operating revenues.
The pay television business ended the year with 7 million subscribers, 780,000 less for the year. That led to 10% in operating income before depreciation and amortization last year.
Meanwhile, the combined wireless and broadband businesses generated an operating loss last year. That could improve with the shift to using AT&T’s network for its Boost Mobile brand and earlier plans to build its own wireless network, but it faces significant competition in the virtual network operator market with minimal differentiation.
Overall, it’s a declining business with worsening operating margins. It provides a minimum value relative to EchoStar’s spectrum assets, which will be converted into cash and SpaceX stock. As such, the stock appears to be trading at a fair value right now. However, investing in it solely for its exposure to SpaceX puts a lot of confidence in EchoStar management to make the most of the cash and stock infusion coming later this year. That makes it a very inefficient way to invest in SpaceX, and most investors will be better off waiting for the next IPO.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
This stock is the best way to buy SpaceX before its IPO, but could it be better to wait? was originally published by The Motley Fool
