Elon Musk just loves to mess with Texas.
Brownsville, Texas, circa 1850. Source:
Fresh from the successful completion of Grasshopper testing in
McGregor, Tex., and barely moved into new digs at "Spaceport
America" in New Mexico, Elon Musk's SpaceX is getting ready
to move again. Space launch rivals
) may prefer to run their rocket launches out of Florida and
California -- but Elon is heading back to Texas.
In an announcement made jointly with Texas governor Rick Perry
earlier this month,
that it will soon set up shop on the Gulf Coast in Brownsville,
Tex., opening "the world's first commercial launch complex
designed specifically for orbital missions." In exchange for
$15.3 million in financial support, SpaceX will make Brownsville
its new home, pumping a projected $85 million into the local
economy, and creating as many as 500 new jobs at the
That may not be all the benefits that Texas reaps from this
deal, either. According to the Houston Chronicle, "a spin-off
effect" could create additional jobs, and tax revenues, for the
local economy -- in everything from construction to suppliers to
tourism. Elon Musk has even publicly mused that it would be
logical to shift manufacturing of its rockets to a location near
Whether or not that happens, Brownsville Economic Development
Council spokesman Gilberto Salinas has high hopes that "SpaceX
will serve as a magnet [drawing] young, innovative and smart
people to the area." For the community of 180,000, where more
than one third of residents live below the poverty line, this
would be a big, and great, change indeed. But what does SpaceX
get out of it (aside from the $15.3 million, of course)?
Why mess with Texas?
Texas has obvious attractions for businesses in general -- and
for space businesses like SpaceX in particular. The lack of
personal and corporate income taxes are nice. More important for
SpaceX, though, is probably Brownsville's location close to the
equator (located right on the border with Mexico, it's about as
south as you can go and still remain within the continental
United States), and it's sitting conveniently next to a big body
of water to drop fuel tanks into.
SpaceX Falcon 9 launch -- is this the Brownsville of tomorrow?
For a company that plans to conduct as many as 12 unmanned
rocket launches a year out of Brownsville, that's a key argument
in favor of SpaceX investing in Brownsville.
What it means for investors
Clearly, Brownsville and SpaceX are a match made in heaven. They
go together like chocolate and peanut butter, and both parties
are likely to get a lot out of this relationship. Looked at from
an investor perspective, however, it's still tough to see how
can form a mutually beneficial relationship with SpaceX.
To date, of the three companies that Elon Musk either founded,
or is still running -- SpaceX,
-- SpaceX is the only one that has not yet "
." It's also, probably not coincidentally, the only one that's
currently profitable. According to published reports, SpaceX has
generated more than $4 billion in revenues over its lifetime, and
has contracts for an additional $5 billion worth of work "in
positive and GAAP profitable
, the company is valued by most analysts in excess of $2.4
And no, you can't invest in it.
That doesn't mean that investors should just ignore SpaceX,
though. The upstart company has the potential to
upend the business models
at Boeing and Lockheed Martin by
underpricing the space launches they run
out of their United Launch Alliance joint venture. Profitable,
holding a virtual monopoly over the market for
government-sponsored space launches, and owning a good chunk of
the private commercial space market as well, Boeing and Lockheed
Martin both sit squarely
in SpaceX's crosshairs
. And no wonder.
Facing minimal competition for government space launches,
Boeing and Lockheed Martin are currently
NASA's top two private contractors
. (And this is in addition to the companies' even bigger
commercial space launch business). Boeing depends on NASA
contracts for $1.84 billion a year -- more than 2% of its revenue
stream. Smaller Lockheed Martin gets less money from NASA, but
its smaller revenue haul means that government satellite launches
make up nearly 4% of its business. And this business is extremely
How do we know this? Boeing doesn't break out profitability
for its space business, but Lockheed Martin does. Last year,
space revenues returned a 12.8% operating profit margin for
Lockheed, meaning this division is 15% more profitable than the
company's other divisions, on average. So every dollar's worth of
business Lockheed Martin loses to SpaceX, will hurt Lockheed
Martin shareholders significantly more than, say, a dollar's
worth of revenue lost to some other competitor.
That's reason enough for investors to keep a close eye on
SpaceX's comings and goings.
Leaked: Apple's next smart device (warning, it may
Apple recently recruited a secret-development "dream team" to
guarantee its newest smart device was kept hidden from the
public for as long as possible. But the secret is out, and some
early viewers are claiming its everyday impact could trump the
the iPad. In fact, ABI Research predicts 485 million
of this type of device will be sold per year. But one small
company makes Apple's gadget possible. And its stock
price has nearly unlimited room to run for early in-the-know
investors. To be one of them, and see Apple's newest smart
SpaceX is the stock investors really want to own. But for now, we
have to wait. Source:
SpaceX Has Great News for Texas -- But for Boeing
and Lockheed Martin, Not So Much
originally appeared on Fool.com.
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