Drill Down Earnings, Ep. 481: Space Exploration Technologies Q3 earnings – ($SPCX) – A Deep Dive with Cory Johnson

Cory Johnson (0:04)

Welcome to Drill Down Earnings. We've got quarterly results out from Tesla. This is the business story behind One Stock and a Move. And I'm going to start that again. Three, two, welcome to Drill Down Earnings. We've got the latest earnings out, second earnings release ever for SpaceX. Elon Musk's giant company that he said he would like to merge with Tesla someday. He actually said that on the conference call. There's all kinds of news, but this is the business story behind One Stock and a Move. We'll look at the stock a little bit, let's look at the company here. I'm Cory Johnson, Chief Market Strategist for Epistrophy Capital Research. We look at the 50 most important companies in technology, and SpaceX is certainly one of those companies. Of course, the company launches rockets. It's also got its connectivity business, which is its Starlink Internet to Consumers satellite business, also airlines and governments, whatever. And their AI business, their SI business, as they're calling it now, Superintelligence, which takes many forms. And importantly, the largest part of the business into their IPO was actually Twitter advertising or X advertising. They lumped that in as an AI revenue source, but things have really changed at SpaceX. We can see it in the numbers. Let's go through that right now.

Q3 earnings just out. Wall Street just likes a beat or a miss. And this was certainly a beat with expectations of 13 billion, massively exceeded $14.6 billion in revenues for the quarter for SpaceX. And $0.37 a share is under the expectation of $0.16. So a profit and much better than Wall Street expected. And all kinds of interesting information with this interesting company. But look, you don't look any further than revenues. Revenues are up 161% on a year over year basis. Because a lot of things were going right for this company, and really their AI business is completely transformed. And as I mentioned, their XSI business, their superintelligence business helped drive this company to a profit of 19%. Even on margin, pretty nice. From a company that had losses in five of and almost six, barely profitable six quarters ago.

They also talked about a backlog of 63 billion dollars in orders, of which 42 billion they expect to recognize within the year. And CapEx, and we're going to get to some charts here in a second, but I want to talk about CapEx, their spending was huge in the quarter.

And they say 16.4 billion dollars alone in CapEx on their AI business or SI business. I'm going to have trouble saying that for lots of reasons. But they've guided to an incredible number, 35 to 40 billion dollars of total CapEx expected in the fourth quarter of this year. Now, they divide their business into three things, SI, connectivity and space. It's called SpaceX, but space is actually the smallest part of their business.

We'll think of connectivity as Starlink. I'm going to call it Starlink. I like to divide their business actually into four businesses, which is to say space, Starlink, advertising revenues, which is Twitter or X, whatever you want to call it, and their SI solutions, which is all of their AI businesses, of which there are three components and they do not break out these components. But renting out their server space, their Grok business, and as well as Cursor, which they acquired for $60 billion during the quarter. So let's break it up. The space business grew at 6% in a year-over-year basis, significantly from the second quarter, but on a year-over-year basis, again, not growing a ton, 6%.

But the data, the changes in their data center business was really what changed their business and drove their growth. The data center business, Rentals, looks like it just drove fantastic growth in this quarter, and indeed a little bit in last quarter. And that was even as the Starlink connectivity business cooled a little bit, still 22% growth is really strong on a sequential basis, but slowing down from what it had been in previous quarters.

But it looks to me like the SI Solutions data center, rental business drove the big boost in revenues. That business alone, SI Solutions, was up 220% on a sequential basis to a huge number, over $7 billion in revenues. They also got a lot of help from their Twitter business, they call that AI, I wouldn't call it AI at all. It's an old school media business. And they told us during the IPO that they were making some big changes to the algorithms, said, don't worry, things are going to get better. I never believed that when somebody says that about anything. But indeed, we saw a big rebound on a sequential basis, 47% growth in the quarter for Twitter advertising revenues, which topped $500 million. That business really went into this. Still, a tiny fraction of what it was when Elon Musk bought the business, but at least doing better than it was last quarter. Now the stock was up in after hours trading up 5%, despite some kind of incredible pronouncements in the quarter, like the likes of which only Elon Musk would ever dare to make, because nobody believes they're going to come true. But since the IPO at $135, the stock's up about 15% since that IPO. Now, when the company went public, some people, certainly me, people were critical that the AI business wasn't really AI at all. That most of the revenues were dependent upon Twitter. But that changed last quarter and really changed this quarter. And their SI business, now SI, no longer Twitter dependent. The super intelligence segment to hating $7.6 billion from $5 billion last quarter. They signed some new cloud deals and they're naming it Play Compute. They've got a lot more computers going to work. 1.7 gigawatts of computing power. And they expect that they could get it to 2.5 as much as 3 gigawatts by the end of the year.