Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG) is nearing a $1 billion investment in SpaceX, according to the Wall Street Journal.
Space Exploration Technologies Corp., with Renaissance Man Elon Musk as its CEO, is the talk of Wall Street today as Google’s investment evokes speculation about whether SpaceX will file for an IPO like Tesla Motors Inc (NASDAQ:TSLA) and SolarCity Corp (NASDAQ:SCTY), two other companies Musk either founded or helped to get off the ground.
But before getting caught up in a potential SpaceX IPO, why would GOOGL invest $1 billion in a rocket company? And should shareholders be worried about the GOOGL stock price?
Google’s Motive
Google has a unique problem, one that perhaps only Facebook Inc (NASDAQ:FB) can truly empathize with. Google is the most popular website in the world, (Facebook is the second), and due to the massive scale of FB and GOOGL both companies are now turning to the skies for growth.
Google has been trying for years to give more of the world access to the internet, so that more people will be able to use its services. Ditto for FB, which has ambitions to send solar-powered, internet-beaming drones the size of 747s cruising through the clouds, delivering free internet to millions.
Google has also developed drones, as well as satellites and hot-air balloons to spread the gift of the world-wide web. But rockets may be the most feasible, financially responsible solution for GOOGL, and Musk has an overlapping interest in the area, according to the WSJ:
Mr. Musk last week described a general concept for SpaceX to launch hundreds of satellites into relatively low orbit to deliver Internet access across the globe. Mr. Musk told BusinessWeek the project could cost $10 billion to build and take at least five years, but gave no details about funding or manufacturing plans.
Knowing that, Google’s $1 billion investment in SpaceX isn’t totally harebrained. It is potentially bullish for GOOGL stock if all goes well. But what does it mean for a SpaceX IPO?
Countdown to SpaceX IPO?
Listen, every Wall Street geek and their mother wants to see a SpaceX IPO. They’ve been wistfully talking about it for years. And while a SpaceX IPO sounds — on the surface — far more likely in light of Google’s investment and the projected $10 billion cost of the free-internet project, it probably isn’t.
In June 2014, InvestorPlace Writer & IPO Playbook Editor Tom Taulli concisely squashed the SpaceX IPO rumors swirling around then:
“Musk himself has said he’s not in a rush to execute a SpaceX IPO — in fact, not until the Mars Colonial Transporter is up and running. And there’s no need, either — Musk has access to huge amounts of capital.”
For sake of reference, Musk has said that he doesn’t think we’ll be able to put humans on Mars until the mid 2020s, so that should give you a rough estimate about the best-case SpaceX IPO date.
Plus, as Taulli said, Musk has access to huge amounts of capital in the first place. Personal money, private investors, debt, and even large government subsidies (Musk milked $1.4 billion in incentives from the state of Nevada to build Tesla’s gigafactory there) will all be tapped before SpaceX goes public.
For those too impatient to wait for the colonization of Mars to invest, the only way to buy into SpaceX is to buy GOOGL stock (or GOOG stock). At SpaceX’s reputed $10 billion valuation, Google now owns 10%.
As of this writing John Divine was long shares of GOOG stock and GOOGL stock. He was also long Jan 2016 SCTY $70 calls . You can follow him on Twitter at @divinebizkid.
