For most of its lifetime, Space Exploration Technologies (SPCX +0.13%) has been a rocket stock: The first private company to put a rocket in orbit, the first to launch and then land a rocket — then launch it again — and the company that cut the cost of spaceflight by as much as 75%.
These were SpaceX’s claims to fame.
Then came the SpaceX IPO, and with it, the publication of SpaceX’s IPO prospectus. When SpaceX at long last revealed its financial data to the world, it became obvious to investors that SpaceX might be an artificial intelligence company (because SpaceX hopes to make most of its money from xAI). Or SpaceX might be a satellite communications company (because Starlink is SpaceX’s only profitable division).
But the one thing investors can no longer think about SpaceX is that it’s a rocket company.
Image source: The Motley Fool.
Read the prospectus
Or can you? Digging deep into the SpaceX prospectus last week (and skipping past the AI parts, which do not interest me at all), I stumbled upon a surprising revelation:
Yes, the Starlink “Connectivity” business is amazingly profitable for SpaceX, generating $4.4 billion in operating profit last year. Yes, the “Space” (i.e., rockets) business appears to be faltering, flipping from a $21 million profit in 2024 to a $657 million operating loss in 2025.
But the reason why is that SpaceX is subsidizing Connectivity at SpaceX.
And it’s doing this on purpose.
The secret truth about SpaceX’s rockets
Here’s how SpaceX describes this:
For launches of our Starlink satellites, the Company does not recognize any inter-segment revenue, rather those launch costs are capitalized in satellites in Property, plant, and equipment, net. We allocate a significant amount of launch capacity to our Connectivity segment, and expect to allocate a significant amount to our AI segment in the future. Our Space segment revenue only reflects our customer launches and customer activities.
Furthermore:
For launches dedicated to deploying our Starlink satellites, we capitalize the associated costs within our Connectivity segment and depreciate them over time, and we do not recognize revenue for those launches in our Space segment.
What does this mean? A few things, actually.
SpaceX’s Space business is more profitable than you think
For one, it tells us that out of the 170 rocket launches that Space conducted in 2025, of which 122 were launches of Starlink satellites and five were Starship test flights, SpaceX only actually charged anyone for 43 launches. An investor can’t simply divide Space’s $4.4 billion in revenue by 170 launches and conclude that SpaceX is making $26 million per launch. Instead, one must divide $4.4 billion by the only 43 launches for which SpaceX charged anyone anything.
And that results in an average launch price of $102 million.
And Starlink may be less profitable than it appears
SpaceX’s Prospectus also tells us that when launching a Starlink satellite, instead of Space charging Connectivity upfront for that launch, Connectivity counts the launch as part of the cost of building the satellite. Then Connectivity depreciates the satellite (and the launch) over time.
This doesn’t necessarily lower Connectivity’s costs, because the cost is still there. But it does lower Space’s revenue, because Space is getting zero revenue from launches it performs for Connectivity.
Image source: SpaceX.
What this means for investors
Translation: Despite the apparent lack of profits, Space could be an incredibly profitable business for SpaceX if SpaceX allowed it. If Space were to charge $102 million per launch, times 170 launches a year, it would be raking in $17.3 billion in revenue annually — instead of just $4.4 billion.
This would almost certainly turn Space profitable.
But what about Connectivity — the apparent powerhouse providing all of SpaceX’s profits? In the short term, absorbing launch costs into the construction cost of Starlink satellites boosts profitability. This is because the launch cost isn’t recognized and subtracted from profit immediately, but instead spread out and depreciated over each Starlink satellite’s five-year lifespan.
So what’s the upshot? Does this mean SpaceX’s Connectivity profits are “fake?”
No.
Not fake, exactly, but rather front-loaded. As Starlink satellites are depreciated over time, they’ll weigh more and more on the Connectivity division’s profitability. If you’re not just in SpaceX stock for the momentum trading, but plan to hold it as a long-term investment, this is something you’ll want to keep in mind.
I’d also point out that SpaceX’s approach makes sense from a “telecom stock” perspective. Rival telcos such as Verizon, AT&T, and Comcast also build long-lived assets that both generate revenue and depreciate over time. (In their case, it’s just fiber and cable wires instead of satellites for SpaceX.)
These terrestrial telcos still manage to earn operating profit margins of 15% (AT&T) to 23% (Verizon), according to data from S&P Global Market Intelligence. SpaceX may not be able to maintain its own 38.6% operating margin at Connectivity, but it might still do as well as or even better than its rivals.
We’ll need to keep close track of the numbers, though, to see how this works out over time — because as it turns out, the most important favor SpaceX’s launch business does for Starlink isn’t just launching satellites.
It’s postponing the bill.
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