Expect SpaceX's free cash flow to weigh on the stock in the near term, says Evercore's Mark Mahaney

Join us now for more on SpaceX, which Mark Mahaney, Evercore Head of Internet Research, that's jumping it a little bit, maybe. But with Elon, I don't know. Colonizing the universe is plan B, is this or not plan B, but step two. It's amazing, isn't it, Morgan? And I understand the stock goes down and we didn't expect it to trade on numbers or we didn't know what to expect it to trade on when you can't really value it unless you're a big thinker. Well, OK, yeah, and Musk is a big thinker. I think the stock sort of does trade on two sets of numbers. One is how many shares are going to get unlocked later this week? Yeah, you know, like with every other IPO, this isn't too surprising in every major IPO I've tracked over time. I don't know of one that didn't break issue trade below its IPO price. That just is the case. You just have these supply demand dynamics. But the other number that mattered to the market is free cash flow. And revenue came in better than expected. EBITDA came in better than expected. But capex came in hotter than expected. And so across the street, you're probably going to have negative free cash flow revisions. I don't think this is all that similar to what happened to the hyperscalers. I'm talking about Google and Amazon and Microsoft. You know, call it six, 12 months ago when you started to see these really ramp ups, dramatic ramp ups in A.I. revenue. But but the capex and the free cash flow capex was going dramatically higher and free cash flow was going lower. And the same thing's happening here, except the free cash flow losses are going to be greater than what you had with those other companies. So, yeah, it's going to be a show me story. My guess is that they'll probably be able to deliver against expectations. But, you know, for a while, we're going to have this free cash flow pressure on the stock and the stock's going to trade off that and lock up expirations for the near term. And, you know, it could be the near medium term. Like we could be talking three to three to 12 months. You get that kind of pressure from those two factors. Yeah, Adam, I understand people invested a lot of money and the stock, but it's sort of a background noise. I just want to watch and see exactly what what the next couple of years, what this company is able to do. We heard Morgan say he's he said he's going to do things and it's hard to say he's not going to achieve a lot of the things he says he's going to do. Do you think that this could this be different, though, because we're talking about such a, you know, like I said earlier, I mean, we're talking about colonizing the universe eventually. Is it really possible for us to watch this and in our piddly little lifetimes? I hope I hope we can watch it. I think it'd be great for I think a lot of what I think some of these goals are would be dramatically good for humanity. But, you know, moving beyond that, you know, you've got a company here with monopoly, not in a legal sense, but almost in an economic sense in terms of rockets launches in space connectivity. I mean, very strong positions and this the starling business is generating a lot of cash flow for the company. And so, you know, there's it's great to start off with that. Like there's a structural advantage this company has starting off their their lead in space, their lead in connectivity is just dramatic. Now, that'll be whittled away over time. But they've got such a dramatic lead that that'll probably help them. And whether they get to a trillion in revenue by 2030, I don't know. I'm not sure anybody can have that much confidence in it. But it's going to be, you know, they're going to be several hundred billion in revenue and they're going to reach that ARR level, you know, pretty close to the end of this year, that hundred billion level that that's really impressive. I mean, it says something about how large these TAM's are, total adjustable markets are. This company is really well positioned against that. I think you got a couple of these that are going to be trillion revenue generators. I think space space X is going to be one of those. I think Amazon, Google and I think Microsoft are all going to be in that camp probably around 2030 or somewhere in that space, that area, that space. And I think it's just exciting for investors. But picking the spots is really tough. And you want to see you want to get you want to be careful about these free cash flow inflection points. And you need to have free cash flow estimates hold. And right now they're not holding for space X. They're coming down when when free cash flow estimates hold and it can start improving. That's when the stock can really outperform. And also you got to get moved beyond the lockup expirations. And that's Starlink base. That could be it almost reminds me of some of the other hyperscalers where the ones that got penalized are the ones that don't have the cash cows that are funding all the other stuff and wants to do some some of the mundane legacy businesses. Starlink is going to be expensive to build out the system. Right. But they're going to have they're going to be. I don't think everyone realize they might be, you know, on airplanes and providing phone service. But to get to consumers and really compete, they're going to have to build out. I think they said the Xstar system is what they're going to use to do that. I mean, market is the profitable part of the engine. It's the biggest revenue driver. It's the profitable part of what gets in there. It probably will have to be what what funds cash flow at some point. How long do you think before that happens? Because they've got some big competitors they've got to go against there with AT&T, Verizon, T-Mobile. Becky, I like the way you set it up. I mean, there's a structural and a financial advantage that that SpaceX has with Starlink. And, you know, I look at a lot of technology analogies and to me, it's kind of like Google with search, being able to fund Google Cloud growth over a multi-year period in semiconductor manufacturing. And same thing with Microsoft and its software business, being able to fund the initial growth into Azure and and then probably with Amazon, too. Amazon has its own pocket. Like these companies have extremely strong core structural and financial centers that generate the cash flow to fund these other investments. I mean, there's always a balance. You know, for the foreseeable future, you've got sharply negative free cash flow at SpaceX, you know, not just 30, 40 billion this year, but like 100 billion next year. That's a tough thing to work through. But again, once you get once you get some conviction that those numbers can hold and are going to get worse and then you start seeing this backlog, it's got to get much higher than where it is now. But it's still an impressive forty five billion dollar backlog for SpaceX. Once that backlog builds, the revenue need to keep growing at this kind of pace, you will start bringing down that free cash flow mountain or that digging out of that free cash flow hole. And that's what will get the stock to work. Not too dissimilar to what just happened to the hyperscalers over the last year.