How to Buy Starlink IPO Stock

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Contributor, Benzinga
August 12, 2021

Space may be the final frontier, but for the longest time, that frontier could only be explored in the fantastical world of science fiction. Now, with the advent of companies such as Virgin Galactic (NYSE: SPCE), the space economy is a very real phenomenon. Currently, it’s a $424 billion industry and set to only get bigger thanks to the possible initial public offering (IPO) of Starlink.

A SpaceX subsidiary, Starlink is a satellite-based internet service provider, delivering high-quality, low-latency performance. Most importantly, SpaceX CEO and Tesla Elon Musk promised to push the Starlink IPO when it is financially viable to do so.

Is Starlink publicly traded? Not yet.

Though anticipation is sky-high for Starlink’s debut, you won’t find this name listed on an official IPO calendar. In a series of tweets, Elon Musk repeatedly expressed his interest in spinning off his SpaceX subsidiary as a publicly-traded entity. But Musk’s main caveat has been cash flow predictability. Therefore, the actual date remains up in the air.

As a subsidiary of a private company, Starlink has not made available to the public its financial details. However, the Federal Communications Commission recently awarded SpaceX a nearly $900 million subsidy for Starlink to support rural broadband access, indicating a truly substantive business.

Additionally, Musk believes Starlink could bring in annual revenue of $30 billion. It’s possible given the financial track record of other internet service providers that Starlink’s valuation could hit over twice the estimated revenue.

Unfortunately, a satcom business is expensive to manage, and there is a real risk of the business running out of cash soon after it offers a wide-sweeping service. This lack of cash flow predictability — as mentioned above — can delay public trading on Starlink stock for some time.

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Even so, the global space economy is diverse. Of the nearly $424 billion generated in 2019, almost $218 billion came from commercial space products and services, while commercial infrastructure and government spending together combined for just over $206 billion. Hence, opportunities abound for Starlink.

Although buying a hot public debut presents “bag-holding risks” — there’s always a chance that the market suddenly sobers up following an extreme bout of speculation — a potential Starlink IPO features compelling external and internal fundamentals. Investors can take solace in the fact that Elon Musk has tweeted several times that he wants to take Starlink public (but continues to show restraint while waiting for improved cash flow.)

On the external front, Bank of America (NYSE: BAC) predicts that by 2030, the space economy will hit $1.4 trillion. Further, as technology improves capacity and drives down costs, this industry could see exponential growth in the decades ahead. Potentially, this might make Starlink stock a future blue chip.

Internally, Starlink’s core business of providing satellite internet constellation services is exceptionally compelling because it fosters low-latency (i.e., low lag time), high bandwidth performance.

Typically, market lessons on how to buy stocks focus on equity units that have a long track record, typically a blue-chip issue. This way, you can learn about the two main analytical methods of assessing a publicly-traded company: the fundamental approach and the technical one.

But what about an IPO? On the fundamental side, you usually don’t have much information to work with, perhaps how much revenue a firm with public ambitions generated in the most recent fiscal year. As for other metrics such as free cash flow, you must rely on analyst estimates that may be inaccurate.

On the technical front, this one’s easy — you don’t know how a debutante will respond. Maybe shares will resonate with retail investors, or maybe not.

Also, unless you’re a well-heeled and well-connected investor, chances are you won’t have access to an IPO at the initial offering price. Usually, IPO underwriters price down their shares relative to what they believe the market will bear. This discount rewards institutional buyers at the expense of retail investors, who pay the market price which often ends up higher than the initial offering.

While risks abound, a compelling debut like a Starlink IPO could command a hefty multiple relative to the launch day’s valuation. Therefore, risk-tolerant investors will want to pay attention.

Step-by-step Guide:

  1. Pick a brokerage.

    Before Starlink is publicly traded, you must determine which broker you prefer to use when the IPO becomes available. Thanks to a combination of burgeoning interest in equity trading, developments in connectivity technologies and old-fashioned capitalism, you have a wealth of platforms to choose from, ranging from mobile trading apps to traditional brokerage services.

    Better yet, most brokerages offer similar incentives such as commission-free trading and educational content as well as access to further growth opportunities. Therefore, your brokerage decision will largely come down to personal factors, such as lifestyle and anticipated platform usage.

    If you’re constantly on the go, you may find that a mobile trading app best suits your needs. On the other end of the spectrum, if you believe you will participate in advanced trading selections, such as foreign and derivative markets, a more robust platform will be necessary.

  2. Decide how many shares you want.

    Once you’ve figured out your favorite broker, you should then plan out basic strategies prior to executing your trades. Among the most basic is figuring out how many shares you want.

    While this step sounds rudimentary, you shouldn’t make this decision in the heat of the moment. When you fire up your trading window, you must assume that you will already be under pressure. Plus, when you’re dealing with public debuts, the pressure is typically much more intense because potentially millions of people will have their eyes on it.

    It’s almost virtually assured that an extremely hot launch like the Starlink IPO will see massive interest. In the chaos, you’re better off preparing ahead of time.

    Now, your desired share count will involve multiple variables, most importantly account size and risk tolerance. Once you’ve established a dollar amount, divide this by the market price of the target stock. Whatever is the whole number is the shares you can purchase.

  3. Choose your order type.

    While stock market transactions are similar to other retail deals — the product, in this case, is equity in a company — the main difference is that asset values always fluctuate. To account for this variance, you must choose a specific order type. In addition, you should familiarize yourself with these key concepts.

    Bid: The bid is the highest price a buyer will offer for a stock. It is always lower than the ask.
    Ask: Conversely, the ask is the lowest price that a seller will accept. It is always higher than the bid.
    Spread: Simply, the spread is the difference between the bid and ask prices. It’s important for two major reasons. First, market makers absorb risk by holding stocks on their books during the stock acquisition and distribution process. As a reward for their troubles, they profit from the bid-ask price gap when they perform their intermediary services. Second, the spread is a de-factor indicator of market liquidity, with narrower spreads reflective of higher liquidity while wider spreads suggest lower liquidity.
    Limit order: Limit orders execute buy or sell transactions only at a predetermined price, affording the investor maximum control and transparency. But the drawback is that you can leave your limit order hanging because no guarantee exists that the stock will reach the predetermined price.
    Market order: Market orders execute at the next available price, meaning that they’re guaranteed to fulfill if you place them during regular session hours. Here, the primary disadvantage is that these orders fulfill at unfavorable terms — buy orders on the ask, sells on the bid.
    Stop-loss order: An automated protective function, a stop-loss order exits you out of your position at either a predetermined price or the next available price, whichever comes first. However, during a gap-down session where a stock opens much lower than the previous session’s close, your stop-loss order can execute at a much lower-than-anticipated price.
    Stop-limit order: Very similar to the protective function of a stop loss, the stop-limit order has the main distinction of executing only at the predetermined price. Like a limit order, stop limits provide maximum control and transparency. Unfortunately, though, you run the risk of hanging your stop-limit order if the target stock never reaches the predetermined price.

  4. Execute your trade. 

    To execute your trade, follow these steps for a market order:

    • Select action type (buy or sell).
    • Enter the shares you want to acquire (or sell).
    • Hit the execute button.

    Limit orders are almost identical, with the key exception that you will input your desired execution price while entering the shares you want to buy or sell.

    Although the decision to deploy a market or limit order rests on personal preference, with a hot debut like the Starlink IPO, you may want to use the former because the price may bounce all over the map on opening day. If you go with a limit order, you could leave it hanging and therefore unfulfilled.

Best Online Stockbrokers

Below is a list of the best brokers to consider.

A Likely Winner Once it’s Revealed

Although betting on IPOs is inherently risky, several factors suggest that a possible Starlink debut will result in a successfully robust capital raise. First and foremost, the underlying satellite internet constellation business is incredibly relevant to our digitalized economy. Second, the space economy is already a multibillion-dollar monster of an industry and will likely only get bigger.

Finally, you can’t ignore that Starlink is a SpaceX subsidiary. And that means that investors will be betting on the target business as well as Elon Musk. Right now, Musk has the golden touch and only the bravest will bet against him.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.