A new Morgan Stanley study suggests that privately-held rocket company SpaceX, founded by billionaire and serial entrepreneur Elon Musk, could reach a value of $120 billion. This valuation would make SpaceX about triple the size of Musk’s electric vehicle company Tesla Inc. (TSLA), and larger than aerospace companies such as Northrop Grumman Corp. (NOC), Lockheed Martin Corp. (LMT) and Raytheon Co. (RTN), who currently have valuations at $64 billion, $112 billion and $56 billion, respectively.

Starlink Project

The report, named "SpaceX, Starlink and Tesla: Moving into Orbit?", outlines the potential for giant profits at SpaceX, and the potential for disruption of the internet industry with SpaceX's planned constellation of nearly 12,000 satellites, called Starlink. Musk’s goal is to surround Earth with high-speed, low-latency and affordable internet access, to replace larger, older and more expensive spacecraft that current reside about 22,236 miles away from Earth. Starlink’s satellites, by contrast, would be about 1,000 miles away from Earth, improving coverage and bandwidth and providing an enhanced connection. The deployment would give SpaceX six times the number of all operational spacecraft in orbit.

In May, SpaceX successfully launched 60 experimental Starlink internet satellites, garnering the company a valuation of $33.3 billion, per CNBC, citing people familiar with recent fundraising rounds.

"This assumes that expanding access to the internet drives broadband penetration from 50% to 75% of the global population, with SpaceX able to capture ~10% of the incremental broadband subscribers," the analysts wrote. Morgan Stanley gives a bull case valuation at $120 billion, assuming that the satellite internet business is able to take a “greater share” of the incremental broadband subscribers. The analysts’ "base" valuation of around $52 billion for SpaceX would still be larger than Tesla’s $43.6 billion value, as shares of the Palo Alto automaker have tumbled near 26% in 2019.

While government documents indicate that Starlink may reach 12,000 satellites by the end of 2027, SpaceX plans to get a robust network up and running within the next couple of years.

Initiative Could Net $30B to $50B Annually

In May, Musk indicated that Starlink could net $30 billion to $50 billion in annual revenue once it is operational if it succeeded in capturing a few percent of the global telecommunications market. SpaceX estimates that the feat that could cost the aerospace company $10 billion or more per year. He also noted that Starlink would have consistent partial coverage with 400 satellites and would be “economically viable” with 1,000 satellites.

"I think within a year and a half, maybe two years — if things go well — SpaceX will probably have more satellites in orbit than all other satellites combined,” he added, as cited by Business Insider.

Another factor not touched upon in the Morgan Stanley report is the possibility of a Starship launch system to drastically reduce the cost of launching Starlink satellites into orbit. Currently, SpaceX is launching thousands of custom-built desk-sizes satellites into space in groups of 60, via hundreds of different Falcon 9 rocket missions, per BI. The new, fully reusable 400-foot-tall launch system, could reduce costs of access to space by 100 to 1,000 times, per Musk. It could also reportedly launch thousands of rockets into space at the same time.

As far as competitors that are in the process of launching a global satellite internet constellation, SpaceX stands up against OneWeb, and Amazon.com Inc.’s (AMZN) Project Kuiper.

Musk has said that SpaceX, now held by a group of private investors, will also ultimately go public, perhaps sooner than most investors think. Given its surging valuation, SpaceX could be the largest unicorn to ever hit the public market.

Morgan Stanley analysts added that investors may be under-appreciating the strategic relationship and synergy potential between SpaceX and Tesla.

What’s Next?

The report included a wide margin of error. If the company completely fails in its Starlink initiative, and remains exclusively a satellite launch business, it could be worth just $5 billion.