SpaceX's second quarterly earnings report since going public showed revenue up 161% year-over-year and a swing to profitability. The contrast lies in the fact that the business driving revenue is not the main source of operating profit, while most capital expenditure flowed to the former.

On the earnings call, Chief Financial Officer Bret Johnsen provided capital expenditure guidance for the next quarter. Revenue, profit and investment fell across different business lines.

Where does the new revenue come from?

After deducting each segment's revenue from the same period last year, the superintelligence business contributed three-quarters of the group's year-over-year incremental revenue. The space business is still growing, but its impact on total increment is small.

SpaceX renamed its original artificial intelligence segment "Superintelligence," or SI. By company classification, more than 90% of SI revenue comes from solutions and infrastructure. This structure shows that revenue includes not only model subscriptions but also cloud services and infrastructure business. The company did not disclose the respective revenue of computing power leasing, models and software, so SI as a whole cannot be described as "selling GPUs."

The company attributed SI growth to new cloud service agreements beginning to contribute revenue, the consolidation of AI coding tool Cursor, and increased adoption of the Grok model among enterprises and consumers. Cursor contributed $608 million in revenue during the consolidation period, but the announcement did not break out the incremental contribution of each business, making it impossible to calculate a strict organic growth rate.

Is the fastest-growing business also the most profitable?

No. Segment operating profit shows that the Link business contributed about 85% of the group's operating profit, while SI's profit is much smaller. The connectivity business also includes satellite internet service Starlink's revenue from consumers, enterprises and governments, so the entire segment's profit cannot be counted as household broadband subscription revenue.

Link business revenue grew 69% year-over-year, and operating profit grew 99% year-over-year. This shows that the already-deployed satellite network is not only accumulating users, but enterprise, aviation and government businesses are also contributing profit.

Link business growth does not rely solely on consumer subscriptions. SpaceX disclosed that enterprise and government revenue grew 91% year-over-year, faster than consumer revenue's 57%, and mentioned momentum from aviation partnerships and government customer demand. Starlink serves individual users, while the Link business also sells communications services to organizational customers, and the sources of these two types of demand are different.

There is also an easily overlooked signal on the consumer side. SpaceX disclosed that Starlink consumer subscribers rose to 13.6 million, up from 12 million in the previous quarter. The growth base of the Link business is still expanding, but the subscriber data only covers the consumer business and does not represent all customers of the segment.

Beyond user scale, Starlink's average monthly revenue per user was $69, recovering from $66 in the previous quarter. Enterprise, aviation and government revenue are also included in the Link business, so consumer subscribers and revenue per user only explain part of the picture and cannot alone be used to infer the profit margin of the entire segment.

From the perspective of segment operating margin, the connectivity business was 45.1% and SI was 5.7%. Both ratios are calculated by dividing segment operating profit by segment revenue and are not net profit margins. They show that the ranking of revenue increments and the ranking of current profitability efficiency are two different things.

SI's operating profit calculated under accounting standards already includes equity incentive expenses related to the Cursor acquisition, amounting to $1.217 billion. The company also published adjusted EBITDA excluding certain items, but it cannot replace operating profit, let alone be directly treated as cash for building data centers.

Third-quarter net profit was $4.404 billion, higher than the group's operating profit of $2.791 billion. The difference comes from interest, non-operating items and taxes. Net profit cannot be directly regarded as the money earned by the main business in the quarter.

The company's announcement listed $1.025 billion in net other non-operating gains and $390 million in income tax benefits, but did not separately list the bitcoin gains within them.

The cumulative net loss for the first three quarters remained $413 million. A single-quarter turnaround does not mean the company has been profitable year to date.

Where did most of the capital expenditure go?

Operating profit reflects the profitability of the business after deducting operating costs, while capital expenditure shows where the company puts its cash. In third-quarter capital expenditure, SI took nearly five-sixths, with single-quarter investment already more than twice its revenue for the quarter.

SpaceX's superintelligence business absorbed 84% of capital expenditure in the third quarter

Capital expenditure is cash spending on purchasing equipment and building infrastructure. It is not an expense on the current income statement and later enters costs through depreciation and other means. It is different in nature from equity incentives related to the Cursor acquisition: capital expenditure requires cash, while equity incentives are compensation expenses.

Bret Johnsen's guidance on the conference call for next-quarter capital expenditure was $35 billion to $40 billion, referring to the total for that quarter, not an addition to the current quarter.

Compared with actual investment this quarter, this guidance is close to double. Management said the investment will be used for computing power and other infrastructure construction, but capital expenditures will not automatically convert into revenue in the same quarter. Whether the new capacity can secure customer contracts will depend on subsequent disclosures.

Is daily operating cash enough to pay the construction bills?

Putting operating cash flow and capital expenditures together shows how far the cash generated from daily operations is from the construction bills. This quarter, operating cash flow covered only about half of capital expenditures, and after subtracting fixed asset purchases from operating cash flow, simplified free cash flow was negative.

The financial report does not separately list operating cash flow for this quarter. The single-quarter operating cash flow in the chart is inferred by subtracting the first-half cumulative figure from the nine-month cumulative figure, and capital expenditures are calculated in the same way. The original cumulative figures are shown in [SpaceX Q3 earnings announcement][Q3] and [SpaceX Q2 10-Q][Q2], respectively, and the resulting total capital expenditures match the segment amount disclosed by the company for Q3. This difference is only the gap between operating cash flow and construction spending under the same basis, and does not mean the company's cash balance necessarily decreased by the same amount during the quarter.

As of the end of Q3, SpaceX held $89.855 billion in cash and marketable securities. This balance shows that the single-quarter cash flow difference cannot be directly interpreted as financing pressure, nor can it replace tracking of investment returns.

This quarter, SpaceX's new revenue mainly came from SI, operating profit mainly came from the connectivity business, and capital expenditures also mainly flowed to SI.

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