SpaceX Just Crushed Wall Street's Q3 Targets -- but a Potential Tesla Merger Is Even Bigger News

Space Exploration Technologies (NASDAQ: SPCX) reported its third-quarter results after the market closed on the Tuesday, and the company's sales and earnings were far better than expected. The company posted non-GAAP (adjusted) earnings per share of $0.45 on sales of $14.58 billion. Meanwhile, the average analyst estimate had called for adjusted earnings per share of $0.13 on revenue of $12.72 billion.

The earnings report crushed Wall Street's targets and sparked a surge in bullish momentum for SpaceX stock. The impressive sales and earnings performance shows that SpaceX is expanding rapidly and profitably. But as strong as the company's third-quarter earnings report was, CEO Elon Musk made some comments during the company's conference call that may be even more significant for shareholders. He implied that there's a real possibility that the company will be merged with Tesla (NASDAQ: TSLA).

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SpaceX's Q3 really was something special

Before diving into Musk's comments about a potential merger between his two biggest companies, it's worth taking a deeper look into what SpaceX accomplished last quarter. Revenue in the quarter surged 161% higher year over year, net income swung to $4.4 billion from a loss of $1.1 billion in the prior-year period, and the business posted operating income of $2.8 billion.

• Sales for the company's Starlink-focused connectivity segment increased 69% year over year to hit $5.25 billion.
• Revenue for the company's superintelligence segment, which houses the company's artificial intelligence businesses, increased roughly 830% year over year to reach $7.56 billion.
• The company's space segment saw revenue increase approximately 6% annually to reach roughly $1.77 billion.
• While some one-time benefits and customer mix tailwinds helped elevate gross margin last quarter, overall demand trends for the business were very strong.

Looking ahead, management said the company expects first-quarter 2027 sales to be between $33 billion and $37 billion. Chief financial officer Bret Johnsen notably provided guidance for Q1 2027 and not the current quarter, which is certainly unusual, but the outlook is strong enough that the market doesn't seem to mind.

Heading into the earnings call, the average analyst estimate was for revenue of roughly $110 billion in 2027. Based on guidance for next year's first quarter and the likelihood that the business will deliver sales growth in each sequential quarter, the company's sales next year are seemingly on track to crush that forecast. Musk says that he expects the company to achieve annual recurring revenue between $500 billion and $1 trillion by the end of next year, which would be an incredibly impressive achievement and heavily suggests that Q4 will be the year's strongest quarter.

Did Musk just basically confirm that a SpaceX-Tesla merger is coming?

During SpaceX's Q3 conference call, Musk gave his first substantive comments suggesting that a merger between SpaceX and Tesla could be on the horizon. Responding to a question about the potential merger, the CEO confirmed that special committees had been formed to explore the possibility and stated that he could not participate in the discussions due to a conflict of interest. In addition to being CEO of both Tesla and SpaceX, Musk is a major shareholder in both companies and has performance-based compensation incentives that could be meaningfully affected by the combination of the businesses.

While Musk can't take part in the committee discussions, he did say that he thought merging the two companies was a good idea and also said "there's a lot to be gained from cooperating on developing super intelligent software, chip design, the Terafab, obviously, robotics, mass to orbit with the Starmind constellation." On the other hand, he also cautioned that a merger of the companies was not a foregone conclusion and said that gaining shareholder approval presents a significant hurdle.

With Musk controlling the large majority of SpaceX's voting shares, this challenge mostly comes down to the Tesla side of the equation. The CEO noted that the combination of the companies would require gaining approval votes equivalent to 50% of the total share count -- not just among those who would vote.

While Musk said that the special committees have not agreed on terms for a potential merger to be put to a vote, it now looks highly likely that a prospective merger will be put before shareholders for a vote in the not-too-distant future. There may be hurdles to getting the deal done, but an eventual merger is increasingly likely.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.