Starlink's Consumer Business Is Booming. This Business Is Growing Even Faster.

When investors think about Starlink, a satellite dish sitting outside somebody's home probably comes to mind -- hopefully more elegant-looking than satellite TV dishes from the 1990s. That's fair: Bringing internet access to places with limited options is a compelling business.

But Space Exploration Technologies (NASDAQ: SPCX) has another group of customers worth watching, and their spending is growing even faster. Businesses and governments are becoming an increasingly important part of its connectivity segment. For long-term investors, that could give Starlink more ways to keep growing. Let's take a look beneath the subscriber headlines.

Image source: SpaceX.

A growing piece of the pie

Enterprise and government revenue reached approximately $2.13 billion in the third quarter, up 91% from the prior year. That compares to SpaceX's consumer revenue, which grew a still-impressive 57% year over year to roughly $3.12 billion. Together, those businesses make up SpaceX's connectivity segment, where revenue increased approximately 69% to $5.25 billion.

That means enterprise and government customers contributed roughly 41% of connectivity revenue, up from about 36% a year earlier -- again, a growing piece of the pie. The good news for investors is that enterprise and government is already a substantial business, rather than a small opportunity management hopes will eventually matter. In fact, during the third-quarter earnings call, President Gwynne Shotwell said enterprise and government revenue could each eventually surpass consumer connectivity revenue.

Where could near-term growth come from, you ask? Aviation offers one reason for optimism. Starlink had roughly 12,000 aircraft under contract, as noted during its October earnings call, but only about 3,800 were equipped at the end of September. With installations still underway, the gap emphasizes a tantalizing growth opportunity only from customers signed up.

For investors, the appeal is thankfully simple. Starlink can obviously still pursue household subscriptions while also competing for customers whose connectivity requirements are a little more intense than streaming a movie at home. That broadens the opportunity without requiring every new dollar to come from another residential subscriber.

Bigger customers, better profits?

The opportunity could extend beyond faster revenue growth. Commercial customers may offer more attractive margins if their spending more than offsets the equipment and support they require. There isn't great transparency for this, as SpaceX doesn't disclose separate margins for these customers. That said, the broader connectivity business offers encouragement: Its operating margin improved from roughly 38% to 45% year over year.

Management also noted that tariff refunds provided a one-time boost to profitability. Between that benefit and the lack of separate customer margins, we can't really determine how much enterprise and government growth contributed to improving margins. However, if these customers also prove more profitable to serve than traditional consumers, that combination of increasing revenue alongside improving profitability would be compelling. A growing business becomes considerably more appealing when it also keeps more of each revenue dollar.

If enterprise and government customers can help sustain that margin progress, their importance could extend beyond their growing share of sales.

What it means for investors

Starlink's expanding customer base gives SpaceX more ways to grow and diversify. Household subscriptions, commercial customers, and government business mean its future doesn't depend entirely on convincing more traditional consumers to put a dish outside their homes -- even if more elegant-looking than dishes from the past. That matters because Starlink is already central to SpaceX's financial performance. Connectivity generated approximately $2.37 billion of the company's $2.79 billion in third-quarter operating profit -- roughly 85%.

For investors excited about SpaceX's rockets and AI ambitions, Starlink is an expanding, diversifying, and increasingly profitable business that can't be overlooked. A broader customer base and growing profits could give SpaceX a stronger foundation to pursue and help fund other exciting, potentially transformative opportunities. Starlink's consumer business is booming, no doubt. But enterprise and government customers could help build a more diverse and lucrative Starlink business -- and make the larger SpaceX investment thesis more durable and compelling.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.