[zevets]

The grift began a while ago - when "startups" like SpaceX started using EBITBDA to claim profitability on starlink. But the depreciation costs of LEO are substantial, and starlink satellites have an empirical MTBF of ~5.5 years.

And at a depreciation rate of 15-20%, that "D" term starts to get pretty expensive, pretty darn quick.

[bryanlarsen]

Starlink claims to be free cash flow positive, with is pretty much the opposite of using EBITDA to claim profitability. It's essentially a depreciation rate of 100%.

There are thousands of companies misusing EBITDA. Pick an example of a public company with open books doing so. Picking a private company with closed books is just weird.

[blackeyeblitzar]

> and starlink satellites have an empirical MTBF of ~5.5 years

Where did you get that data from? As I recall reading they’re meant to last a lot longer but if left alone would fall and burn up within 5 years. Is that what you’re talking about?

[zevets]

Jonathan McDowell, the astronomer and debris tracker:

https://web-cdn.bsky.app/profile/planet4589.bsky.social/post...

They may be _meant_ to last a lot longer, but as you launch a larger constellation, you end up finding more and more edge cases which your original design missed. Even if it's a generous 10yr lifespan - 10% depreciation is pretty brutal, especially if your customers are expecting a certain coverage quality, as then you need more redundant satellites in orbit.

[amarcheschi]

I'm not knowledgeable on this, could you tell me more about what it means about ebitbda used to claim profitability?

[unsnap_biceps]

Presume for the sake of example, a satellite costs 100 million to build and place into orbit and needs to be replaced every 5 years. During the life span of the satellite, it makes 1 million per year, growing 10% per year.

In a more typical accounting system, You would divide the cost of replacement by the lifespan and get that the satellite "costs" 20 million per year, but only earns 1 million the first year, leading to a net loss of 19 million.

With EBITDA, you treat the satellite as a fixed up front cost and then year 1 comes and you made a million dollars! You're in the green! Year 2, you made 1.1 million! Up and to the right we go!

This works great until year 6 when the satellite needs replacement. But with fancy accounting magic, you put the capital costs to replace into a different bucket and can claim that your satellites are money printing machines!

[amarcheschi]

Jesus, it sounds similar to what Intel did a few years ago when they started doing something weird to lead to a lower depreciation expense

[blackeyeblitzar]

EBITDA = Earnings before interest, taxes, depreciation and amortization

Basically, it is a profit like number that tells you something about the core business, but it isn’t just the straight up raw profit number of having more cash than previously when all said and done. The person you’re responding to was claiming that they used this EBITDA number to claim they were profitable, when they really were not since presumably, once you account for those costs that are excluded from EBITDA, they may have not been profitable.

[zevets]

I think it's also important to justify why VCs use EBITDA.

Excluding depreciation makes sense when you are dealing with assets with an unknown highly variable lifespan - e.g. software - some of which lasts decades without being touched, others of which experiences breaking changes on a monthly basis. Similarly, excluding interest on debt makes sense if you're borrowing heavily to feed your sales funnel, but otherwise making very real profits on your sales.

However - none of these are true for some of these "new-wave" startups, which are trying to justify an (internet-based marketing) hype cycle to juice their valuations via the "dumb money".

[amarcheschi]

Ok I got why it didn't make sense to use that metric