A Closer Look at the Astra Space Stock Offering
With special purpose acquisition companies (SPACs) coming out of the woodwork, we’re having a hard time deciding what to cover. In nearly all cases, our “coverage” involves telling our readers what shite SPACs are and pointing out all the red flags, hyped share prices, and lack of adequate information to make an informed investment decision. Occasionally, we’ll find a few diamonds in the rough like Desktop Metal or Butterfly Network, but most SPACs like the EV lot are just pre-revenue hopes and dreams.
One theme that’s been receiving a lot of attention from investors lately is space, or what some call “NewSpace.” Consequently, there are plenty of space startups popping up, some with incredibly interesting technologies such as Finland’s Aurora Propulsion Technologies and their plasma brake and electric sail. With ARK Invest announcing their intent to create a space ETF, the tide has already started lifting all boats. It’s something we touched on in our recent piece on satellite operators. It’s no surprise that following the success of the Virgin Galactic SPAC, others are deciding to follow in those footsteps, like Momentus Stock – A Pure Play on Space Transport. Today, we’re going to talk about another space SPAC – Astra Space – which is merging with Holicity (HOL).
About Astra Space Stock
Founded in 2016, San Francisco startup Astra Space took in a single round of disclosed funding in the form of a $100 million Series C that closed in October 2019 and included participation from Airbus. The ambitious startup plans to design their own rocket and use it to deliver payloads into space at a greater frequency than everyone else and at a lower “dedicated launch price.”
The company emerged from stealth mode in February of last year after spending three years developing their new light-class satellite launcher. The plan was to nail $12 million in prize money for the DARPA Launch Challenge, but they weren’t quite able to pull it off. Just several months ago, the company made it into space for the first time from their launch site in Alaska, and subsequently stated that they can “immediately begin delivering for our customers.” A bit more testing may be in order first, but they’re planning on around $4 million in revenues from contracted launch services in 2021, so things are happening fast. These rockets don’t appear to be reusable, which begs some questions around costs of their launches. We’re just going to assume they have that all sorted out and they’re cost competitive.
How Not To Do Comparables
All you business school professors out there take heed – we’re about to give you some free class material. Well, it’s actually Astra Space that’s giving you this absolute gem of a slide, called “Public Peer Operational Benchmarking.”
You can literally create an entire class around the above charts. The class could be called “How Not to do Comparables,” because what’s presented as information is so useless that it’s actually uncomfortable to look at. (We’re not picking on you Astra Space, nearly all SPACs are guilty of this.)
What they’re trying to accomplish in this series of slides is to convince investors that the shares they’re purchasing are more compelling investments when compared to other alternatives out there. Finance people often call these “comparables,” and they often involve ratios or key metrics like revenue growth. Since most SPACs don’t have revenues yet, they use their best guesses instead. Then, someone decided it was a good idea to start comparing everyone’s best guesses to see who could piss the farthest.
In a recent SPAC we looked at, electric bus company Proterra, the company used their comparables to say, “see how our forward looking estimates, which hold zero water because they’re just estimates, compare to other people’s pie-in-the-sky forward-looking estimates.” At least that made sense because they were trying to show you that their 68% CAGR over the next five years was conservative when compared to everyone else’s triple-digit growth estimates. Then there’s Astra Space which offers up both sides of the coin:
The yellow bar you see above represents the +142.2% CAGR for revenues Astra Space is estimating for 2023-2025 compared to what some other SPACs have estimated like QuantumScape, Luminar, ChargePoint, and (checks notes…) Draft Kings. Here’s what they may be trying to show us:
- Astra Space’s +142.2% CAGR estimate is pretty tame when compared to QuantumScape’s +807.2% CAGR estimate (one is building rockets and the other is building batteries).
- Astra Space’s +142.2% CAGR estimate is pretty impressive when you compare it to what Draft King thinks will happen several years from now (one is building rockets and one is doing sports betting).
- Compared to other space SPACs, Astra Space’s +142.2% CAGR is well above the median, which can either be seen as good because it’s ambitious, or bad because it’s too aggressive.
Then you realize, the whole thing tells us nothing because there’re all made-up numbers.
The comparisons start going downhill from there as the slide then shows revenues for a whole different set of companies for 2020-2022E – like satellite operators. The whole thing rapidly descends into a vortex of meaningless colored bars that are juxtaposed to show us something that’s about as useful as technical analysis. So, let’s move on to the question du jour. Does Astra Space belong in the Nanalyze Disruptive Tech Stock Portfolio?
To Buy or Not to Buy?
We have a simple rule we’ve been applying now for ages as part of the Nanalyze Disruptive Tech Investing Methodology and it seems to work quite well. We don’t invest in companies that are pre-revenue. That also includes any company where their supposed revenues are measured in “hundred-thousands.” We’re only interested in companies with a few years of traction under their belt – at least – just to get through the door, then we move on to look for other red flags. It’s a very simple rule, and Astra Space fails it, though that’s supposed to change very quickly as their forward-looking revenue estimates expect $4 million in revenues for 2021. If they actually hit that number, we’ll probably take another look at the company in early 2022.
As for those of you who have more tolerance for risk, you may still want to wait until the dust settles. Shares are already up nearly +220% on the news, though the deal isn’t expected to close until Q2-2020. This sort of needless hype will keep serious investors on the sidelines, which is where we’ll be hanging out smoking a skunk blunt and watching the rockets take off.
Astra Space won’t be the last space-related SPAC, and most will probably be extremely focused on what success they plan to enjoy as opposed to what they’ve already enjoyed. Given how risky and capital-intensive the space industry is, we’re going to keep our eye on leaders like SpaceX and their ambitions to connect the entire globe to the Internet for dirt cheap. When companies have a lot of traction alongside their grand ambitions, it makes the story a whole lot more credible.
If the Astra Space deal goes through as planned, it’s expected to close in Q2-2021 with a ticker change to ASTR.
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29th August 2021: Astra’s first rocket launch since it the company went public wasn’t exactly the success the company hoped for. An engine failing to fire a second into the launch caused the rocket to hover sideways before attempting to reach orbit. The flight safety crew purposely stalled the engines 2 minutes and 28 seconds into the flight after a piece of the rocket appeared to break off.
Not a good start.