D-Orbit Stock for Space Logistics and Last-Mile Delivery

Last year, we profiled a publicly traded firm that offers the only pure-play fund for investing in public and private space companies. Seraphim Space Investment Trust (SSIT.L) basically acquired the assets from Seraphim Capital’s Seraphim Space Fund, which is focused on NewSpace. At the time of the IPO in July 2021, SSIT was still in the process of transferring over four companies that were involved in “corporate activity which may have a material impact on the value of those investments.” Well, that’s all finished now, and in December 2021, SSIT finally added ICEYE, which is deploying a smallsat radar constellation, and D-Orbit, a space logistics company that had originally focused on space debris removal

Seraphim Space Investment Trust portfolio.
Seraphim Space Investment Trust portfolio as of Sept 30, 2021. Credit: SSIT

The timing is particularly fortuitous – or not – given that D-Orbit recently announced its intention to merge with a special purpose acquisition company (SPAC) called Breeze Holdings Acquisition Corp. (BREZ) at a valuation of $1.4 billion. SPAC stocks, in general, have been shedding value like a sheep dog stuck in the Deep South during summer. And Space SPACs, in particular, have been especially hard hit in the recent market slide. What makes D-Orbit believe this is the right time to go public? Destiny or desperation or a bit of both?

About D-Orbit Stock

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Founded in 2011, D-Orbit is a European space startup based near Milan, Italy. The company has raised about $25 million in disclosed capital, but the Series B and C rounds led by Seraphim went undisclosed. It’s not like there’s a ton more money on the table with the pending deal involving Breeze Holdings. The transaction is expected to deliver up to $185 million in cash at closing, including $29 million binding convertible debt financing. One thing to watch is whether any institutional investors redeem their shares before the deal is done, as high redemption rates have become the norm in many cases. That would leave even less money for D-Orbit to operate in what is a capital-intensive industry. 

And it’s not like D-Orbit is anywhere close to being self-sufficient. The company generated just $3.4 million in 2021. Of course, that’s all about to change (based on the shiny investor deck), with revenues of more than $450 million by 2024. There’s very little in said investor deck to convince us that the company could possibly deliver on that estimate. At best, D-Orbit has $21.5 million in contracted backlog – and no estimated timeline for completing the work already on the books. Everything else – contracts in negotiation and future pipeline – is a pipedream until the customer has paid the invoice.

Space Logistics and Last-Mile Delivery

D-Orbit originally came on our radar as one of many NewSpace startups trying to build innovative propulsion systems. The company’s name reflects its founding mission – technology to help satellites deorbit before they become just more space junk. Since then, the Italian firm has positioned itself as a logistics space company and satellite services provider. Its flagship platform is the In-Orbit Now (ION) Satellite Carrier, a space vehicle that releases individual satellites into distinct orbits after a rocket drops off its initial payload. It’s the NewSpace version of last-mile delivery.

D-Orbital ION satellite carrier
Credit: D-Orbit

The concept behind ION is that few smallsat customers can afford concierge rocket service, so many spend precious time and fuel to reach their final orbit. It’s like arriving in a big city on the Greyhound bus and then walking the last 10 miles through sketchy neighborhoods to get to your grandmother’s house. In this analogy, D-Orbit’s ION spacecraft is akin to a shuttle service, helping customers reach operational orbit up to 85% faster and 40% cheaper for satellite constellations. The company has successfully completed three ION missions and is currently on its fourth, dubbed Dashing Through the Stars. It has deployed more than 70 payloads, including satellites for geospatial intelligence company Planet Labs (PL).

Use cases for D-Orbital ION.
Credit: D-Orbit

D-Orbit has big plans for ION beyond being a satellite shuttle service. The platform will eventually perform in-orbit services such as delivering fuel or helping decommission a satellite. Some of these additional services, such as acting as a node in a satellite communications network, are calculated into the company’s projected revenues.

ION satellite as a communications node.
Credit: D-Orbit

Another future revenue stream involving ION relies on Aurora, a cloud-based mission control software suite designed to control a single satellite or a complete constellation through a user-friendly, fully customizable control interface. In addition, the company sells various space vehicle components and subsystems, including D3, a specialized motor installed on satellites before launch to remove them from orbit at end-of-life or in case of a major failure. 

Should You Buy D-Orbit Stock?

D-Orbit currently has very little revenue after more than a decade in business. We won’t know the company’s complete financial picture until after the merger is completed. We do know that D-Orbit’s last funding round involved $17 million in debt financing, and the company is taking on more debt financing through the SPAC. It was only able to attract $5.5 million in additional private equity as part of the deal with Breeze, which either reflects the current appetite for SPACs in general or for D-Orbit in particular. 

Another red flag for us: The company is also incorporated as a Public Benefit Corporation (also referred to as a B Corporation). That means rather than focusing solely on profits, it also wants to generate goodwill. That’s fine for ESG-type investors, but we prefer to do our own charitable giving. Unfortunately, investing in D-Orbit is not tax deductible, even if you’re likely just giving your money away. Based on our simple valuation ratio (market cap/annual revenues), D-Orbit stock will IPO at more than 10X our threshold of 40.

The D-Orbit ION vehicle, left, and preparing it for its first mission.
The D-Orbit ION vehicle, left, and preparing it for its first mission. Credit: D-Orbit

The ION Satellite Carrier is certainly an intriguing piece of hardware, and it does represent one of the first commercially available platforms for in-orbit services. However, as far as we can tell, the company has yet to utilize ION much beyond its satellite shuttle services based on current revenues. While we consider it an early leader in the satellite services category, it has competition in well-funded startups like Astroscale, not to mention aerospace behemoths like Northrop Grumman (NOC).

Conclusion

Initially, we were kind of excited with the premiere of SSIT, as the one and only way to get exposure to both private and public space companies. But, as some of these startups go public, the optics aren’t looking too great. Three of the top five holdings are now public. Both AST SpaceMobile (ASTS) and Spire Global (SPIR) are trading well below the SPAC default of $10 per share, and some retail investors probably got burned for even more when prices were inflated. Meanwhile, Arqit Quantum (ARQQ), which is doing something with laser-equipped satellites for encryption, has managed to remain nearly +70% above its opening-day price in September 2021. That’s still quite a tumble from when it was up more than +350% just a couple of months ago. And, oh, the company has yet to post any revenue to justify any of that volatility.

It’s unclear where D-Orbit will fall in the pecking order when the next SSIT portfolio numbers are released (the most recent data is through September 2021). Overall, SSIT has a 9.3% ownership in D-Orbit, so it will likely be one of its top holdings in the fund once the dust settles. If D-Orbit and Breeze can make it over the finish line, the combined company will be listed on the Nasdaq under the ticker symbol DOBT.

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