Investing in Space Stocks and Companies
It’s the 21st century, so shouldn’t we be on Mars growing potatoes using human poo as fertilizer by now? Or something really cool out of Star Trek, like flirting with blue-skinned babes in a neighboring galaxy? Instead, the world watched with some amount of hope when SpaceX recently carried a couple of NASA astronauts to the International Space Station (ISS) from U.S. soil for the first time in nearly a decade. It wasn’t so much the technological achievement that impressed – we did get to the moon using the computing power of a calculator, after all – but the fact that a private company did it. It’s the culmination of about a two-decade-long effort to build a viable commercial space industry that really started with Space Lord Elon Musk, who founded SpaceX back in 2002. Today, it’s one of the most valuable startups in the world, with a $36 billion valuation.
Now the question remains: Will NewSpace, the term that describes the new era of commercial-driven space exploration, supernova into a trillion-dollar business? That was the gossip a couple of years ago when both Bank of America Merrill Lynch (BofAML) and Morgan Stanley predicted the space industry would reach a trillion-dollar valuation in the coming decades. Both pegged the current industry at about $350 billion back in 2017, but then they ripped apart on future growth estimates like a spaceship trying to escape from a black hole. BofAML was the more bullish of the two, saying the industry could reach $2.7 trillion over the next 30 years. Morgan Stanley predicted a more modest $1.1 trillion by 2040. In either case, outer space is where lots of growth is happening.
Risk averse investors will want to hold onto their money when it comes to the high-risk business of operating in space. We’re just hoping SpaceX decides to IPO so we can see what’s behind the curtains and maybe take a punt on what will probably be an extremely volatile stock. SpaceX could be one of the most exciting space ventures yet.
Investing in Global Internet
And that’s not even because of its successful rocket program but because SpaceX appears poised to run away with the global internet race, as it sends thousands of satellites into low Earth orbit (LEO), as part of the Starlink constellation to provide billions of people with connectivity and cute cat videos.
The topic of global internet is one that we’ve revisited regularly over the last three years. We’ve sent our MBAs into the hinterland of Alaska to understand the challenges and costs of delivering broadband internet to remote corners of the globe, and even uncovered efforts to build a new generation of geostationary satellites to serve rural areas. But the smart money is that the impact of cheap satellites and launch platforms will give massive undertakings like the SpaceX Starlink constellation the edge. Wall Street analysts are frothing over the idea that Musk could take a SpaceX global internet spinoff public, with a valuation as high as $30 billion in just a few years. Not much stands between SpaceX and global internet domination aside from startup OneWeb, which is currently bankrupt but still vowing to put 48,000 satellites into space.
As Khan might say to Kirk, “With my last breath, I spit on thee, SpaceX.”
Investing in Satellite Companies
Digging a little deeper, it’s still pretty hard to get exposure to the “space theme” without ending up with a portfolio filled with either big tech stocks like Amazon or Google or a bunch of companies that make rockets aimed in the wrong direction. We recently came across a new exchange traded fund (ETF), Procure Space ETF (UFO), which looks like it could meet Starfleet standards, so stand by for a premium article on that soon.
As much as 75% of the NewSpace industry is dominated by the satellite sector, which includes everything from manufacturing spacecraft to providing communications services. There are dozens of startups building and launching satellites, including many with plans to launch fleets of small satellites into space for broadband communication or to support the Internet of Things. Some are attempting truly audacious feats, such as beaming solar energy from satellites to Earth as a novel source of energy. Others are developing innovative propulsion systems for satellites, like Finnish startup Aurora Propulsion Technologies which plans to use water to propel satellites.
Many of the satellite stocks for investors are older, legacy companies, such as Intelsat, which launched the world’s first communication satellite back in 1965. The Luxembourg company filed for bankruptcy in May 2020, so probably not a wise investment at this time. Another old-school telecommunications company, Orbcomm, is trying to pivot into industrial IoT. One dark horse could be Iridium, a company that has experienced its own financial hardships but looks to capitalize on a global air traffic control system that uses its Iridium satellite network.
Investing in Geospatial Intelligence from Satellites
The sector of the satellite industry where we’re seeing both tremendous growth and potential is in geospatial intelligence, a concept that blinked into existence about 15 years or so ago. The term is defined as the “derivation of information from imagery, geospatial data in all forms, and analytics.” In plain language, a whole market has emerged where satellite imagery and AI-powered analytics are used to generate alpha for industries ranging from insurance to retail. Use cases include forecasting commodities prices and ground-truthing the environmental impact of so-called ESG companies.
Again, this is an area where we find a lot of startups doing geospatial analysis, led by a company called Planet that has about 150 satellites in orbit but views itself not primarily as a satellite company but a data services company first. There are also specialists in this category, such as companies developing space radars that can operate at night or even through hazy atmospheric conditions such as cloud cover. One radar satellite startup, Umbra Lab, claims its technology will make satellite services even cheaper.
Unfortunately, the pickings are pretty slim when it comes to a pure play stock in the satellite imagery subcategory. Maxar Technologies is a risky space stock that probably comes closest, but it has proven to be pretty volatile and risky.
One of the biggest risks to the satellite industry is the satellite industry. There’s about 7,000 tons of space junk orbiting our planet right now, ranging from pieces of broken-up satellites to a spatula. (Almost all of that space junk is being tracked by radar in the middle of the Pacific Ocean as we type.)
There’s a 3% chance that during the lifetime of a satellite it will be struck by an object greater than one-centimeter wide traveling at the speed of a bullet shot from an M16. New technologies for space debris removal will become extremely important, especially as SpaceX and others build out huge satellite networks for broadband internet, IoT, and other applications.
Rocket Companies Launch a New Space Race
There are few, if any options, for retail investors in the sexier side of the space industry – launch providers, aka rocket companies. SpaceX changed the game by using reusable rockets, leaving others in their propellant wake, like Jeff Bezos’ space startup Blue Origin. In fact, we would expect a high rate of failure in this sector, as there’s still not enough business to justify the numerous rocket startups that have emerged, not to mention all the space ports being built to support them. One of the exceptions is Rocket Lab, a New Zealand launch services provider that uses 3D printing to build its rocket engines.
Not everyone thinks you need a rocket and capsule to send humans into space, as a few companies have designed some pretty futuristic-looking space planes. That begs the question: When will we see supersonic air travel return to the skies a little closer to Earth?
Like in other emerging technology sectors such as artificial intelligence, China is becoming a serious contender in space with new startups building rockets and satellites. And the race is on to see who will build the first rocket to take us to Mars.
Mining the Moon for Money
In the near future, however, the space industry will have to settle for more modest goals – like returning to the moon. While the Xprize competition to land a privately funded rover on the moon ended without a winner, a few companies are still plugging away at reaching the Earth’s pockmarked neighbor. A spin-off from the Carnegie Mellon University Robotics Institute, Astrobotics recently scored nearly $80 million award from NASA to support the agency’s moon lander program. Institutional investors see promise in this space as well.
You’re probably thinking, “Why return to the moon? Been there, done that. It’s just a worthless rock.” Actually, it’s not. The moon is home to various precious metals and rare minerals that are integral to our technologies. It is also a good place to pick up Helium-3, a gas that could serve as an alternative fuel in future fusion reactors. Water is another valuable target for space mining on the moon. It could be split into its component elements of hydrogen and oxygen to be used as rocket fuel, turning the moon into the galaxy’s first 7-11 fuel station for the eventual road trip to Mars. Those are some of the same motivations driving other startups to attempt mining asteroids some day.
Investing in Space Tourism
Other space companies figure they can mine a much easier target – tourists. Space tourism actually began in 2001, though only a few super rich people have made it into orbit so far. The first civilian to go to space was American businessman Dennis Tito, who paid $20 million for his flight to the ISS on a Russian Soyuz spacecraft. Since then, there have been very few opportunities for the common man or woman to enjoy a romp in zero gravity, so to speak.
The one company that appears in the best position to take tourists into space is Virgin Galactic, which became the first space tourism stock when the company went public through a convoluted IPO with a group called Social Capital. The filing contains some very aggresive revenue targets for sending space tourists into outer space.
Virgin Galactic stock is for retail investors looking for the pure play in space and who have a strong tolerance for hype-driven stocks that quickly detach themselves from normal valuations thanks to all the newbie investors on Robinhood who don’t know any better. Just look at what’s happening with Nikola Motors stock right now.
The ISS has been floated as a possible tourist destination once the scientific mission there ends, though we’ve talked before how the space station is not a very good investment, unless you can get it cheap for spare parts. Currently, the end date is 2024, which means the startups supporting research on the ISS will need to diversify their businesses.
Diversification is important in any investor’s portfolio. Unfortunately, there’s not much gold to mine in space just yet, so only those with a strong stomach for risk should considering adding a space stock to their portfolio.
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