Investing in Space: Momentum Expected to Continue into 2022

Captain James T. Kirk, played by William Shatner, famously states in his opening speech for Star Trek, “space is the final frontier.” And as of 2021, we have seen the actor reach the stars through a commercial flight! While not everyone can follow Captain Kirk into space, the possibility of following the trend of investing in space can be done. Space is an infinite and ever-expanding universe of possibilities that we have only begun to explore and understand. With that potential comes opportunities for prosperity through investing in space. In the 50 years since the USA has put a man on the moon, our technological advances have come a long way, and innovators are seeking new ways to take advantage of what is just beyond our stratosphere in the global space industry.

In July of 2021, Richard Branson and three crew members flew 54 miles above the Earth in a vessel by Virgin Galactic. Nine days after this maiden voyage, Jeff Bezos and three of his crew members made a similar voyage, reaching an altitude of 63 miles. And then, in September, an all-civilian mission was launched by SpaceX, climbing to an orbit just above the International Space Station, before safely coming back down to Earth three days later. As mentioned, while commercial space travel in its current state is likely unattainable for most people, the opportunities surrounding these industry advancements may just be taking flight.

Captain Kirk (William Shatner) and his crew from the October 2021 Blue Origin launch.

Source: CNN

With potential opportunities in legacy fields, such as satellite broadband, and budding fields like in-space manufacturing and commercial space travel, a new iteration of the space race has begun. The increasing global intrigue of investing in space and its economic and strategic implications has even prompted the creation of a sixth branch of the United States military – the “Space Force,” highlighting the continued and expanding interest from the public sector, in addition to the private sector.

Some of the world’s brightest minds and deepest pockets have put forth efforts to expand humankind’s capabilities in space. Technology advancements related to space travel have helped lower the costs of re-entering from low Earth orbit. The capabilities of reusable rockets may prove a turning point into this new era for space exploration and infrastructure. Adam Jonas, Morgan Stanley Equity Analyst, describes these lowered costs from reusable rockets “as an elevator to low Earth orbit (LEO)” and believes that this increased accessibility to space will lead to a quicker maturation of space opportunities. These reusable rockets may allow for more frequent satellite launches, additional missions to the International Space Station, and an expanse in general space exploration, including a potential increase in accessibility for space tourism.

Many companies have been born in the wake of this potential turning point in our budding space economy, and today, interested investors have multiple opportunities to consider. There are companies working on in-space manufacturing: the concept of factories orbiting the Earth and producing items using materials sourced from space. In-space transportation companies seek to provide a tow-like service allowing multiple drop-offs of satellites and materials to multiple destinations in space, all in one trip. These are just some of the nascent innovations currently being worked on for the future of the space economy that some investors are considering getting involved in.

Investing in space is likely to impact a number of industries. Some examples include Aerospace & Defense, IT Hardware, and Telecom. Morgan Stanley estimates the revenue generated by the global space industry to be $350 billion today and expand to $1 trillion or more by the year 2040, so there is data to see why investment has and is likely to continue to see massive expansion. Within these industries, there are both public and private opportunities that are beginning to emerge in this space.

And while we may be captivated by the concepts of in-space manufacturing, transportation, and tourism, the more tangible and practical avenue for significant growth in the short term is likely within broadband. Within Morgan Stanley’s estimate of revenue growth, satellite broadband is the industry they estimate will represent 50% of this growth of the global space economy by 2040 – and as much as 70% in the most bullish scenario. With a global economy increasingly reliant on data and broadband access from satellites, it is easy to see the potential for increased revenue and increased investment interest. This bandwidth will be necessary for the coming proliferation of autonomous driving, artificial intelligence, and more.

Source: IDC DataAge White Paper

Investor capital poured into space companies in 2021, with a record $46.3 billion invested across the entire space technology industry, according to Space Investment Quarterly, Q4, 2021. Space Infrastructure companies saw over 50% of total invested capital from 2020, totaling $14.5 billion for 2021. The companies that make up “space infrastructure” include those working on launch, satellites, industrials, logistics (such as debris mitigation), among others. A few of the companies within this vertical are those helmed by the same billionaires mentioned before; Branson’s Virgin Galactic, Bezos’s Blue Origin, as well as Elon Musk’s SpaceX.

With a banner year in 2021, overall equity investments into space economy companies since 2012 are in excess of a quarter trillion US dollars, seeing flows into nearly 1,700 different companies through both private and public funding. Investing in space has grown significantly, as companies in this industry go public via traditional IPOs and SPACs, while larger and still-private players avoid the public markets altogether. This could provide a variety of opportunities for those seeking exposure to the final frontier.

Source: Space Investment Quarterly, Q4 2021

In recent weeks, we have seen Starlink achieve a successful commercial space mission launch 49 new wireless internet providing satellites into Earth’s lower orbit, but we have also seen many high-flying stocks crash down to Earth. Growth and technology stocks, which include space companies, many of whom are years away from profitability, have been hit particularly hard by investor sentiment regarding announced hikes in interest rates.

With rising interest rates comes a hindrance to the potential future cash flows of a business, and a business with beyond-sky-high aspirations may have a tougher path to profitability because of the increased expense to their debt financing. Public markets have reacted to this news, but private companies may still see a plentiful year for funding. Chad Anderson, Managing Partner of Space Capital, cites the success of key companies like SpaceX as an indicator for “an even bigger, more historic year of investing into the category” into 2022.

What could this mean for investors? For one, opportunities abound in private market investing. But there is also a risk of making a wrong choice within this fast-growing and fast-changing industry. Morgan Stanley’s Jonas cautions that “history is littered with cautionary tales” of investing in satellite and other space-related companies, noting that stocks have been volatile, and several such companies failed in the 1990s. Many if not virtually all of the space opportunities that are emerging are considered dangerous, expensive, and merely in conceptual phases. A lot of growth and advancement is still necessary before most of these projects can be realized, and they still may not be achievable in our lifetimes.

There is also a significant risk for investing in space companies that are yet to be profitable and require additional technological advancement to become practical, but there is also the potential for success. It is important for those seeking exposure to space companies to evaluate the risk of their investments carefully and to seek to mitigate risks by utilizing the research of companies and their existing investors. Just as it is important to have an experienced astronaut at the command of a shuttle, it is important to have an experienced advisor help investors navigate their maiden voyages to investing in space.

Sources:
CNBC, January 2022. “What rising interest rates mean for the cluster of newly public space stocks.”
Space Investment Quarterly, Q4 2021
Wired, December 2021. “2021 Was the Year Space Tourism Opened Up. But for Whom?”
Yahoo! Finance, December 2021. “The ‘huge year’ for space investing expected to continue into 2022.”
CNN, October 2021. “William Shatner is now the oldest person ever to go to space: ‘The Most Profound Experience.”
Motley Fool, August 2021. “Factories in Space? Yeah, That’s a Thing Now.”
Morgan Stanley, July 2020. “Space: Investing in the Final Frontier.”
IDC DataAge White Paper, November 2018. “The Digitization of the World From Edge to Core.”
giphy
Momentus