The Finimize Guide To Investing In Space

The Finimize Guide To Investing In Space
Reda Farran, CFA

over 2 years ago6 mins

  • The space market could be worth over a trillion dollars within the next decade, driven by declining satellite launch costs and rising government and investor interest.

  • It’s centered around the satellite market, which can itself be broken down into four main activities: manufacture, launch, in-orbit servicing, and services.

  • The industry is still mostly dominated by aerospace and defense companies, but you can get more exposure to space itself by investing in pure-play space stocks, the Procure Space ETF, and the Seraphim Space Investment Trust.

The space market could be worth over a trillion dollars within the next decade, driven by declining satellite launch costs and rising government and investor interest.

It’s centered around the satellite market, which can itself be broken down into four main activities: manufacture, launch, in-orbit servicing, and services.

The industry is still mostly dominated by aerospace and defense companies, but you can get more exposure to space itself by investing in pure-play space stocks, the Procure Space ETF, and the Seraphim Space Investment Trust.

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Space tourism has been getting a lot of attention lately – especially after highly-publicized flights by the billionaire owners of Virgin Galactic and Blue Origin. But the space industry as a whole is in the middle of a widespread transformation, and companies’ ambitions are nothing short of visionary. So consider this your handy guide to investing in the cosmos.

What is the “space market” exactly?

I personally think about the space market as made up of two main parts: satellites and moonshots. The latter includes areas like space tourism, space resource exploration and extraction (think asteroid mining), and space colonization and related infrastructure.

Space tourism has been stealing the headlines, sure, but I’d argue that the bulk of the space ecosystem is actually centered around satellites. According to space infrastructure conglomerate Redwire, there were 6,000 satellites in orbit as of April 2020, but there’ll be more than 50,000 more by 2030. This is being enabled by the falling cost of launches, but also the manufacture of the satellites themselves.

We can simplify the satellites industry into four main activities: manufacture, launch, in-orbit servicing, and services – think Earth observation or high-speed broadband. In fact, Morgan Stanley is estimating that satellite broadband will represent half of all the projected growth of the global space economy by 2040. Demand for data, after all, is growing at an exponential rate, but the cost of access to space – and, by extension, the data services that satellites can provide – is falling rapidly. And that’s to say nothing of the huge opportunities from providing internet access to underserved regions, as well as to new technologies like autonomous vehicles and the internet of things.

What are the factors driving the space market?

Perhaps the most important is the declining cost of satellite launches, thanks to reusable rockets like those made popular by Elon Musk’s SpaceX venture. According to NASA, launch costs fell by a factor of seven between 2000 and 2018 because of the development of SpaceX’s Falcon 9 – all the more remarkable considering they’d held steady for the 30 years before then.

Another is rising public sector interest, with over 80 countries in the world now having space programs. What’s more, governments are increasingly relying on private companies to support them – a good thing for space-focused companies and their suppliers.

The industry’s also starting to attract a lot of interest and funding from investors. In the 12 months ending in March, total venture capital investment in the field increased by 95% to $8.7 billion, while special purpose acquisition companies (SPACs) have announced deals pledging more than $7 billion of new investment into space companies.

How big could the space market be?

Most estimates peg the current market at around $400 billion, but estimates on the future size of the market vary widely. Bank of America, for example, reckons the industry will be worth $1.4 trillion in 2030. But Morgan Stanley – while still very optimistic about the industry – is predicting the market will grow at a slower rate, hitting $1 trillion in 2040.

Forecasted size of the space economy based on use-cases. Source: Morgan Stanley, Haver Analytics
Forecasted size of the space economy based on use-cases. Source: Morgan Stanley, Haver Analytics

What are the main space players?

1) Large aerospace and defense companies

The estimated $400 billion space economy is still mostly dominated by large aerospace and defense companies serving government-funded interests. The big three – Boeing (BA), Lockheed Martin (LMT), and Northrop Grumman (NOC) – all build rockets, spacecraft, satellites, and myriad other systems that go into operating space programs. The problem with investing in these companies is that their space-based revenues are usually just small fractions of their overall sales, so you’re not really investing in space at all.

2) Pure-play space startups

These are new companies that generate the bulk of their revenues from space activities. An online search frustratingly brings up a lot of messy and rather random results, so I’ve compiled a comprehensive list of pure-play startups below.

Source: Finimize
Source: Finimize

The biggest name on the list, Virgin Galactic, is eventually planning to have around 400 flights a year carrying six passengers each, which could – according to investment research firm Alliance Bernstein – end up costing between $400,000 and $500,000 a ticket. That implies up to $1.2 billion of annual sales once the firm’s operations are fully up and running.

But surprisingly, most of them have revenue potential at the moment:

  • Astra Space has over 50 launches in its backlog, as well as a pipeline of over $1.2 billion in deals.
  • AST SpaceMobile is aiming to have 9 million subscribers on its network by 2023, though it admittedly doesn’t have any revenue yet.
  • Rocket Lab has a pipeline of $2.2 billion in deals, including $1.2 billion for launch-related revenue.
  • Redwire Space has commercial and national security customers, with a contracted backlog of $150 million.
  • Satellite imagery companies Satellogic and Planet Labs are both targeting more than $700 million in revenue by 2025.
  • Spire Global has over 150 customers, processes five terabytes of data per day, and expects to make $70 million in revenue this year.
  • And both BlackSky and Velo3D made around $20 million in revenue last year, and they’re expecting strong growth over the medium term.

How could you invest in space?

The first thing to note is that the private space industry is still young, which means it comes with a lot of risks, and its profits – if any – are a long way off. That’s why I wouldn’t recommend allocating any more than 10-15% of your total portfolio to the industry.

I’d also recommend against solely investing in all 11 of the stocks above. Many space startups are yet to prove they can operate profitable businesses, and some critics would be quick to point to the high-profile collapses of companies like Iridium, GlobalStar, and Teledesic two decades ago.

Instead, I’d personally opt for a core-satellite approach (no pun intended). Here’s one example of how this could look.

Source: Finimize
Source: Finimize

I like the Procure Space ETF (ticker: UFO) because it offers the most direct exposure to space companies. It only invests in firms that derive a majority of their revenue from space, and is therefore heavily concentrated on satellites. That’s in contrast to the ARK Space Exploration ETF (ticker: ARKX) – which has a much broader mandate and includes plenty of stocks that are debatably in the space market at all – and to the SPDR S&P Kensho Final Frontiers ETF (ticker: ROKT), which also invests in deep-sea exploration companies.

The Seraphim Space Investment Trust is a very new addition to the market, which means it isn’t on many investors’ radars yet. The investment trust holds a portfolio of private, early-stage startups that were previously only available to venture capital investors, but now you can get a piece of the action too.

As for the “satellite” portion of your space portfolio, that’s for you to play with. The list of stocks above is a good place to start: have a go at researching a few of them and pick the ones you think are most promising. Or if you want to hold off, do: I’m sure we’ll be talking about these stocks much more in the future.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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