This area has seen explosive (hopefully not literally) growth and we've only scratched the surface of the potential.
October 12, 2021
Space has the potential to be a trillion-dollar industry. It’s an investable area that’s both romantic — who hasn’t dreamed of going to space — and practical. You could argue that the future of humanity may very well be in the stars and, as an investable area, the space industry really sits in its early days.
Space as a business means a lot of things. It includes everything from space tourism (let’s send billionaires and William Shatner into orbit) but also deep space exploration, satellite internet, launching satellites, using space-like craft to travel the Earth faster than ever before, and even a fledgling industry cleaning up the junk that some of these other pursuits have left in the sky.
The challenge for investors has been (and remains) that many space companies are in the very early stages. Some big names — like Jeff Bezos’ Blue Origin and Elon Musk’s SpaceX — aren’t public yet, but there are a small handful of options for investors looking to get in on this emerging area.
It’s a difficult market to navigate largely because the public companies in the space are relatively early stage. Even a player like Virgin Galactic (NYSE SPCE) has only flown a relatively few flights. And while many of these companies (Virgin Galactic) have massive opportunities, it remains to be seen whether they will be able to execute in a very challenging area.
Steve Symington and Samanth Bailey joined Simon Erickson for the Oct. 11 edition of “7investing Now” to take a look at this exciting, emerging investable market. They look at both the history of space as a business and where it may be going in the future.
A full transcript follows the video.
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Simon Erickson 1:49 College sports dictating our moods as they always do, but there’s always next week. Steve let’s get this rolling let’s talk about the space economy first and foremost because as investors you and I have spent a lot of time digging into used to be if you were interested in outer space, you were either probably a Star Trek fan, or you worked for NASA with a special security clearance. But we’ve been hearing a lot more about outer space in the financial media this year and last. Why is it so interesting to investors right?
Steve Symington 2:16 Man it’s kind of this exploding industry. And funny enough, the company that I worked for right out of college was founded because of a NASA grant and we were doing feature extraction from far away you know, pictures that were sent to us by NASA huge images of the planets and such. Super cool, but it’s come a long way since you know I graduated college 15 years ago or however long it’s been.
So it’s fun to watch because this is literally a trillion-dollar industry and there’s a lot of different places that investors can now make money. You know, when you’re talking about you know, the obvious place – your Virgin Galactic (NYSE: SPCE) with space tourism, you know, we’re looking at companies who are looking for deep space exploration, Satellite Internet, satellite launch. There’s a lot of different ways even cleaning up space junk you know, to prevent them from colliding with certain satellite trajectories and stuff. There’s a lot of different ways to play it. And people are excited, and rightly so. But it’s hard to, I think, easier said than done to pick through and find what’s really the most promising space industry place.
Simon Erickson 3:30 Yeah absolutely Steve, we’ve got a graphic that I really like, I would like to show since you have that first one there on the declining costs of the launch into low Earth orbit, right. So on the y axis, you got the dollars per kilogram of launch costs, this is in today’s dollars, you know, based on not at the time dollars, but in today’s dollars. And you see that’s not exactly a linear scale, right? You’ve got a big jump there between $20,000.05 $100,000 per kilogram.
If you look over there on the left hand side, you know, let’s go back about 50 years, 60 years, and you see kind of the Russian Soyuz missions, right? This is where they were bringing payloads to the International Space Stations, the size of the circles represents the total cost of the mission, sometimes $200 million or more. Now they’re actually offering to bring civilians to the ISS, which is kind of neat. Kind of in the middle there. If you see a lot of those medium launches in the 90s and 2000s. This is kind of NASA really, you know, progressing. It’s Atlas and Delta missions, they’re trying out new types of rockets. They’re trying to push down the cost of space launch.
And then the most interesting Steve, I think the most interesting data points are those two that are at the bottom right, if you see them, there’s the the medium launch of the the Falcon nine, that’s a SpaceX Falcon nine and 2010 and then the Falcon Heavy just a couple of years later, Steve now we’re talking about these are kind of medium and heavy payloads you can do in a rideshare. But at less than $3,000 per kilogram. I mean, that’s an order of magnitude. You see there just in a couple of decades for the space economy. I think that this is opening up lot of opportunities for commercial businesses that might not have had access to outer space previously.
Steve Symington 5:05 Yeah. And part of what’s interesting to me about that chart is how things kind of stagnated for the decades in between, right, and they just kind of kind of just putzed along. And now we’re starting to see some declining costs. And this is what’s going to enable a lot of the other industries and applications, right is these declining costs, you have to get stuff to space in the first place. And that’s kind of where we start is, is with these kind of launch platforms.
And just getting things to space in the first place, in order to capitalize on the opportunities it creates. And then later on, you know, we’ll be seeing some companies, you know, that’s why you see, there’s like the Ark Space ETF and people were kind of scratching their heads, like why’s deer in there? Why is Netflix in there, and they’re saying, well, it’ll, they’ll benefit from satellite connectivity once it kind of becomes more of a thing. But yeah, you got to get things up there in the first place. And that’s the key driver.
Simon Erickson 6:03 And I think that’s a perfect segue to show our second chart, we came with a lot of graphics prepared for everyone watching today’s show on video. For anyone who’s just tuning in on a podcast, we’re now showing you the expectations of the commercial space economy. According to Morgan Stanley, it comparing the year 2016. So about five years ago to what they expect by 2040, on the right hand side of this chart, and Steve, there’s two that really stand out on that right hand chart to me, which is you see the giant if you if you’re following along on video, that giant $412 billion red of the pie chart is representing the internet.
And then you also see a orange slice of the 2040 chart. That’s consumer broadband. So between the two of those, that’s a half a trillion dollars, that’s kind of dedicated to internet and broadband connectivity that didn’t exist at all five years ago in space internet. Thanks very much, Sam, for showing that.
I think that the big, the big takeaway for me is that there’s expectations that there’s going to be basically ubiquitous internet all over the place. And it’s not just going to be for your home or the devices that are connected up to your personal routers and your personal networks. This is things like autonomous vehicles. This is things like the internet of things that you might be out and about mobile, sometimes in different countries or different locations of the world.
But you need to be connected for those things to work. And really, rather than laying a whole lot of fiber cable everywhere, which is incredibly expensive, there’s an opportunity to get the cost down for telecommunications opportunities from space internet. Any thoughts on that, Steve? I know that you’ve looked a lot of space internet in the last couple of years.
Steve Symington 7:40 Yeah, you know, part of the challenge as an investor that a lot of this is going to be ushered in by privately held companies like SpaceX, which just last week, I think news crept out that it’s secured essentially $100 billion valuation based on its latest fundraise and, and so you know, you’ve got some big early first movers that are privately held, and but you also have companies that are publicly traded like Rocket Lab (NASDAQ: RKLB), that are kind of poised to secure a lot of this.
And you’re going to have a lot of companies kind of launching your own constellations to provide the internet. And you know, make no mistake, there is opportunity for a small number of companies to capitalize on demand for speed that only fiber currently can provide. But it’s the those companies are often very specialized, or it’s part of a larger business.
So yeah, that’s that’s kind of the challenges is kind of picking out from the weeds. And we actually have a comment from our very own Dan Kline, who was unavailable to host the show today. But he said, How do you sort a good company from a bad one, when there’s so little actual revenue, and most quote, financials are just projections. And that’s the trick, right? And it’s a combination of looking at, you know, their platform, looking at how differentiated it is, and how likely it is that they’re going to secure some of these key contracts.
Government, you noticed in those pie charts is a pretty big chunk still of the overall pie that’s available for businesses to try and bid on and in when some of these early funds that will help them scale. But you have to look at the overall opportunity and their platforms and maybe, in some cases, their cash positions, what they’ve been able to raise and on what terms that’ll, you know, there’s a lot of SPACs in this space play. And we’re going to talk a little bit about that shortly here.
But looking at the terms with which they they raised the cash that they provided and how much of the business they gave away in the process to go public in some cases and what kind of dilution investors face so there’s a lot of different variables to look at. But you know, thankfully, we have the luxury of doing that full time and doing nothing but research all day, most of the time, so yeah, but for people with the time or inclination, there’s there’s a lot of opportunity to be had.
Simon Erickson 10:09 And Steve, I want to double click, we’ll get back to the SPACs in a minute because I do want to touch on those in the middle of the program here. But I know that like you said, you have a background in this space, pun intended for everyone who’s listening. But you know, 15-20 years ago, this was kind of an industry that was really primarily defense contractors working with NASA, really big budgets, contracts that are going on up there.
Now you’re looking at the world of billionaire entrepreneurs, the Elan Musk, and the Richard Branson’s and the Jeff Bezos is that are building companies and putting their life fortune to work on this. Is this a different opportunity than you saw 15 or 20 years ago? Or is it just one that’s more affordable now for entrepreneurs? And by the government in this going forward?
Steve Symington 10:51 Yeah, I think that’s it’s absolutely a different opportunity in different than a good way for individual investors, right? One, there’s so many options. And investing in general is much more accessible to everybody. But as space becomes more accessible, it’s most certainly a different opportunity. And there were, you know, a very limited number back in 2006, when I’m working on this stuff, you know, we had Gigital Globe and GeoEye, which sort of ended up acquiring one another in weird mergers.
And then there’s been a lot of consolidation in those spaces, because it was a few kind of key leaders in satellite. But there’s really no option to invest in launch platforms, there was no option to invest in things like space tourism, and it was all privately held huge government contracts. And, and so it’s there’s so much more information, and so many more options that, you know, I’m almost giddy as an investor to be able to kind of dig into this.
Simon Erickson 11:48 It really is interesting. And I’m going to spot you up with one more question that I’d like to answer first, as I prepare you for my off script question that I’m going to ask, but it’s what what areas of the space economy are you particularly interested in? And one that I’m really interested in myself is it seems like we’ve seen these larger rockets, right, we’ve seen ride share and just these larger, larger payloads, which may or may not work, if you’re a small business, you kind of have to wait for your bus stop to get to where the bus is eventually going whereas now you can actually have a dedicated launch for an economic price point.
And I think that might be opening up a lot of low Earth orbit, specifically opportunities that aren’t just geosynchronous at the same place all the time that matches the earth spin. Steve, with everything you know about about spaces, we kind of finish up our first segment here, what what particular part of this of this segment are you interested about in the space Academy
Steve Symington 12:40 And I’d say that the kind of Geek in me is most excited about things like space tourism, because it’s just so you know, it captures your imagination, it’s, it’s a little more slow to develop, in part because of the risks, right? But you know, I also love your, your kind of launch platforms, there’s a few really great ways to actually capitalize on that. But right now launch and space tourism, things that will kind of segue into much bigger opportunities down the road, right.
Launch is sort of the enabler of the entire space ecosystem. And there’s only a few publicly traded players that are really worth considering in our minds and 7Investing members kind of know that from some of our recent research and, and in space tourism, obviously, you know, there’s, there’s only one decent way you know, Virgin Galactic, publicly traded that you can actually invest in the space.
And we’ve seen hiccups and extraordinary volatility. So you really have to have a stomach to invest in some of these really, really early stage plays. For volatility, you need to be able to, to handle wide swings in share price as these industries kind of play out. Because Make no mistake, we are in the earliest stages of development for these and this is something that’s gonna play out for a lot of these companies over the course of the next decade, decade and a half. And that’s when we really start to see some meaningful scale and hopefully, cash flows and, and profits that kind of follow that way.
Simon Erickson 14:11 Absolutely. You have to have a stomach for the volatility you also have to have a stomach for the zero gravity. Samantha Bailey we’ll use that as a segue to you what’s the right price that you would get on the Virgin Galactic space tourism flight?
Samantha Bailey 14:24 Is it my own money?
Simon Erickson 14:25 Yes your own money for the flight.
Samantha Bailey 14:28 $50,000
Simon Erickson 14:29 $50,000. Okay. Steve what are you getting on the Virgin Galactic flight? How much you have to get?
Steve Symington 14:34 I would, yeah, I’d started scratching my head about that point. And, and that’s one of those interesting things is over the next several years, there’s charts and their initial public filings where they say that’s the goal, right? Right now it’s a $450,000 ticket. If you want to go on something like Space X’s Orbital three, you know, three day tours, you’ve got to go through a six month training and it’s like $55 million, unless you win it in a sweepstakes which you know, interestingly enough, was the cost of some of the earliest missions just to bring a couple, you know, reasonably large size payloads to space in the first place. But to think that you can bring a person to orbit you know for that is is really interesting, but the goal is as they scale it’ll become more affordable so kind of fun to watch.
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