How to Invest in Space: Major Players and Companies to Watch
Much has been made about how the pandemic has accelerated the shift into the digital world and away from the physical, but there is another new world that is increasingly getting attention. It is one that is new for humans but also, as old as time.
"Space: the final frontier"
Those words were first heard across televisions on September 8, 1966 and just under 11 years later, moviegoers were transported to a galaxy far, far away. The success of Star Trek and Star Wars would spawn follow-on TV shows, movies, action figures and other toy sales and merchandise, and ultimately, proved to have a lasting impact on pop culture. So much so that even after more than 40 years, the fascination with “the final frontier” continues to inspire a new wave of programming on Disney’s (DIS) Disney+ and CBS’s (CBS) CBS All Access streaming services. Like a number of things that were once considered science fiction and futuristic on those shows, such as the communicator on Star Trek, but have become a daily part of our lives (in the form of smartphones), other elements are entering the mainstream. To wit, space travel for those not a part of a government-sponsored program is poised to go from fantasy to reality.
Space exploration started in the realm of the public sector, but the shift towards a more active private sector has been accelerating. The first artificial satellite, Sputnik 1 was launched into space by the Soviet Union on October 4, 1957 and in 1961, Lt. Yuri Gagarin became the first human to orbit earth in Vostok 1, reaching an altitude of just over 200 miles above earth. In 1962, the first satellite to be used commercially, Telstar 1, was launched.
In the 1980s private companies conducted space launches in conjunction with their governments, but in 1990, Orbital Sciences Corporation launched the first vehicle fully developed by the private sector to reach orbit. In May 1998 a communications satellite operated by Hughes Global Services became the first commercial spacecraft to approach the moon, using it to slingshot itself to a sustainable geosynchronous orbit around the earth. The first privately funded space station expedition was launched in 2000, and in 2001, Dennis Tito became the first space tourist, visiting the International Space Station aboard a Russian Soyuz spacecraft. In 2004 Scaled Composites’ SpaceShipOne conducted the first privately flown and funded crewed spaceflight, led by Mike Melvill.
Fast forward to December 2010, when Elon Musk’s SpaceX successfully launched and recovered its Dragon capsule on its first mission. It was the first time a privately developed and operated spacecraft was recovered from orbit. Several years later in November 2015, Jeff Bezos’s Blue Origin launched its New Shepard launch system into space and landed it vertically back on Earth. Two days later, President Barack Obama signed the U.S. Commercial Space Launch Competitiveness Act, aka SPACE Act of 2015, which codified the ability of American companies to own material resources extracted in outer space.
In 2018, Rocket Lab launched its Electron rocket from Mahia Launch Center, carrying three cubesats into low earth orbit, making for the first time that a rocket entered orbit after launching from a privately owned and operated spaceport. Last May, SpaceX launched the Falcon 9 rocket, which marked the first privately developed crewed mission to orbit and visit the International Space Station.
On a geographic basis, North America has the highest market share in the spacecraft market, primarily given the influence and sizeable space budget for the National Aeronautics and Space Administration better known as NASA. Other companies in the U.S., such as Boeing, Lockheed Martin, SpaceX and Blue Origin are some of the more commonly recognized players that are investing in spacecraft and related technologies.
In March 2018, NASA was given a grant of $20.74 billion by the U.S. Government and odds are North America will remain a formidable player in the race to the $1.5 trillion commercial space market forecasted by 2040 by the U.S. Chamber of Commerce. Other forecasts from Goldman Sachs (GS) and Bank of American (BAC) suggest the commercial space market will reach $1 billion and $3 billion, respectively, by 2040. And with NASA increasingly relying on private companies for services, it means good things for space-focused companies and their suppliers.
While there are a number of North American companies vying for leadership in the new private sector space race, an explosion in China’s space startups has reignited yet another competition between the U.S. and China. For context, a report by the Institute for Defense Analyses found there were 78 commercial space companies in China. And if we trace back those companies, we find that much like their U.S. counterparts, they will be leveraging government contracts and subsidies as the industry matures.
In 2008, NASA awarded SpaceX a $1.6 billion contract to deliver cargo to the International Space Station and in September 2014, NASA awarded SpaceX a $2.6 billion contract to transport NASA astronauts into space. More recently, SpaceX was awarded a $331.8 million contract to launch the first two pieces of the upcoming Lunar Gateway in 2024. Those contracts and their subsequent experience helped SpaceX hone its manufacturing processes and move down the cost curve as well as helping to lay the groundwork for winning customers.
Like many industries, the space industry is benefitting from technological advances that have moved satellites and rockets down the cost curve, making it far more economical to send satellites, spacecraft and other stuff into space. For example, it cost an estimated $38,734 to send one pound into low earth orbit in the early 1980s. Compare that to the cost of $432 in 2020. In many ways, this is very similar to the advances we’ve seen in the automobile, consumer electronics and even the smartphone industries – the combination of technological and manufacturing innovation reducing the cost of ownership, fostering greater adoption and market growth. Effectively a rising tide that is poised to repeat itself in the space industry and lift a good number of company boats along with it.
One of the problems for investors is that SpaceX and Blue Origin, at least for now, are private companies. However, Virgin Galactic is a public company, which trades under the SPCE ticker, and bills itself as a “vertically integrated aerospace and space travel company.” On February 13, the flight window for a rocket-powered test flight of its SpaceShipTwo Unity will open; a successful mission would determine the next steps in the company’s test flight program.
Another strategy to leverage the opportunities in this growing area would be to invest in key suppliers and related companies in the space ecosystem, such as Boeing (BA), Lockheed Martin (LMT), Northrop Grumman (NOC), Raytheon Technologies (RTX), and Honeywell (HON), just to name a few.
Investors could also include shares of a space focused ETF in one’s portfolio. While there are a number of aerospace and defense related ETFs, currently the Procure Space ETF (UFO) is one of the few focused on the space industry, and in the last few months it has been gathering assets at a quick clip as the new space race has been hitting the headlines.
Recently Ark Investment announced it is planning to launch a new space focused ETF. If we believe that imitation is indeed the sincerest form of flattery, odds are there will be others to follow as the space industry gets ready to move past its second stage.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.