Investing in the Space Industry: A Beginner's Guide

For decades, the world outside of the Earth’s atmosphere was explored only by governments, but that is changing fast, bringing out-of-this-world commercial and investment opportunities. In 2020, for the first time in history, humans entered space via private commercial spacecraft rather than those owned by governments. In 2022, there were 178 space missions, 90 of which were conducted by the private sector and 61 by SpaceX.

In the early 1990s, few would have imagined that in less than thirty years the internet would be a vital part of daily life for billions of people. So too will the commercialization of space likely change our lives in ways that today are unimaginable. We are at a tipping point, thanks to rapidly declining costs and expanding technological capabilities, which will lead to a rapid acceleration in commercialization, bringing profound opportunities for both industry and investors.

In this piece, we look at some of the ways investors can participate in the space industry's growth. 

A Brief History of Space Exploration

For those interested, here is a quick recap of who has done what and when:

• The first human venture into space happened in 1957, when the Soviet Union launched Sputnik, the first artificial satellite to orbit the Earth.
• The Soviet Yuri Gagarin was the first human in space, orbiting the earth once on April 12, 1961.
• Alexei Leonov, another Soviet, became the first person to leave a space capsule on March 18, 1965. His spacewalk lasted a little over 12 minutes.

Right on the heels of reaching outer space, the Moon became the next target.

• In 1959 the Soviet Union’s Luna 2 became the first human-made object to land on the moon.
• Frustrated by the Soviet domination of space, NASA’s budget was increased almost fivefold from 1961 to 1964, with the lunar landing program expanding to around 34,000 NASA employees and 375,000 employees of industrial and university contractors.
• In 1969, those investments paid off when Neil Armstrong became the first human to step on the Moon with America’s Apollo 11 landing.
• Between 1969 and 1972 there were six crewed U.S. landings on the moon and to date, the U.S is the only country to have successfully conducted crewed missions to the Moon.
• Until 2019, all soft landings occurred on the near side of the Moon, which is the side that always faces Earth. On January 3, 2019, China’s Change’e-4 (named for an ancient moon goddess), became the first to successfully land on the far side of the Moon, the lunar hemisphere that always faces away from Earth.
• In 2019, the privately-owned Israeli probe, the Beresheet, crash-landed on the Moon. Had it not crashed it would have been the first private-sector landing on the Moon.

Getting Busy on the Moon in 2023

There are currently three private-sector launches contending to be the first non-government landing on the Moon.

• The first is Japan’s HAKUTO-R Mission 1, operated by the private company ispace, which is already on its way and is expected to land in late April. This mission is on a more circuitous, “low energy” approach to the Moon which takes advantage of gravitational fields, allowing it to have a larger payload.
• The second effort is the Peregrine Lunar Lander from the Pittsburgh, Pennsylvania-based company Astrobotic Technology. It is expected to launch by the end of March on the inaugural flight of the Vulcan Centaur, a new rocket developed by United Launch Alliance, an American launch provider, which is a joint venture between Lockheed Martin Space – a division of Lockheed Martin Corp (LMT) - and Boeing Defense, Space and Security – a division of Boeing Co (BA).
• The third is Nova-C from Intuitive Machines, (more on this company below) which is expected to launch in June in support of the Artemis Program (more on that below).

Progress and the Private Sector Take off 

In March, SpaceX is expected to launch the maiden Earth orbit flight of its fully reusable Starship rocket, becoming the world’s most powerful operational rocket. Last week, SpaceX reported the successful static firing of 31 out of 33 engines on a Super Heavy Booster, making March’s launch increasingly likely. NASA’s Space Launch System currently holds the title for most powerful rocket, having generated 8.8 million pounds of thrust for its Artemis I Mission, which launched on November 16, 2022. Starship is expected to nearly double that, generating 17 million pounds of thrust.

As the private sector expands into space, costs have dropped dramatically. The costs of launches into low-Earth orbit (LEO) have declined 95%, from $65,400 per kilogram in 1981 to $1,500 per kilogram in 2018 (in 2021 dollars for heavy class load). The more recent increases in launch frequency and the use of reusable rockets are further accelerating this decline.

The Expanding Space Economy 

Bank of America has projected that the space industry will grow to over $1.4 trillion by 2030 from an estimated $366 billion in 2019 (according to Harvard Business Review). The Space Foundation estimates that the space economy was valued at $469 billion in 2021, growing 9% from 2020, the fastest growth since 2014. While capital markets may have struggled in 2022, the space economy showed other-worldly resilience. The number of successful launch attempts rose by more than 33% from 2021 to 2022 and the number of spacecraft deployed increased by 36%, according to the Space Foundation. Over the past decade, private-sector funding in space-related companies grew ten-fold to over $10 billion in 2021. During that same period, U.S. government funding dropped from around 70% to 50% of total global space R&D funding.

Galactic Challenges Remain

Outside of the obvious technical challenges presented by getting to and functioning in space, a challenge facing all those who go out there is determining ownership. How resources are to be shared or allocated remains vague as there is no clear governing body and flag planting isn’t going to be sufficient. The United Nations is an obvious choice for jurisdiction but given the ongoing disputes over rights concerning deep sea mining and fishing in international waters, it is unlikely this will be settled easily. 

Space Law’s foundational text, the Outer Space Treaty of 1967, dates back to a time when only governments accessed space, and does not allow for any claims of sovereignty on the Moon or elsewhere. The Moon Agreement, governing the activities of states on the Moon and other celestial bodies, was put together by the United Nations and adopted by the General Assembly in 1979 but only 18 countries are a party to the treaty, and it has not been ratified by any country that actually engages in human spaceflight, giving it questionable relevancy. America’s latest attempt at some level of international agreement was the Artemis Accords of 2020, which is a non-binding multilateral agreement between participants in the Artemis Program. Given the current geopolitical climate, it is not surprising that China and Russia chose not to be involved.

Companies Boldly Going Where No One Has Gone Before

Given that we are at the start of a major inflection point for the space economy, many companies in the sector are still private. Here are some noteworthy players, both private and public, grouped by four functions: launch services, communications, observation and tourism.

1. Launch Services

The company that might come to mind first when thinking about space flight is Elon Musk’s SpaceX, which is nearly 21 years old. It has led the charge for making space more accessible through its development of reusable rockets that are able to land themselves back on Earth after launch. Perhaps almost as important, it has become a training camp of sorts, with SpaceX alumni (called SpaceXers) launching a range of their own companies.

Some SpaceXers are building rockets similar to but smaller than SpaceX’s Falcon 9, including Firefly Aerospace, ABLS Space Systems and Relativity Space, which is a private company that uses 3D printing, AI and robotics to build a fleet of fully reusable, low-cost rockets with the first launch possibly coming this month. According to its website, the company’s Terran 1 rocket is 85% 3D-printed by mass, making it the largest 3D print object in history. The company’s goal is to eventually build Terran 1 rockets that are 95% 3D-printed. In July 2022, Relativity Space and Impulse Space, Inc. announced a partnership to deliver the first commercial payload to Mars, with an anticipated launch window starting in 2024. 

Intuitive Machines (LUNR) is a Houston-based company that began trading on Nasdaq on February 14, 2023, following its merger with the Inflection Point Acquisition Corp SPAC. The company is not only in the business of launch services, but also in resource extraction and looks to provide lunar surface access, lunar orbit delivery and communications at lunar distances. The company was selected by NASA in 2018 as one of the nine companies granted the right to bid on the Commercial Lunar Payload Services program (CLPS) with its lander, the Nova-C, focused on the exploration and use of natural resources of the Moon. Earlier this month the company announced that its upcoming lunar landing site to support the Artemis lunar exploration campaign has been moved to near the south pole, with a landing planned for late June. 

Other publicly traded launch companies include Astra Space (ASTR), which went public via a SPAC at a $2.1 billion valuation in July 2021. The company offers one of the lowest cost-per-launch services and delivered its first commercial launch to low Earth orbit in 2021, just five years after it was founded. 

Rocket Lab (RKLB) completed a merger with Vector Acquisition Corp SPAC, in August 2021, valuing the company at $4.8 billion in equity. Last month, it had its first launch from the U.S., after having had 32 previous launches from sites in New Zealand. The company operates lightweight Electron orbital rockets, providing dedicated launches for small satellites, and plans to build a larger Neutron rocket as early as 2024.

2. Communications 

SpaceX’s Starlink service has an LEO (Low Earth Orbit) constellation which provides both residential and commercial customers with a satellite-based broadband network that can be accessed in remote locations where terrestrial communications are unavailable or too slow, such as in rural areas, on the water or while in flight. 

While Starlink may be one of the more widely known, particularly given what has been happening in Ukraine, it is far from the only provider. In January the British-based OneWeb confirmed the successful deployment of an additional 40 satellites launched by SpaceX, bringing its total to 542 or 80% of its target. This was its 16^th deployment, with just two more remaining to complete its first-generation constellation enabling global connectivity in 2023. 

Another competitor to Starlink will be Amazon (AMZN), which just last week received a key approval from the Federal Communications Commission to send 3,236 satellites into orbit, allowing Project Kuiper to begin deployment of its constellation in order to bring high-speed broadband connectivity to customers worldwide. The first two of its satellites will be on the maiden flight of United Launch Alliance’s new Vulcan Centaur rocket, which I mentioned earlier concerning the second commercial lunar landing scheduled for this year.

Iridium Communications (IRDM), founded in 2001, is an OG of Space SPACs, having merged with a SPAC in September 2009. The company operates the Iridium satellite constellation, which is a system of 66 active satellites and 9 in-orbit spares to provide worldwide voice and data communications over satellite phones and supported Android smartphones.

EchoStar (SATS), founded in 1980, is another satellite OG which operates in two segments. Its Hughes segment provides satellite broadband Internet access to North American customers and its EchoStar Satellite Services segment uses both owned and leased satellites to provide services primarily to DISH Network. 

Viasat (VSAT), founded in 1986, provides high-speed satellite broadband services and secure networking systems for both military and commercial markets.

3. Observation 

August 2021, Spire Global (SPIR) started trading via a SPAC merger with a $1.3 billion initial valuation. The company uses a proprietary constellation of multi-purpose nanosatellites in low Earth orbit to generate Earth data, insights, and predictive analytics for customers through a subscription model. Spire’s global data covers a wide range of industries from weather to aviation, and maritime to government.

In December 2021, the Google-backed (GOOG) Planet Labs (PL) began trading publicly following a merger with the SPAC DMY Technology Group Inc IV. The company designs and manufactures Triple-CubeSat miniature satellites called Doves that are put into orbit as secondary payloads on other rocket launch missions. Each Dove has a high-powered telescope and camera programmed to capture different parts of the Earth, continually scanning the planet, with the goal of imaging the Earth every day.

4. Tourism 

The first space tourist was Dennis Tito, who in April 2001, joined two Russian cosmonauts on a supply mission, Soyuz TM-32 to the International Space Station. He remained on board the ISS for six days before returning to Earth aboard the Soyuz. Tito has objected to the term tourist, preferring “spaceflight participant.” After his seriously away vacay, he returned to the company he helped found, Wilshire Associates, with the ultimate unique vacation location conversation trump card. 

Virgin Galactic (SPCE) is the first publicly traded space tourism company and began trading in October 2019 after raising $450 million through a SPAC merger listing. The company is vertically-integrated and manufactures its own space vehicles. In July 2021, founder Richard Branson and three other employees rode as passengers into outer space, the first time a spaceflight company founder had traveled in his own ship.

Blue Origin, a privately funded aerospace company founded by Amazon’s Jeff Bezos, has its first tourist flight in July 2021, which included Jeff Bezos and his brother Mark. The company’s second flight included William Shatner, who at age 90, became the oldest person in space. SpaceX’s inaugural tourist flight came in September 2021, when four private citizens orbited Earth for three days.

Space Stocks and ETFs to Watch 

For those looking for a more diversified approach, here are a few ETF options:

• SPDR Kensho Final Frontiers ETF (ROKT): The index which the ETF seeks to reflect is designed to capture companies whose products and services are driving the innovation behind the exploration of deep space and the deep sea.
• Cathie Wood’s ARK Invest offers the ARK Space Exploration & Innovation ETF (ARKX), an actively managed fund that invests, under normal circumstances, at least 80% of its assets in domestic and foreign security companies engaged in Space exploration and innovation.
• Procure Space ETF (UFO) seeks investment results that correspond generally to the performance of an equity index called the “S-Network Space Index.” The companies of the underlying index receive at least 50% of their revenues or profits from space-related businesses.

The Bottom Line 

The fact that human beings dare to fling themselves into the vast void of Space is frankly mindboggling and probably more than a little bit insane, but so too were those who first dared to sail across the seas and risk falling off the edge of the Earth, or so thought conventional wisdom. It is particularly insane to think that for those first few decades, missions had less computing power than the laptop on which I am currently writing. The rate of acceleration in the Space economy is equally astounding. 

It is stunning to think that in 2023, there are expected to be at least three private-sector moon landings and that 2024 could bring the first commercial flight to Mars. In the coming decades, we likely will no longer think of our “world” as just the planet on which at least most of us will reside. Just as the explorers of Earth continually expanded humanity’s view of “our world,” so too will this new generation of commercial exploration expand our world of possibilities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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