Investing in space: Is space the next investment limit?

Space stocks have become very popular recently, as even exchange traded funds (ETFs) are being created to track the new industry. The successful flight of Virgin Galactic in July 2021 brought space travel closer to reality.

After that big moment, we saw further successful Blue Origin flights by Jeff Bezos and SpaceX by Elon Musk. And with all this, investor enthusiasm has increased. But is space tourism the only part of the space industry? And are space supplies the next frontier or are they destined to burn up in the atmosphere?

Why investors should pay attention to space exploration

It’s easy to explain why people should be excited about space exploration. This is the realm of science fiction and children’s dreams. But the explanation for why investors should pay attention to the industry is quite different.

For decades, space travel was so expensive that only those with the largest budgets could attend. For many years, the governments of the world’s most powerful powers drew resources from the entire economy.

That was then and it is now.

The combination of innovation and the government’s willingness to outsource and seek commercial solutions makes the space much more accessible on a commercial scale. Elon Musk’s feat SpaceX originally attracted headlines when it signed a NASA contract for a cheaper alternative rocket launch. A single launch with a SpaceX rocket saved NASA more than $ 500 million.

Although SpaceX may be the center of attention, it is not the first commercial company to win government-related space contracts. One of the first private companies to do so was EarthWatch (later it became the Digital Globe). In 1995, he won his first contract for a private imaging satellite.

Since then, competition has steadily increased and reached a crescendo as three billionaires fight for dominance in space. When competition heats up, the free market does what it does best: encourages innovation and lowers costs. This competition is likely to further expand access to space.

Investors can get even more excited as space technologies advance rapidly. This includes micro-satellites, which launch less. And lower costs, of course, allow companies to grow faster with less risk.

Space economy

The space industry opened up to private companies in the 1990s. But there was still a key bottleneck for the space industry: there was always only one party, the government.

The only way companies could generate any revenue was to compete for government procurement and abide by their strict rules. At the same time, the set of governments rich enough to be able to offer such contracts was incredibly small. And geopolitics has further limited the number of parties.

In this way, the life force of the company has been linked to the approval of the government, to all the bureaucracy that accompanies it – it is not exactly an attractive point of sale for new companies.

However, as innovation develops, the market opens up to a new type of customer. One that is diverse in geography and industry, from data analytics, hedge funds and – how to forget – tourism.

Space tourism is coming along

A new niche has opened up: space tourism. And this niche is the majority of titles today. Thanks to better technology, reusable rockets and ingenuity, it is now commercially feasible to fly people into space and back.

But tickets are still expensive, $ 450,000 on the low side. So this is affordable only to individuals with extremely high net worth. They can be given the opportunity of a lifetime to turn dreams into reality. Assuming someone with a net worth of more than $ 5 million would be willing to deduct $ 450,000 for the experience, we have a potential customer group of 3 million households in the U.S. alone. This allows for a better market than a single state party.

To further consider this exciting industry, let’s take a look at Virgin Galactic. That’s only fair, since he made his first successful flight.

An in-depth look at the Virgin Galactic

Virgin Galactic wants to sell its customers a weekly experience, with convenience at the top of their list of priorities. Compared to its closest competitors, Blue Origin and SpaceX, Virgin Galactic reaches its lowest altitude and sells the cheapest ticket, the aforementioned $ 450,000.

The experience includes three days of training in the purpose-built Virgin Galactic spaceport. Customers get bodysuits and custom equipment. Then the space tourists board the unique launch of the Virgin Galactic. (More reminiscent of a catamaran than a rocket.) They will fly at 50,000 feet above sea level before rocket boosters are activated, taking them 450,000 feet (85 miles) high, to the very edge of space.

Virgin Galactic reports that for now has deposits of 600 people totaling $ 80 million – important proof of concept.

Company finances

The company expects a 65 percent gross margin for each $ 450,000 ticket. This takes into account costs such as fuel, pilots and ground crew. The business model depends on the capacity of the ship and how many Virgin Galactic ships are flying.

Currently, the only operational aircraft carries eight passengers, including two pilots. To the extent, however Virgin Galactic plans 400 launches a year. That means more than a billion dollars in revenue. Whether she will succeed in this remains to be seen.

By comparison, Virgin Galactic rivals go further into space, but also charge more. SpaceX, for example, has the capacity to go much further than the other two and plans to sell tickets of $ 55 million each. Of course, SpaceX focuses more on space cargo than on space tourism (at least for now).

Like SpaceX, Virgin Galactic has a replacement business in mind. Its unique aircraft design can land at the airport. Therefore, the company also wants to offer fast international travel from point to point. The idea is for the plane to ignite its rocket boosters at high altitude so as not to disturb or disturb anything below.

Future options: asteroid mining

Although the technology may not be quite here yet and many engineering problems still need to be solved, asteroid mining has already garnered a lot of interest. This is because there are rocks in space that can be full of platinum or gold. In fact, NASA believes that a 140-mile-diameter asteroid named 16 Psyche has mineral value quintillion dollars.

Digging an asteroid for metals presents a remarkable engineering challenge. But water in space is a more necessary and less demanding endeavor.

Launching water into space costs as much as $ 43,000. Finding a way to get water in space significantly reduces the cost of space missions. Fortunately, many asteroids contain water.

But mining asteroids for drinking water is just the beginning. This makes the supply of space missions much cheaper. But some recommend splitting water into hydrogen and oxidant, which are key components of rocket boosters.

Basically, these asteroids could provide us with fuel in the middle of space that act like gas stations. In context, rockets consume 11,000 pounds of fuel per second during takeoff, and fuel is an important part of the rocket’s weight load.

If our technology gets to the point where water collection becomes cheaper than sending from Earth, we will see a whole new business model that could take space travel to the next level, rocket service for ever-longer space missions.

No more science fiction

You may think this is still entirely in the realm of science fiction and may be at least half a century away. But in reality in 2005 Japan successfully launched and landed a probe on an asteroid, which then picked up samples of minerals.

It is true that this was on a small scale. But some companies are already actively working to solve this problem. These include Deep Space Industries and Planetary Resources acquired by major space companies.

How investors can become exposed to space

As with any completely new sector, there are not many opportunities available to investors, much less in public markets. Given this, there are some very exciting names at the forefront of the industry.

Virgin Galactic (SPCE)

Of course Virgin Galactic presents a poster of the space industry and with good reason. It had its first successful flight and is a public company. Its competitors, Blue Origin and SpaceX, remain private companies.

SPAC

something Special Purpose Entities (SPACs) they plan to bring a number of space-related companies to the stock market. These SPACs provide investors with seats primarily on their potential initial public offerings (IPOs).

Maxar Technologies (MAXR)

In addition, other large space companies are dealing with less sexy aspects of space. This includes the aforementioned Digital Globe with its satellite infrastructure. Maxar Technologies bought Digital Globe in 2017. He also bought several other space-related companies. Although not affiliated with space tourism, he is a major player in the emerging space economy and has found a way to monetize it.

Ark Invest’s ETF (ARKX)

Then Ark Invest, always smart in its big bets on the future of technology, offers the ARK Space Exploration & Innovation ETF (ARKX), an actively managed space stock exchange fund (ETF). The ETF offers diversification and is great for investors who don’t want to get down to the essence of business models. This way, you will be exposed to an exciting trend with less risk per share.

Other opportunities

Finally, we have the largest industrial companies, which may not have space as their main goal, but they have the resources and technology to compete in space competition. In general, these are companies in the defense and aviation sectors. These include Airbus, Lockheed Martin and Raytheon. And these companies could benefit from the space boom. They can give investors some exposure to the space industry with much less risk.

Risks of investing in space

Investing involves risk. While the space is incredibly exciting, it probably involves even more risk than your average stocks.

For starters, this is an extremely capital-intensive business. Not surprisingly, these projects could only be started by governments for decades, largely because of their staggering costs. Technology and innovation help reduce costs. But the necessary capital still remains a major barrier to the entry of start-ups to move en masse into the sector.

Also honey 4% and 10% the launch fails. Given that everything needs to be launched to enter space, this is a major hurdle. Many startups may see years of money and hard work literally burning before their eyes. As a result, investors and financial institutions are, of course, afraid to invest or lend.

When I talked about failed space launches, I had in mind the launch of cargo. Such a failure is a major obstacle. But that pales in comparison to the human lives lost during launch, which would be a big setback for any business.

Finally, while technology is improving every day, we are really at the earliest possible stage. Companies have not yet proven whether these business models are sustainable and can generate profits in the long run.

Do we have a takeoff?

Of course, despite all the risks, the space is incredibly exciting. This is something that has fascinated humanity since dawn. That being said, we need to think as investors and not just as science fiction fans.

We are incredibly early in this industry and there are many dangers ahead of us. Although there are companies to invest in, there is no doubt that with the development of the industry, more and more companies will be open to investment.