Space: the final frontier market

Written by: Chris Menon Posted: 29/11/2018

BL59_spaceYou might never fulfil those childhood dreams of becoming an astronaut, but that doesn’t mean you can’t get a slice of the interstellar investment action

Seventy years after the first monkey was sent into space (sadly it was a one-way trip), a new space race is upon us. 

In a report entitled Space: Investment Implications of the Final Frontier, Morgan Stanley estimates that the global space industry, which is currently worth around US$350bn, will expand to become a $1.1trn market by 2040. 

The report argues that in the short to medium term, ‘most of the industry is linked to internet bandwidth’ and satellite broadband will be the means to fulfil an exponential demand for data for everything from internet to autonomous vehicles. ‘However, over the longer term, the discussion expands to topics such as national security, research, deep space exploration, high-speed travel… even mining asteroids,’ it adds.

Carissa Bryce Christensen is the founder and CEO of Bryce Space and Technology, a consultancy that specialises in space. She says the commercial space industry has been around for a couple of decades, mainly consisting of big satellites providing TV services, mobile, radio and internet services, commercial navigation systems (GPS) and imagery from remote sensing.

“What’s new is that more recently there’s been a different type of commercial investment coming into space,” she says. “That is, commercial investment more aligned with venture capital, both from traditional VC firms and billionaires such as Elon Musk, Jeff Bezos and Richard Branson.”

Breaking new ground

Indeed, for those seeking to invest in space projects and companies, the industry is pretty sexy right now. Many firms are focused on getting satellites into space, providing wireless data communications, space tourism and space freight. 

The one with the highest profile is undoubtedly Elon Musk’s Space X, which has successfully developed reusable space rockets. According to Morgan Stanley, this has reduced the cost of launching a satellite from approximately $200 million to around $60 million – and the aim is to reduce it further, to $5 million.

Space X also plans to launch its own satellite broadband network in 2019 and send someone to Mars in 2024. It’s even anticipated that its rockets could challenge FedEx and DHL freight services, by dramatically reducing the time it takes to move high-value freight around the planet.

Not to be outdone by Elon Musk, fellow billionaire Jeff Bezos, CEO of Amazon, has created aerospace manufacturer Blue Origin. The firm has developed reusable rockets and plans to offer orbital flights and help set up a base on the moon. 

Indeed, Bezos is on record as saying back in May 2017: “I think we should build a permanent human settlement on one of the poles of the moon. It’s time to go back to the moon, but this time to stay.”

Certainly, space tourism is expected to be a growth area in the very near future. Sir Richard Branson has created Virgin Galactic to develop reusable rockets focused more on this area.

Despite repeated delays to its launch, Branson has reportedly taken bookings for more than 600 passengers on his galactic carrier’s inaugural commercial flight – at $250,000 each. And according to Reuters, Blue Origin is doing likewise. While it’s a lot to pay for a five-minute trip in space, prices should eventually come down.

Should you seek a longer vacation in space, Orion Span plans to open a space hotel in 2022. Prices start at $9.5 million (£6.7 million) per person for a 12-day stay in zero gravity, orbiting at 200 miles from the Earth’s surface. 

Stepping back from the future into the present, it’s in the aforementioned area of satellites that there’s at least a track record for investors to look at. Indeed, according to Christensen, a lot of the satellite operators – the companies that buy the hardware and then sell services – tend to be pure-play, companies such as SES, Intelsat and Inmarsat. 

In addition, many companies are seeking to analyse the data coming out of these satellites and do something useful with it. Simon Drake, Managing Director and co-founder of Space Ventures Investors, which supports space start-ups, points out: “What we see in the mainstream media is usually rockets exploding, satellites falling to earth, and the prospect of living in space. When you look closer, there are many exciting things happening right now, and these things, and the people behind them, keep me excited and motivated. 

“My favourites are the next generation data-driven services, like how earth observation can help the agricultural industry, from detecting variations across wide swathes of land, right down to algorithms that can tell bee-keepers where to position their next bee hive.”

To boldly go

While the start-up pure-plays are entirely focused on space, there are also more established companies where space is just one of many sectors in which they operate.

Numerous large, publicly traded defence contractors are also involved in the space industry, helping to build satellites and even launch them. For example, United Launch Alliance is a joint venture between aerospace and defence giants Lockheed Martin and Boeing that provides launch services for the US government. 

Boeing also builds satellites through its Boeing Satellite Development Centre subsidiary, while Airbus is in a joint venture with OneWeb to build its satellites. 

Other US defence contractors with an interest in space satellites include Maxar Technologies and Northrop Grumman.

Commercial considerations aside, another key driver is national security, as countries seek a military edge from domination of space. 

China and India are starting to invest more heavily in space ventures – though their budgets are dwarfed by that of the US. As Morgan Stanley states: ‘With US military spending expenditures exceeding $600bn and global military expenditures exceeding $1.1trn, compared to NASA’s budget of $20bn, there is substantial room to increase investments in space.’ 

The US government has announced plans to create a Space Force that will become the sixth branch of the US Armed Forces – although whether that will end up as realistic a proposition as the Mexico border wall remains to be seen.

More speculatively, there are long-term projects to mine the precious metals that reside on asteroids. US-based Planetary Resources is backed by Google’s Larry Page and Braintree founder Bryan Johnson, while in the UK there is the Asteroid Mining Corporation. 

Put your helmet on

But before you embark on a journey to boldly put your money into space, it’s important to balance the opportunities with the risks. Not only that, but the pure-play start-ups are private and can almost always only be accessed via venture capital funds focused on the sector. Three such funds identified by Bryce Technologies are Starburst Ventures, Bessemer Venture Partners and Seraphim Capital. 
 
London-based Seraphim Capital’s Space Tech Fund has £70 million invested in early-stage private companies, with a distinct bias towards the UK and Europe by virtue of proximity.

James Bruegger, Managing Partner at Seraphim, explains: “We’re looking to back businesses that are collecting and communicating data about the earth from above. That includes satellites that are imaging the earth or being used to communicate with the earth. 

“It also includes airborne platforms for drones, and we’re investing in companies doing interesting things with all this data that’s being collected and communicated from above – for example, companies that are applying AI to the huge datasets that are being collected.”

Bruegger’s intention is to make money when these portfolio companies are floated or acquired by rivals. One of his more significant holdings is ICEYE, a Finnish start-up company that provides earth observation data via a series of mini-satellites day or night, regardless of cloud cover, to monitor issues such as oil spills, areas of flooding and crops.

Sadly, only the seriously wealthy can access most of these specialist, high-risk VC funds. Yet, for those with an appetite for space, there are some quoted companies worth looking at (see box). 

If the global space industry grows at the projected rates, there are huge opportunities to be had, both now and in the future. That said, investors would be advised to take as much care as any astronaut in charting a path through it. 

We have lift-off!

Here are three companies offering exposure to space that investors might like to take a closer look at: 
• Alphabet: Google currently has over one billion users. Improved global coverage from satellites will bring billions more online, increasing its internet penetration and driving up revenues and profits for its products: the Android ecosystem, paid search and YouTube. It also has a 7.5 per cent stake in Space X.
•Boeing: Boeing participates to a great extent in the satellite and launch components of the space value chain. It caters for customers such as ViaSat seeking communication satellites, and to NASA, which will use Starliner, Boeing’s reusable space capsule to ferry astronauts to the International Space Station. 
The company provides launches through the United Launch Alliance joint venture with Lockheed Martin.
• Inmarsat: This traditional mobile satellite services operator specialises in connectivity services for those in remote and difficult-to-access areas. For example, it supplies high-speed in-flight broadband services to airline passengers; data, broadband and safety communications to ships; and data services for those organising disaster recovery operations. It is a profitable organisation and is quoted on the London Stock Exchange.

 


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