A Look At The Space Sector – Low Earth Satellite Internet, Space Tourism And Rapid Long Haul Earth Travel – Seeking Alpha

This article first appeared on Trend Investing on June 20, 2020; therefore all data is as of this date.

The space sector is undergoing rapid change and looks like undergoing a major growth trend during the 2020's decade. The invention of reusable rockets has allowed for much cheaper space travel today; thereby opening up several new possibilities. Today I look at three of them - Global satellite internet networks, space tourism, and the potential for rapid long haul earth travel ('rapid inter-continental flight'). I also look at the leading companies for each.

Forecasts for the global space industry

The space sector can benefit from being paid to launch the low earth satellites or they can benefit by owning them. Here I focus on the later.

I recently covered this area, so readers can view the linked article below. Essentially SpaceX's Starlink is leading the low earth global satellite rollout. The key to the Starlink service will be 'global reach' and 'low latency' supported by their planned 12-42,000 small low earth orbit satellites. Customers of Starlink will mostly come from low population density areas that have poor or no internet service, and Elon Musk expects this to be about 3-5% of the internet service provider market share. Elon recently quoted estimates of Starlink revenues of US$30b a year, based on gaining a 5% global market share as an internet service provider. Start up costs are estimated at ~US$10b or more.

There are some existing players (Iridium satellite constellation, Mu Space), and others with plans (SoftBank's (OTCPK:SFTBF) OneWeb, Amazon's (AMZN) Project Kuiper), and Eutelsat. For now it is looking like Space X (~54% owned by Elon Musk, ~7.5% owned by Alphabet (GOOG) (GOOGL) in 2015) will be the winner, with US services set to begin as soon as H2 2020.

Orbital space tourism

Space tourism began in the early 2000's but was very expensive and reported to cost US$2025 million per trip. This was 'orbital' space tourism and was performed only by the Russian Space Agency ('Roscosmos') brokered by Space Adventures (private). In recent years NASA has had a lower budget for space exploration, with the idea to make way for private companies. For example, Boeing (BA) has their CST-100 Starliner, which is a reusable crew capsule used to transport crew to the International Space Station (ISS). Others in the orbital space business include SpaceX, United Launch Alliance, Blue Origin and Northrop Grumman (NOC), the Chinese and the Russians.

What's the difference between orbital and suborbital spaceflight?

Space.com quotes:

An orbital spacecraft must achieve what is known as orbital velocity, whereas a suborbital rocket flies at a speed below that. Orbital velocity is the speed that an object must maintain to remain in orbit around a planet.

Suborbital flight requires much lower speeds. A suborbital rocket doesn't have the power to achieve orbit. Instead it will fly up to a certain height that depends on its speed, and then come back down once its engines are shut off. To reach 125 miles above Earth, a suborbital vehicle needs to fly at 3,700 mph (6,000 km/h), much faster than a commercial airplane, which flies at around 575 mph (925 km/h). At the top of their flight arc, passengers in a suborbital vehicle will still achieve a few minutes of weightlessness. They are, in fact, falling back toward earth.

Note: The Virgin Galactic spaceship flies at 3,500mph.

Suborbital space tourism

The new era of space tourism is expected to start this year with reusable rockets and 'suborbital' spaceflights. Prices will be drastically reduced from the past 'orbital' flights, leading to a greater interest in space tourism. This is the area that I expect we will see the biggest growth.

Virgin Galactic Holdings Inc. (SPCE) - Price = USD 15.00

Virgin Galactic (SPCE) is offering space tourism flights for US$250,000 for a 90 minute suborbital flight that goes about 50 miles (80kms) above earth. Richard Branson stated in a 2019 CNBC video interview that as more customers use the service and Virgin Galactic takes on more space ships the economies of scale are expected to decrease the price significantly. The company now has its permanent headquarters at Spaceport America in New Mexico, where they can launch their spacecraft.

Virgin Galactic had expected to begin tourism flights by June 2020, however this has now been delayed due to COVID-19. A recent report quotes: "Virgin Galactic doesnt have a timeline for when the first passenger flights will begin" and they "remain focused on flying Richard Branson to space as soon as we can."

As of May 2020 Virgin Galactic had received 400 refundable deposits for flights, but have reportedly had 2,500 people express interest. That equates to US$100m in potential revenue. Current cash burn is ~US$60m per quarter (based on Q1, 2020). Virgin Galactic expects to be profitable about 1 year into operations (late 2021/early 2022).

Their VSS Unity reusable spacecraft can land like a normal plane, making the loading and unloading of passengers an easy process.

Back in February 2020 it was reported that: "Company backed by Richard Branson says it has secured 20 of 29 necessary approvals from FAA."

Virgin Galactic has a market cap of US$3.2b. Analyst's consensus is an 'outperform' with a price target of US$23.00 representing 53% upside.

Virgin Galactic is the current leader in suborbital space tourism with their VSS Unity reusable spacecraft shown being carried ready for launch

Source

In 2019 CNBC reported:

Credit Suisse says to buy Virgin Galactic stock for its near-term monopoly on space tourism..... Our bullish view reflects the near-term monopoly SPCE offers in an industry (commercial space tourism) where public investment opportunities are scarce, Credit Suisse says.

Virgin launches their spacecraft using a mothership - The point of release is shown

Source: video

SpaceX Exploration Technologies Corp. (Private) "SpaceX"

Space X has become a leader in aerospace since they first developed reusable rockets which dramatically undercut the costs of their competitors such as NASA. In recent times SpaceX has focused on launching satellites for Starlink (discussed earlier), and in time will no doubt enter the space tourism and perhaps the rapid long haul earth travel sector (more on that in the next section below).

Wikipedia states:

SpaceX is an American aerospace manufacturer and space transportation services company headquartered in Hawthorne, California. It was founded in 2002 by Elon Musk with the goal of reducing space transportation costs to enable the colonization of Mars. SpaceX has developed several launch vehicles, the Starlink satellite constellation, and the Dragon spacecraft.

SpaceX is ~54% owned by Elon Musk and ~7.5% owned by Alphabet (GOOG) (GOOGL) (a 2015 based %), and other private shareholders.

SpaceX website summarizes the business

Source

Blue Origin (private)

Blue Origin Federation, LLC is an American privately funded aerospace manufacturer and sub-orbital spaceflight services company headquartered in Kent, Washington.

Wikipedia states:

Blue Origin is developing a variety of technologies, with a focus on rocket-powered vertical takeoff and vertical landing (VTVL) vehicles for access to suborbital and orbital space. The company's name refers to the blue planet, Earth, as the point of origin

Blue Origin is currently still testing flights of its New Shepard suborbital spacecraft. In May it was reported that Blue "aims to take people to moon by 2024." The spacecraft moon lander is known as "Blue Moon".

Blue Origin is owned by Jeff Bezos.

Blue Origin plans to take tourists to the moon by 2024 in the 'Blue Moon'

Source

The above reusable rocket technologies also have the potential (if approved and/or modified) to cater for 'rapid long haul' earth travel. That is, offering rapid speed long distance 'point to point' earth travel. For example, the SpaceX Starship could fly from New York to Shanghai in 39 minutes, rather than the 15 hours it takes currently by conventional plane. Slightly slower for the Virgin Galactic spacecraft, but still under 2 hours. Boeing has recently invested US$20 million in Virgin Galactic to design a vessel that can travel at 5 times the speed of sound.

It should be pointed out that currently the Virgin Galactic spacecraft takes off and lands like a conventional plane making passenger loading and unloading easier, and could theoretically work with existing airports. The Space X and Blue Origin spacecrafts take off land like a rocket upright, so would have some issues using existing infrastructure at airports etc.

The market would start with VIP passengers & cargoes, and in time to the mass market as prices fall. Virgin Galactic co-founder and Chairman Chamath Palihapitiya stated the long haul market represents US$300b of ticketing revenue.

An Inverse.com report quotes:

Beyond exploring planets like Mars and beyond, Musk also explained it could be used for Earth-to-Earth trips. These manned Earth trips wouldn't be pretty. Where a space-bound mission would fit 100 people in comfortable cabins, these Earth missions would pack 1,000 people into a configuration Musk compared to Space Mountain. The time savings, however, could radically transform humanity's conception of time and travel: London to New York (5,555 kilometers): From seven hours, 55 minutes by plane, to just 29 minutes by Starship.

The Verge quotes:

Virgin Galactic founder Richard Branson has talked about eventually developing point-to-point travel, which entails rocket-powered vehicles taking passengers from one point on the Earth to another. Point-to-point travel has been floated by other companies, too, notably SpaceX, but such technology is far from reality. And there are concerns about the feasibility of such forms of travel.

Rapid long haul earth travel is still at the concept stage; however it makes sense that if approved it can follow on from space tourism, assuming the economics can work for both the business and the customer. The winners would likely be the same as space tourism - Virgin Galactic, SpaceX, Blue Origin, and perhaps Boeing. Other starts ups would also have a chance at success.

The Procure Space ETF (UFO) - Price = USD 20.51

The Procure UFO fund description:

The Fund has adopted an 80% policy to invest in companies that receive at least 50% of their revenue or profits from one or more segments of the space industry. Although there is no legal definition of space, a commonly accepted definition is that the edge of space begins at the Krmn line which is 100 kilometers (62 miles) above the Earths surface. This is approximately the point where there is not enough air to provide lift to a winged vehicle.

The fund seeks to track the S-Network Space Index.

Bloomberg quotes the UFO fund as having a 0.57%pa dividend yield. The expense ratio is 0.75%pa.

Top holdings by percentage

Source

Sector and industry exposure of the Procure Space ETF

Source

The three huge growth areas of space in the 2020s should be low earth global satellite internet (led by SpaceX), space tourism (led by Virgin Galactic, SpaceX and Blue origin), and potentially rapid long haul (point to point) earth travel (same companies potentially as space tourism).

All three of the above relatively new industries have potential to create multi-billion dollar (UBS says $805b space industry by 2030, Morgan Stanley say $1T space industry over the next 20 years) revenue streams for the space industry, with quite high barriers to entry.

For most investors right now the only option is Virgin Galactic, as SpaceX and Blue Origin are private. There is also the Procure Space ETF (NASDAQ:UFO) as a reasonable diversified option on the space sector that can suit more conservative investors.

Risks are always high for new industries, and space travel is inherently risky as described in the risks section of the article.

I see the opportunity as one that investors should not miss out on, but would need to invest with a decade long time horizon and with funds they can afford to lose.

As usual all comments are welcome.

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A Look At The Space Sector - Low Earth Satellite Internet, Space Tourism And Rapid Long Haul Earth Travel - Seeking Alpha