SpaceX made history over the weekend when it launched two U.S. astronauts into space, the first crewed space launch from U.S. soil in nearly a decade. It was a remarkable accomplishment, and one that should usher in a new era of space cooperation between private companies and NASA.
It also was largely a nonevent for investors, as SpaceX is a private company and founder Elon Musk has expressed an interest in keeping it that way. SpaceX has big dreams, including colonizing Mars, and those sorts of ambitions, and research expenses, don't usually sync well with Wall Street's quarter-to-quarter tracking.
Space pure plays
There aren't a lot of large public companies focused solely on space; I'll get into why that is, and what it might suggest for investors later on. But there are a few options. Virgin Galactic (NYSE:SPCE), Richard Branson's space tourism venture, went public last year and has been the primary publicly traded beneficiary of SpaceX's recent success.
Virgin Galactic has yet to launch a human into space, and the company is very much in its development phase. Virgin Galactic generated just $238,000 in revenue in the first quarter, but it can boast a reservation list of more than 1,000 people who have signed up to eventually pay $250,000 to briefly go into space.
The company hopes to begin service this year and believes that with repetition it can bring down the cost of its launches and become profitable. It had better, because even if the entire reservation list is converted into full-paying customers, the money raised wouldn't go much further than covering the $200 million Virgin Galactic burned through in 2019.
Another option is Maxar Technologies (NYSE:MAXR), which is focused on satellites, digital imagery, and analytics tools. The company is a rollup of a number of small satellite providers perhaps best known as the source of many of the satellite images used by Alphabet's Google Maps product, but it gets most of its revenue from government and commercial customers.
Finally, Aerojet Rocketdyne (NYSE:AJRD) is focused on providing the rocket engines needed to get astronauts and satellites into orbit and beyond.
All of the space pure plays tend to be smaller, niche companies. There is a reason for that. Space by its nature is risky, and expensive. SpaceX has experienced a number of high-profile mishaps on its way to getting an astronaut into orbit. Testing and failure are parts of the development process, and that can be hard for smaller companies to manage and finance.
A significant portion of the revenue related to space is soaked up by larger, more diversified defense contractors. Most defense titans have space units, with Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT) in a joint venture called United Launch Alliance (ULA) focused on lift and Northrop Grumman (NYSE:NOC) making rockets via its Orbital ATK acquisition. Those companies, as well as others, including Raytheon Technologies (NYSE:RTX) and L3Harris Technologies (NYSE:LHX), also make satellites and sensors that are launched into orbit.
Although SpaceX is best known for its crewed efforts, the company so far has made its most significant impact in the launch business. Because it is private, we don't know the exact numbers, but SpaceX has succeeded in bringing down launch costs for government and commercial operators and has put pressure on incumbents including ULA and Northrop.
The real money in space comes from the manufacture of satellites, probes, and other objects designed to fly through space, and specifically the high-tech sensors and electronics on those objects, and not the rockets that get them there. That's a tough business to break into, especially since many of the launches are shrouded intelligence efforts that require employees with clearances, and at least for now are left largely to defense companies with strong ties to the Pentagon.
More options on the horizon
SpaceX appears to have no interest in going public, but management has in the past discussed eventually spinning off its planned Starlink internet service provider as a publicly traded entity. Starlink in the coming years plans to launch 12,000 small, low-orbiting satellites that can beam internet service to areas that are hard to reach by terrestrial offerings.
They aren't the first to try the plan: Viasat (NASDAQ:VSAT) and EchoStar's (NASDAQ:SATS) Hughes Network Systems currently offer satellite internet with various levels of success. Starlink is one of a number of next-generation companies that want to use an armada of small, inexpensive satellites instead of a couple of larger, more complex ones to provide service.
SpaceX in the past has predicted Starlink could generate upward of $30 billion in annual sales by 2025, though that appears to just be based on assuming all 12,000 satellites are utilized at maximum capacity. It could be a challenge to get to those sales numbers. The business will have to compete against incumbent satellite vendors, similar efforts funded by Amazon.com and others, traditional Earth-based providers, and new technologies including 5G wireless networking technology that could solve the same problems without the costs and complexity of going into space.
In the meantime, the Starlink launches are providing a steady stream of business for SpaceX and helping advance the company's goal of establishing a space-based communications network that could be used in future efforts to get to the moon and beyond. But as a stand-alone business, Starlink still has a lot to prove.
A word of caution
As mentioned above, space is hard. It is also exciting, and over time, as these technologies develop, could be lucrative. Bankers at Morgan Stanley in 2017 predicted the space industry could grow to as much as $1.75 trillion in annual revenue by 2040.
Motley Fool co-founder David Gardner likes to say, "make your portfolio reflect your best vision for our future," and it's easy to fit a world with space tourism, improved communications, and even moon colonies into that vision. Unfortunately, the complex engineering challenges needed to be tackled every day to launch people, and objects, into space inevitably lead to high costs and some business failures.
As an investor, it's OK to devote a small percentage of your portfolio to some of these pure-play space companies and hope for the best. But, as always, diversification is key. Given the risks associated with these businesses, it's dangerous to make space a key part of your retirement portfolio.