Just a little over a year ago -- 13 months, to be precise -- former special purpose acquisition company (SPAC) turned "new space" company Astra Space (ASTR) got its own ticker on the Nasdaq Composite, becoming a viable public investment option for space investors.
It's been mostly downhill since.
Prepare for rapid descent
The downfall of the multiple companies that went public via SPAC IPO during the pandemic has been well documented, but Astra's plunge was especially steep. Since its July 1, 2021, public debut, share prices of Astra have fallen nearly 85%, including getting rocked for a 17.7% loss on Aug. 5, the day after the company reported its Q2 2022 financial results.
This sell-off was not entirely unjustified.
For its second fiscal quarter of the year, Astra reported $2.7 million in revenue -- which was an improvement, because last year's Q2 revenue was $0. However, the cost of revenue was $17.4 million, leaving Astra with a deeply negative gross margin. Add higher spending on both R&D expenses and marketing (both up 4x year over year), and a few other pluses and minuses, and Astra ended the quarter $82.3 million in the red, losing $0.31 per share.
Arguably even worse than the net loss, however, is the disaster unfolding on Astra's cash flow statement. There, Astra reported negative free cash flow of $124 million for the first six months of this year, which, according to data from S&P Global Market Intelligence, brings the company's total cash burn over the last 12 months to more than $234 million.
A cash bonfire in space
Why is this cash burn rate more concerning than the company's net losses as calculated according to generally accepted accounting principles (GAAP)?
In the course of reporting earnings, Astra also described a plan to abandon further use of its "Rocket 3.3" launch vehicle (which has so far launched successfully only twice out of seven tries), and shift its focus toward developing a new, larger, and more expensive rocket -- that by definition hasn't successfully flown even once yet -- instead.
Astra has been attempting to compete with a series of more successful space companies that specialize in using small rockets to launch small satellites to Low Earth Orbit -- in particular Rocket Lab (RKLB 0.92%), which has launched to orbit more than two dozen times already, and Virgin Orbit (VORB), which recently notched its fourth straight success. But with its Rocket 3.3's mixed record of success, Astra has decided to terminate all further use of the rocket, and "transition to the next version of its launch system."
Now Astra is promising that its new rocket, dubbed "Rocket 4," will feature "double the payload capacity of Rocket Lab's Electron vehicle at two-thirds the price," reports Ars Technica -- $5 million to put 600 kg of payload in orbit. This could give Astra a leg up over Rocket Lab if Rocket 4 performs as promised. Still, Astra added some caveats, noting that Rocket 4's payload capacity will probably need to ramp gradually over time (so maybe not quite "double" the capacity after all), and noting too that Astra might need to charge more than $5 million because of "inflation" (so maybe not quite "two-thirds the price," either).
Even taking Astra's promises as given, however, switching rockets now could pose some serious problems for Astra, which has just $200 million in the bank currently, and -- as mentioned above -- is already burning through cash at the rate of $234 million a year. Among these challenges:
- Astra will need to suspend Rocket 3.3 launches -- and revenue -- while it gets Rocket 4 ready.
- Test flights on Rocket 4 won't even begin until 2023, and revenue-generating launches for customers may not begin before 2024.
- Meanwhile, Astra will need to spend more money to develop the rocket in 2022, =2023, and perhaps even into 2024.
All of the above implies that Astra's already high rate of cash burn must now accelerate, to the point that the company will run out of cash in less than a year, and be forced to either take on more debt or sell more shares in order to raise cash to stay in business. To top it all off, this gamble Astra is making on Rocket 4 performing better than Rocket 3.3 might not even succeed in outclassing Rocket Lab in 2024 -- because 2024 is also the year that Rocket Lab will launch its newest rocket, the Neutron, which will be a reusable rocket with a payload 20x bigger than Rocket 4's.
Long story short, even if everything works out as planned for Astra, by the time it returns to market two years from now, its brand new rocket could already be obsolete.