It's hard to make predictions, especially about the future, as anyone who tried to invest in space stocks over the past year can tell you.
2021 was the year of the space IPO, as multiple start-up space stocks first merged with special purpose acquisition companies (SPACs), then went public in what were essentially initial public offerings to investors. Some of these names you know: Planet Labs (PL +10.78%), Rocket Lab (RKLB +34.08%), and Virgin Galactic (SPCE +17.13%) (which actually was the company that started the "space-SPAC" craze with its 2019 IPO). Others are names you probably wish you'd never heard of before: Redwire Corporation, BlackSky Technology, and Spire Global -- down 79%, 83%, and 89%, respectively, from their pre-IPO prices.
NYSE: SPIR
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In fact, after a brief period of initial success, by early 2022, each and every one of these space SPACs was trading below its pre-IPO price. And here in the early innings of 2023, they still are.
But investors are starting to distinguish the space SPACs and sort winners from losers. Even if Redwire, BlackSky, and Spire are all struggling to stay (or get back) above the $200 million market capitalization that separates penny stock microcaps from small caps, Planet Labs, Rocket Lab, and Virgin Galactic all retain $1 billion-plus valuations.
In the opinion of Mr. Market, at least, these are the space stocks most likely to survive the shakeout and go on to do good things. But is Mr. Market right about that?
Planet Labs
Take Planet Labs for example. Valued at $1.4 billion but with no profits and only $175 million in annual revenue, it's the furthest thing from a value stock. Planet Labs might prove attractive to growth stock investors, however.
Through the first nine months of 2022, Planet Labs grew its revenue 47% year over year -- roughly three times as fast as it had grown in 2020 and 2021, and exactly as fast as it had promised to grow in its pre-IPO prospectus a year earlier.
In 2023, Planet promised 51% growth, to be followed by growth of 55% in 2024 and 54% in 2025. So the company has set itself a very high series of bars to clear. It won't be easy to repeat -- let alone beat -- its growth performance from 2022. If Planet can deliver on its promises, however, a return to its pre-IPO valuation is not out of the question.
Rocket Lab
Like Planet Labs, Rocket Lab stock currently trades for about half what it cost pre-IPO. Like Planet Labs, Rocket Lab is not profitable. Even Rocket Lab's revenue resembles that of Planet Labs -- $187 million, give or take.
Probably the biggest difference between the two companies (aside from the obvious -- Planet Labs builds satellites, and Rocket Lab mostly builds, well, rockets) is that Rocket Lab's growth rate over the last nine months reached a phenomenal 354% -- 7.5 times as fast as Planet Labs grew. Don't expect a repeat of that feat in 2023, but over the next four years analysts are still forecasting another five-fold increase in revenue to more than $1 billion.
So Rocket Lab, too, will appeal mostly to growth investors, and there are two things you can look for as evidence that Rocket Lab is on the right growth track this year. The first will be an expected first-ever rocket launch from a U.S. spaceport on Jan. 23. If Rocket Lab can pull this off, it will grow its launch facilities base by 50%, and make it much easier to attract U.S.-based clients. Second, you'll want to watch for continued progress in the development of Rocket Lab's Neutron launch vehicle.
With a payload capacity of 13 metric tons (versus 0.3 tons for the company's current Electron rockets), Neutron should turbocharge the company's capabilities, and its revenue growth potential. With a first flight expected in 2024, if you want to catch Rocket Lab on the ground floor, 2023 is the year to buy in.
Virgin Galactic
And speaking of buying in, investors have been doing nothing but buying into Virgin Galactic stock lately. Shares of the original "space stock" rose every single trading day last week -- a combined 41% rise over five trading days.
What's all the fuss about? Simply this: Ever since its IPO four years ago, Virgin Galactic has been promising to build a space tourism business, taking non-NASA astronauts to the edge of space and bringing them home safely again at ticket prices ranging from $250,000 to $450,000. On Friday, Virgin Galactic confirmed that it's almost ready to start that business up and is on track to begin commercial operations in Q2 2023.
After generating just $1.6 million in revenue over the last 12 months, Virgin Galactic could soon be bringing in $1.5 million (or more) in revenue every single time it launches a spaceship. I'm not sure even that is enough to justify the stock's $1.4 billion market capitalization (which works out to 875 times trailing sales). But I do understand why the prospect has people excited.
