Is Space The Next Big Investment Venture?

Is Space The Next Big Investment Venture?

• Private investment into the space industry is expected to reach $10 billion this year with around 800 companies currently involved with space operations in some form.

• SpaceX’s reusable rocket technology could lower the cost of launches from $70 million to under $10 million.

• The natural resources that can be found in asteroids could prompt a space mining boom within the decade or so.

Beyond the standard business cycle of expansionary and recessionary phases where certain stock sectors outperform or underperform more than others, a larger cycle exists. It’s a much longer cycle that can take time to develop but once it gains enough momentum, could last for decades.

In the 19th century, railroads were the booming industry. Beginning in the mid-1800’s, the advancement of transportation led to a nation interconnected for the first time in a way that fundamentally changed how businesses operated.

As the economy expanded and technology forged onward, it gave way to the oil boom which lasted well into the 20th century. Some of the companies founded back then are still around today. Names like Exxon Mobil, ConocoPhillips, and Chevron all stemmed from the early days of the oil rush. The growing production demand from factory output and economic growth led to the creation of the wealthiest man in U.S. history – the oil baron John D. Rockefeller. In today’s dollars, he would have been worth more than $330 billion.

The advent of the computer gave birth to a new era – the digital age. The computer transformed businesses overnight and allowed transactions to take place instantly even over long distances. Companies like Apple, Intel and Microsoft were founded during the birth of the computer revolution. It gave way to new leaders such as Bill Gates and Steve Jobs and inspired many more advancements in the industry.

Right now we’re still living in the digital age. Technology is more often than not the origination of disruptive companies and the home of some of the largest and most cash-rich companies in the stock market. But like all boom markets, they eventually come to an end as another, more lucrative opportunity comes along.

Boldly going where business has never been before

It has been about 43 years since man last stepped on the surface of the moon and the era of the Space Shuttle is over, but space is coming back into popularity in a way that has never been done before. What was once the realm of just the United States and Russia has become relatively crowded with many other countries like China and India launching their own endeavors.

The U.S. has renewed its interests in space exploration thanks largely to the success of the International Space Station. Breakthrough scientific research and new possibilities such as a visit to Mars have driven not only more government spending on space programs, but opened the door for the privatization of space operations as well.

Estimates predict that private investment in space ventures will hit $10 billion for 2015. According to Bloomberg Business, the space industry has grown six-fold in the past five years with over 800 companies now involved in some fashion with space. NASA is now using private contractors and has a budget this year of $1.2 billion for commercial purposes. Already being dubbed “Space Race 2.0,” the outlook for the space industry is brighter than ever.

Interest in space by private parties isn’t solely for exploration though – profit is the real goal. Commercial activities that companies are looking at includes mining, launch services, entertainment, and transportation. While still a decade away at least, some ambitious companies have already been formed with the goal of mining asteroids for their rich iron, nickel, cobalt, magnesium, gold and even platinum reserves. Rare natural resources may be able to be found more easily by looking off-planet in the near future with enormous profit potential from relatively small amounts of these types of minerals mined.

Energy solutions could also be found by looking to the heavens. More efficient solar arrays placed in orbit or housed on the moon could completely transform the energy industry.

One of the biggest things holding companies back is the cost to actually get into space. The cost of a single rocket launch currently costs around $65 to $70 million making it prohibitively expensive for many companies to be profitable.

One company however, might just be the key to truly kicking off the next great investment boom.

Dreamers and disruptors

Like the oil boom produced Rockefeller and the tech boom gave us Gates, the new space frontier is being pioneered by a man named Elon Musk. He’s already helped revolutionize online payments through PayPal and mass marketed the electric car with Tesla. His latest passion though is the aerospace manufacturer and space transportation company SpaceX.

The company is known for developing reusable rockets and currently services the International Space Station by sending up cargo and various supplies to the astronauts that work there. Its long term goal is to establish a presence on Mars but its biggest potential game changer right now is what it could do for the space launch industry.

Reusable rockets could drastically lower the cost to get into space bringing it down from $65 to $70 million to around $20 to $30 million. That would greatly improve the profitability of emerging space companies and encourage more to get into the field. Musk has stated that he believes that he can lower the total cost of space access down below $10 million by refining the process and creating a reusable rocket that lasts longer and costs less to manufacture.

There’s enough behind Musk’s dream to get the attention of serious investors. Earlier this year Google and Fidelity invested $1 billion bringing SpaceX’s total value to $12 billion. This should help the company with its newest project to provide a space-based internet service across the globe. The company plans to manufacture and launch 4,000 satellites into low-orbit to meet this goal and provide income in order to develop its overarching mission of establishing a colony on Mars.

Elon Musk isn’t the only name in private space ventures though. Richard Branson, the outspoken and rambunctious UK billionaire is the founder of Virgin Galactic, a company that is targeting to provide spaceflight to the general public.

In a venture similar to SpaceX’s space-based internet access plan, Virgin Galactic has teamed up with Qualcomm in an endeavor called OneWeb. The tiny satellites are similar in size to a toaster and can be deployed by the dozens with a single launch making them very cost effective compared to traditional satellites.

Orbital ATK Inc. (OA) is another name in the fledgling space industry that is making progress and it’s publicly traded. The company manufactures the Taurus, Pegasus, and Minotaur launch vehicles that are used in conjunction with SpaceX to shuttle goods to and from the International Space Station. It’s also the only publicly traded “pure play” for investors right now given that SpaceX and Virgin Galactic are privately owned.

Space has traditionally been the domain of satellite services, providers and defense contractors but new technologies and more efficient launch vehicles means that the days of expanding into other fields are right around the corner. The possibilities are endless and the field is still in its infancy leaving plenty of room for newcomers and innovators to take advantage of the opportunities.

What the future holds for space travel

Taking the business world beyond Earth’s atmosphere comes with its share of pitfalls. Like any emerging industry, there are still quality issues that need to be addressed in order for the industry to thrive. Both SpaceX and Virgin Galactic have had spectacular failures on record with crashes and failed launches. A minor accident can wipe out millions of dollars’ worth of equipment and investment in an instant making the space industry a risky venture.

Despite the risks, more companies are willing to jump into the industry as we’ve seen with Google and Qualcomm. Space might be a small business segment for most of these companies right now, but once a profitable business model is established, it won’t be long before that segment undergoes a tremendous growth spurt.

As the musician Bob Dylan once said, “The times, they are a-changin’.”

Fariba Ronnasi
CEO, Elite Wealth Management

Full Disclosures:
This article is not intended as investment advice. Elite Wealth Management or its subsidiaries may hold long or short positions in the companies mentioned through stocks, options or other securities.

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