The New Frontier

Unveiling the rise of the Space Economy

James Candia

Investment Consultant

Today, as we stand on the precipice of a New Frontier, the emerging Space Economy, we are witnessing the dawn of a modern odyssey much like the daring exploits of explorers’ past.

However, many are unaware that the Space Economy, defined by OECD as “the full range of activities and the use of resources that create value and benefits to human beings in the course of exploring, researching, understanding, managing, and utilising space”, has the potential to revolutionise our lifestyles and economies.

Space hotels, asteroid mining and earth-to-earth rocket transportation were once confined to the realms of science fiction. Soon, these, and many more, could become realities that benefit us all.

Bank of America estimates that the value of the Space Economy could rise to more than $1.4 trillion by 2030.

Emergence of Space Economy

The value of the Space Economy has sky-rocketed in recent years. In 2022, it was valued at almost $550bn, up from $280bn in 2010, and Bank of America estimates that this could rise to more than $1.4 trillion by 2030.

According to Bloomberg, about one-third of the sector's revenue stems from infrastructure, including ground stations utilised for satellite communication, with much of the remaining revenue generated by space-based products, particularly satellites.

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Price-to-earnings: UK vs Global

Source: Morningstar

Sadly, the UK market’s apparent inherent value potential has remained just that – unrealised. In Sterling terms, the All Share underperformed the MSCI ACWI by 118% from 2013-2022. The valuation argument for favouring UK equities is certainly taking its time to come to fruition, and it could take longer still (if it ever bears fruit at all).

Rolling Returns (1-year): UK vs Global

What’s driven this growth?

Rising demand for space-based technologies and data, most notably satellite services, has been a key factor in the recent space economy boom. Increased satellite sophistication has allowed researchers to both enhance existing use cases across various industries. This includes internet services, communication, agriculture, and weather forecasting, and facilitate the provision of new offerings, such as more effective ecosystem monitoring and streamlined assessment of insurer risks.

The growing demand for satellite services has been met by an exponential surge in supply; just 10 years ago there were approximately 1,000 operational satellites in orbit, but by March 2024 the number had risen to over 9,000, with no signs of slowing down in the foreseeable future.

Another important driver of growth in this sector is the rapid technological progress experienced over the last decade.

Groundbreaking technologies, such as compact satellites and reusable launch vehicles developed by Space X, have made it more cost effective to develop and launch payloads into space. For example, private rocket launch companies can now deploy multiple satellites, some as small as 10cm3, in a single mission – with over 60 satellites carried in a single launch.

Falling costs have torn down barriers to entry, enabling many new participants to enter the market with innovative offerings.

In contrast to the market dynamics during the 20th-century ‘Space Race,’ a notable feature of today’s Space Economy is the birth of a thriving private sector, which has significantly expanded opportunities within the broader space industry.

For almost the entirety of the 20th Century, and for much of the 21st, space exploration was dominated by government agencies, such as NASA.

However, technological advancements have spurred significant private investment in the industry, leading to the emergence of numerous space startups over the past decade.

Importantly, a growing number of venture capital and private equity firms have been investing in the space ecosystem, as more private companies have entered the market to provide space-related products and services. Deloitte estimates that, as of the end of 2022, the global space sector had attracted private investments of about $272 billion into 1,791 unique companies since 2013, facilitating a necessary stream of funding to the sector independent from government's agencies.

What next?

New horizons and opportunities for the Space Economy

Low-cost launching capabilities opens the door to the emergence of exciting new offerings. Concepts of science fiction – commercial space travel, space hotels, cargo currently delivered by airplane or ship that is delivered more quickly by rocket, mining asteroids to extract precious metals, the colonisation of Mars – are now all possible, in theory at least, with the recent breakthroughs in rocket technology.

A word of caution: hold off on booking your return tickets to Mars just yet. These future space-related products and services are all being developed at varying speeds, and the technological complexities involved with these ventures means timelines for their realisation remain uncertain.

How to invest?

In nascent technology sectors like the Space Economy, it's inherently uncertain which businesses will thrive and which will falter, and that’s assuming the sector realises even part of its forecasted potential.

Although the largest investments in the Space Economy are mostly driven by funding from governments and venture capital firms, and many companies in the sector are still private, investors can participate in the growing sector. They can do this by owning stocks such as Astra Space, Rocket Lab (both launch services), Iridium (satellite communications) and Virgin Galactic (space tourism), to name a few.

For investors seeking a more diversified approach, ETFs including SPDR Kensho Final Frontiers ETF, ARK Space Exploration and innovation ETF and Procure Space ETF can provide exposure to a wide variety of space-related stocks.

Key risks and challenges

While investing in the Space Economy offers significant potential for growth, it also comes with several unique risks and challenges, including:

Regulatory uncertainty – The allocation of resources in outer space remains ambiguous, lacking a clear governing authority. Traditional methods, like flag planting, are inadequate for resolving this complex issue, emphasising the need for more robust international agreements and regulatory frameworks.

Technological complexity - Space related activities involve complex cutting-edge technology. Technical failures, such as rocket explosions or satellite malfunctions, can result in significant financial losses.

Environmental concerns – The expansion of space-related activities involves more carbon-intensive rocket launches and an increasing volume of space debris. Questions surrounding good practice and sustainability will need to be addressed as the sector matures.

High capital requirements - Firms seeking to enter the market require substantial investments in research, development, and infrastructure.

Conclusion

To conclude, although investing in the Space Economy presents a number of risks and challenges, the development of innovative technologies has laid the foundations for the emergence of exciting new industries and opportunities for private sector expansion.

As the Final Frontier becomes more accessible and commercialised, the Space Economy is poised to redefine the future of industry, commerce and exploration on a global scale.

Breakthroughs in space technologies are steering us on a course whose final destination remains unknown.

The question for investors is…how much are they willing to risk to join the ride?

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