ChatGPT & BARD were used to generate some sections of this article.
Pic Source: Joseph Baxter (Twitter) - Rocket: Electron (Rocket Lab)
When I was a child, my parents woke me up one night to show me a meteor shower. I had never seen anything quite as magical. It was a particularly clear night, but there were so many, almost unreal. Sometimes I wonder if it was even real, but I digress.
I’ve always been amazed by the secrets of our universe. This is even before I stumbled upon Special Relativity. The most recent discovery by JWST that our universe is likely older than 13.8 Billion Years is shattering science as we know it. (Side Note: I appreciate that scientists have been open about this and not dogmatic. Space is a humbling discipline after all).
I was and have been in love with Space ever since.
I try to invest in sectors that I have identified as sectors that could go 10x to 100x in the next couple of decades. I spend hours reading, listening to podcasts and thinking about which way our society is headed and what are the second order affects of those. I make long term bets based on that. I don’t know what will happen in 6 months but I think I have some idea of what things will be like in a decade or so. Assuming there are no large scale wars. Even in war, Space is crucial. It is The Final Frontier.
Why Space?
Humans are natural explorers. From the earliest days of our species, we have been driven to push the boundaries of our known world. We have explored the land, the sea, and the air, and we have even begun to explore space.
There are many reasons why humans explore. Some of us explore for adventure, while others explore for knowledge. Some of us explore to find new resources, while others explore to find new places to live. And some of us explore simply because we are curious about the world around us.
No matter what our motivations, exploration has always been a part of what makes us human. It is what has allowed us to spread across the globe and to develop the technologies that have made our lives so much better.
Source: BARD AI
Space provides adventure, knowledge, resources, new places to live (someday), technology, & curiosity. Do you think Humans are about to stop anytime soon? I argue, we’ve only just begun.
History of Space Exploration:
The Beginning:
The history of space exploration can be traced back to ancient times when civilizations such as the Greeks, Romans, and Chinese made observations of the stars and planets.
However, it was not until the 20th century that human space exploration began in earnest. The launch of the Soviet Union's Sputnik satellite in 1957 marked the first artificial object to be placed in Earth's orbit.
In 1961, Soviet cosmonaut Yuri Gagarin became the first human to orbit Earth, and in 1969, American astronaut Neil Armstrong became the first human to set foot on the moon as part of the Apollo 11 mission.
Source: ChatGPT
The Hiatus:
Since the end of NASA's Apollo program in 1972 and until the beginning of the International Space Station (ISS) program in 1998, there were no crewed missions to space. This gap was primarily caused by a lack of political will and funding for human space exploration in the United States and other countries.
During this time, NASA and other space agencies focused on robotic missions, such as the Voyager missions to explore the outer solar system, and the Hubble Space Telescope, which has provided unprecedented views of the universe. However, the absence of crewed missions led to a decline in public interest and support for space exploration, and a loss of momentum in the development of new technologies and capabilities for human spaceflight.
Source: ChatGPT (Paraphrased)
The Resurgence:
In recent years, there has been a resurgence in space exploration driven by a combination of technological advancements, private investment, and international collaboration. Private companies such as SpaceX & RocketLab have made significant strides in developing reusable rockets and spacecraft, making space travel more accessible and cost-effective. At the same time, government agencies such as NASA and the European Space Agency have continued to invest in space exploration, with missions to Mars, the Moon, and beyond.
The potential benefits of space exploration, such as the discovery of new resources and the advancement of scientific knowledge, continue to drive investment and interest in this field. Growing interest in space tourism also promises to open up new opportunities for commercial activities in space.
Source: ChatGPT (Paraphrased)
Space is back and How!
Here are two of my top investments in this Space
Everyone wants to invest in SpaceX but it’s not a publicly traded company, what’s the next best option? Rocket Lab! I’d go so far as to say that Rocket Lab is a poor man’s SpaceX but Rocket Lab has big ambitions.
Rocket Lab’s Electron has completed 35 orbital launches and deployed 159 satellites in orbit since 2017. It is the leader in small rocket launches.
In 2022 alone, Rocket Lab completed 9 Electron Launches and deployed 42 satellites to precise orbits. 4 out of the 9 missions were Government contracts. That shows you the ramp up in launches. They are well on their way to beat those launch numbers in 2023. But that is not what you should be looking at, more on it below.
Here is how Rocket Lab define their Mission on their website:
“Rocket Lab is an end-to-end space company delivering reliable launch services, spacecraft, satellite components, and on-orbit management.”
You can literally go to their website right now and fill out a form for a rocket launch like you are creating an email account.
Let's do a deep dive of their two revenue streams to understand what they do and how they performed in those businesses in 2022:
Global Market Leader in Dedicated Small Launch:
Electron is an orbital launch vehicle designed specifically to place small satellites of up to 300 kg/660 lbm (Pounds Mass) into a wide range of low Earth orbits (LEO). In 2022:
Second most frequently launched U.S. orbital rocket annually
Successful mission to the Moon for NASA using Electron rocket and Photon spacecraft
Now launching from 3 launch pads across the USA and New Zealand.
Electron launched more times in 2022 than all other U.S. small launch providers combined.
Source: Q4, 2022 Earnings Presentation
Space Systems:
Rocket Lab is vertically integrated and offers the Spacecraft construction and Spacecraft components. It offers Photon, an integrated launch and satellite platform which can be used for a range of missions like constellations, weather, earth observation, communications etc Read more here. It also offers parts like Star Trackers & Reaction Wheels, Radios, Space Software, Separation Solutions and Solar Solutions. In 2022:
200+ Spacecrafts featuring Rocket Lab components or software launched
30% of globally addressable launches in 2022 features rocket Lab products.
25+ spacecraft in development including a NASA mission to Mars, communications constellation, in-space manufacturing modules, and on-orbit refueling depots.
Source: Q4, 2022 Earnings Presentation
Revenue Break Down:
While Rocket launches are flashy, 71% of Rocket Lab’s 2022 revenue came from Space Systems which is growing much faster than the launch business (150.3 Million from Space Systems & 60.7 Million for Launches). It is great to see revenue diversification and growth.
Source: Q4, 2022 Earnings Presentation
Other Factors to Consider:
Space Heritage:
In space, heritage matters a lot and when companies don’t have it, they buy it.
In March 2020, the company announced that it had acquired Sinclair Interplanetary, a Canadian manufacturer of components for small satellites.
In October 2021, the company acquired Advanced Solutions, Inc (ASI), a Colorado-based spacecraft flight software company.
In November 2021, the company acquired Planetary Systems Corporation (PSC), a manufacturer of satellite separation systems for $81.4 million.
In January 2022, the company acquired SolAero, a supplier of space solar power products.
Given that Rocket Lab went on this buying spree just after their IPO in August 2021, and basically “purchased revenue” (given that those companies contributed to 71% of total revenue in the last year), shows astute leadership. Just like Elon Musk at SpaceX realized that the launch market is not that large and created Starlink as a way to generate revenue to support his Mars ambitions, Rocket Lab’s leadership pivoted early. In doing so, they didn’t only diversify their revenue streams but also filled a key infrastructure gap in the Space Economy by providing “space as a service” - pretty much.
Successful Moon Mission For NASA:
The other way to build heritage is to work with various government organizations and provide a reliable launch vehicle.
Rocket Lab became the first small rocket provider to launch a spacecraft to the Moon as part of NASA’s Capstone Mission. Rocket Lab is the only small launch provider to have designed, built, launched & operated the Rocket, Spacecraft & high performance engine in orbit.
Rocket Lab is building a competitor to SpaceX’s Falcon9: Neutron:
Rocket Lab is now building a new, bigger rocket that can carry 13,000 KG to LEO. It will be reusable up to “10 to 20 times” each, in range with the current reuse performance of a Falcon 9 booster. It is also being built with the goal to carry humans into space.
“We are positioning Neutron to compete directly with the Falcon 9,” Rocket Lab Chief Financial Officer Adam Spice said earlier this week, speaking at a Bank of America event in London on Tuesday.
SpaceX advertises a Falcon 9 launch with a $67 million price tag, and Spice says Rocket Lab is aiming to match that on a cost-per-kilogram basis for satellite customers. That means Neutron is targeting a ”$50 million to $55 million launch service cost,” Spice said.
Source: CNBC
Rocket Lab hopes to have Neutron flying before the end of 2024.
Valuation & Growth:
The company is still not profitable but expected to be profitable by 2025. I believe if the Neutron development goes as planned, then that is very doable.
However, Here are some numbers as they stand today
EV / Sales (TTM): 7.34 (lowest it has ever been)
EV / Sales (FWD): 5.34 (Rocket Lab has never traded this cheap)
Revenue Growth (YoY): 239.02%
Revenue Growth (FWD): 92.7%
Backlog grew from 243 Million at the end of Q2, 2021 to 503.6 Million at the end of Q4, 2022 (Q4, 2022 Earnings Presentation)
Rocket Lab has 471.79M in Total Cash & 156.51M in Total debt
The stock has strong support at $3.5. This stock is a millionaire maker according to me and hence is my largest position.
In-space manufacturing is something that is still a little bit out into the future but maybe not as far out as you might think. When we think about space, we often tether our thinking to our terrestrial home, Earth. Why do we need to manufacture in space? Why can’t it just be manufactured on Earth? And there is value in asking that question, because there are some things that can be better manufactured in space in zero gravity, like ZBLAN Fiber Optic Cable & Human Organs (details in this video). So for those things, yes, we manufacture in space and then bring it back to earth. The value derived from products manufactured in space needs to be significantly higher as compared to what can be manufactured on Earth to justify zero gravity manufacturing.
But my primary belief is that Humans were not meant to stay on Earth and when you start thinking about our civilization moving beyond our planet, it all starts making sense. Just like it is very expensive to manufacture things in space and bring it back to Earth, it is also very expensive to get things from Earth to Space (SpaceX charges $1,200 per pound of payload to reach low-Earth orbit). If Humans ever become a Type Two Civilization, we will mine, manufacture, build in space. There are unlimited resources in space. Why would we burn $1,200 worth of energy to get a pound into space when it is already there?
The most common thing that I think we'll mine in space is going to be Water. We already use Solar Energy extensively but with water we can split it to create Oxygen for breathing and Hydrogen for fuel. This will be the cornerstone of Human deep space exploration. For more details on what is being done to mine water in space, check out this video by Bloomberg Originals (22 Mins). You might also want to follow Honeybee Robotics & TransAstra, two companies that are leading the charge in mining water in space.
I’ve been following ‘Techshot’ & ‘Made in Space’ (two companies that Redwire eventually acquired) for a few years now.
Techshot, acquired by Redwire in November 2021 is trying to print human organs in space. Here is a small snippet from NASA:
Using 3D biological printers to produce usable human organs has long been a dream of scientists and doctors around the globe. However, printing the tiny, complex structures found inside human organs, such as capillary structures, has proven difficult to accomplish in Earth’s gravity environment. To overcome this challenge, Techshot designed their BioFabrication Facility (BFF) to print organ-like tissues in microgravity, acting as a stepping stone in a long-term plan to manufacture whole human organs in space using refined biological 3D printing techniques.
Source: NASA
Made in Space, acquired by Redwire in June 2020 built the Archinaut platform. Archinaut is a Redwire enterprise solution for in-space manufacturing needs, enabling the next generation of large-scale, off-world manufacturing. It is a technology suite that combines additive manufacturing with robotic assembly for remote in-space construction of large complex structures. Implementing these on-orbit servicing, assembly and manufacturing (OSAM) capabilities also enables the repair or reconstitution of existing satellite assets.
NASA’s exploration roadmap for Moon to Mars will employ new platforms like Gateway & Artemis that will benefit from in-space manufacturing capabilities. Building infrastructure off the planet without having to launch critical components is crucial when looking at these exploration goals. Redwire is pioneering new capabilities in space that will reshape the design landscape for space missions. Combining additive manufacturing and robotic assembly to create space-optimized assets alters the future of mission architecture and satellite design.
Source: Redwire Website
Redwire’s Capabilities & Mission:
Over the last few years, Redwire has built more capabilities in Space Manufacturing and you can see everything they offer listed on their website here.
Redwire has been part of missions all over the Solar System & Deep Space, check out all their Missions here.
Redwire’s Legacy:
Redwire came into existence when a private equity firm AE Industrial Partners bought together a bunch of smaller space companies to target the ‘middle market’ in space. So all of Redwire’s legacy is purchased (nothing wrong with that). If you want to learn more about the history of Redwire, then I would recommend you to read this article by Vince Martin on Seeking Alpha. It’s old but history is history!
Valuation & Growth:
The company is still not profitable but expected to be profitable by 2025.
However, Here are some numbers as they stand today:
EV / Sales (TTM): 2.18
EV / Sales (FWD): 1.53
Revenue Growth (YoY): 16.68%
Revenue Growth (FWD): 31.40%
Backlog grew from 251.7 Million at the end of Q2, 2021 to 304.0 Million at the end of Q3, 2022 (Q3, 2022 Earnings Presentation)
Redwire has 28.32M in Total Cash & 95.09M in Total debt
I got into Redwire early and don’t mind waiting for things to improve. I continue to dollar cost average and rebalance when I get a chance.
But given that the stock has run up recently & that the debt & cash position are concerning, I would hold off on adding aggressively until the cash/debt position improves.
Recommend watching this 24 Minutes video on the Bloomberg Originals YouTube Channel (Recommend Subscribing) which talks about Made in Space & Techshot before they were acquired.
Conclusion:
Space is out of favor today. Everything is about AI & T-Bills today. I want to add to my $NVDA & $MSFT positions too and I do add tiny amounts every once in a while when it comes down but I won’t be in that same position when it comes to Renewable Energy or Space.
Where is the puck going?
Past performance is no guarantee of future results.
The ideas discussed in this article should not be constituted as investment advice.
Disclosure: We own positions in some/all of the tickers mentioned in this article.