The space economy is booming, and we delve into two companies tapping into different areas of the industry and ask which is a better buy?
Sept. 7, 2021
Space has always fascinated people and has gained investors’ attention due to the ability to invest in companies operating in the industry in more recent times. Morgan Stanley estimates that revenue generated by the space industry could surpass $1 trillion by 2040. This could be highly lucrative for companies and investors alike, and we ask if Virgin Galactic (NYSE: SPCE) or Rocket Labs (NASDAQ: RKLB) is a better buy today?
Rocket Labs: Bull vs Bear arguments:
Rocket Labs is an “end-to-end” space company founded in 2006 by CEO Peter Beck and is headquartered in California. The company went public via a SPAC on August 25, 2021.
Rocket Labs is vertically integrated and produces rockets and satellites that have historically been small launches and non-reusable. Rocket Labs claims to be one of two private companies that have consistently delivered regular and reliable access to orbit with 18 launches to space and 97 satellites deployed in the last six years.
In 2021, Rocket Labs is forecasting total bookings of $69 million or 96% growth year-over-year (YoY), with current bookings already accounting for 90% of this total. According to Beck, the $777 million in gross proceeds raised from the SPAC process will enable the company to be “aggressive on our organic growth” and “inorganic growth” going forward. The company plans to be free cash flow positive in 2024 and to cross $1 billion in revenue by 2026.
The company is also developing its ‘Neutron’ rocket, which is set to launch in 2024. This will be a reusable rocket capable of carrying larger loads and human spaceflight. This will enable the company to compete with companies such as Elon Musk’s SpaceX. Despite the company being relatively small, it has won contracts from NASA for missions to the Moon and Mars in 2021 and 2024, respectively.
Rocket Labs estimates its total addressable market to be in the region of $30 billion across its launch and space systems, namely Electron, Neutron, and Photon, with further upside in space applications.
The company has recently hit the public markets and is yet to file a quarterly report, and at MyWallSt, we prefer to wait at least two quarters before considering an investment. The company also has a history of net losses, which stood at $55 million in 2020. In addition, the company has had three launch failures, and the occurrence of these may adversely affect the business.
Virgin Galactic: Bull vs Bear arguments:
Virgin Galactic was the first publicly traded space tourism company and was brought public in 2019 by the self-proclaimed King of SPACs, Chamath Palihapitiya.
Virgin Galactic has ‘Future Astronauts’ signed up with the number of reservations remaining steady at roughly 600 with a price tag of $200,000-$250,000. It is likely to be supply-constrained for the first few years of commercial service as it scales up to 400 flights per year per spaceport. The company also raised ticket prices to $450,000 and re-opened ticket sales in Q2 2021.
Commercial service is due to commence in 2022 after the update of its license, allowing it to carry tourists to space. The company also has a strong cash position of $552 million which is vital as it continues to operate at a loss before commercial service commences.
Virgin Galactic is scheduled to fly its first commercial research mission with the Italian Air Force in the next month or two, but it remains unknown if this will go ahead. This is the first mission of its kind led by a European country, and these commercial missions will be essential to generate revenue going forward.
Virgin Galactic is also eyeing opportunities outside the space tourism market with point-to-point hypersonic travel. The company signed an agreement with engine manufacturer Rolls Royce in 2020 to collaborate on this project.
However, in recent weeks, the Federal Administration Authority has grounded its flights while there is an investigation into the deviation of its flight course on the flight which Richard Branson was on. This may cause investors concern despite the company stating that “at no time were passengers and crew put in any danger”. The company is also operating at a loss of $94 million in Q2 and has pushed back the start date for commercial service multiple times.
So, which stock is a better buy right now?
Both of these companies are high risk, high reward. However, despite Virgin Galactic’s most recent challenges, I believe that Virgin Galactic is a better buy today and may even present an opportunity for investors with a high appetite for risk
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