Citi's Space Economy

With the launch of Axiom Space’s second private orbital mission on May 21, the US private sector is taking significant strides toward making space a viable commercial industry, one that is forecast to become a trillion dollar industry by 2040.

The mission, which will shuttle four astronauts to and from the International Space Station, is part of the Houston, Texas-based company’s plan to build the Axiom Station, the world’s first commercial space station. Founded in 2016, Axiom aims “to develop a sustainable low-Earth orbit economy as humans venture farther for longer duration in space,” the company said on its website.

This mission “opens more opportunities to scientists and researchers around the globe and will provide vital data in preparation” for a commercial space station, Axiom said in its statement. Elon Musk’s Falcon 9 Space X rockets and Dragon spacecraft carried four astronauts to the International Space Station.

Axiom and Space X are part of a growing number of companies competing in an industry that is increasingly becoming vital to intelligence agencies, the domain of warfare, satellite communications and potentially mining. Citi published a GPS report in mid-2022 that forecasts space to become a trillion-dollar industry by 2040 (a 5% CAGR) propelled by growth across the satellite industry, government space budgets, and a proliferation of new applications and industries.

High Ground

“Space is the ultimate high ground,” Citi said in a Global Insights article on May 12. “It also provides an ideal perch from which to collect data for use on earth. That data has myriad potential uses, from mapping to asset and crop monitoring, weather forecasting to climate change tracking.”

In the future, “we’ll likely see increased discussion of space-based solar power, Moon/asteroid mining, space logistics/cargo, space tourism, inter-city rocket travel, and areas such as microgravity R&D and construction,” Citi said. In the first six months of 2022 alone, a record-setting 1,022 spacecraft were placed in orbit—more than in the first 52 years of the Space Age (1957-2009, 986) combined, according to the Space Foundation.

Despite the potential for growth in the industry, investors need to be careful when investing in the outer space “goldrush” because it's a tough, capital-intensive business, Citi analyst Jason Gursky said in a note in April. Designing survivable aircraft isn't easy and it is expensive to deploy spaced-based hardware, Gursky said.

Falcon 9, the rocket that propelled the crew on the Axiom Space mission, is the world’s first orbital class reusable rocket. The reusable, two-stage rocket was designed and manufactured by SpaceX for the reliable and safe transport of people and payloads into Earth orbit and beyond, according to the company’s website.

Given the challenges of developing the reusable, and affordable rockets, Gursky prefers business models that have demonstrated the ability to quickly ramp up revenue or provide “picks and shovels” to others. “In a way, space feels like the opportunity presented by the California gold rush – lots of risk, but plenty of potential upside for those that find the special nugget,” he wrote.

Buy Rating

Of the companies competing in the space sector, Citi believes the best space-related investment is Planet Labs ($PBC), a provider of global, daily satellite data. Citi initiated coverage of the stock with a buy rating and a 12-month price target of $6.

The stock closed on May 24th at $4.35. It is down 2.9% year-to-date.

“We like the company's positioning in Earth Observation, a market in which Citi expects low teens growth, and its near-term emphasis on more reliable government customers,” Gursky said. The company's revenue should grow at 29% CAGR through fiscal year 2026 it's forecast to begin generating cash in 2026, Gursky said.

Along with Planet Labs, Citi also initiated coverage of Rocket Lab and Canadian space technologies company MDA with neutral ratings in April.

Planet Labs

Planet Labs reported in March that an adjusted EBITDA loss widened to $17.7 million for the fourth quarter from $16.7 million in the year-earlier period. Its net loss narrowed to $37.8 million, or 14 cents a share, from $46 million, or 26 cents.

Planet brought in $53 million in revenue during the period, a 43% increase from $37.1 million a year prior. For the full year, Planet’s revenue came in at $191.3 million — at the top end of its previously projected range of $188 million to $192 million.

The increase in revenue “demonstrates the opportunity set in front of the company and suggests there is a long tail of growth ahead of it – particularly if the company is successful in continuing to drive annual contract values higher,” Gursky wrote.

“By our estimate, the company could generate roughly $2 billion in revenue should every public company and all governments purchase products and services at the run rate of existing customers.”