Expect to see a few more "Open for Business" signs orbiting the Earth in the coming years.
After being funded solely by governments for decades, the final frontier is finally becoming economical for the private sector. That could provide a boon for businesses that operate in space directly, but also for those that benefit downstream from space-born technologies.
Take GPS as an example. The Global Positioning System was originally used to guide military weapons, but has now become the location-monitoring standard for smartphone apps. Recently public Uber Technologies (UBER 2.25%) and Lyft (LYFT 4.54%), which together are now worth an impressive $85 billion, have built their entire businesses on immediately and conveniently matching Earth-bound riders with drivers. Above it all, a constellation of 30 GPS satellites orbiting at 12,000 miles altitude is enabling the operation.
GPS technology is now nearly 50 years old, and it took decades to build out the necessary infrastructure. We had to first build out the high-speed cellular networks and then get a smartphone in everyone's pocket before the commercial opportunity could really catch on.
But things are moving exponentially faster today. Investors shouldn't expect to wait another five decades for the next wave of space-based technologies to commercialize.
One reason for that is the rapidly falling cost of satellites. SpaceX, Blue Origin, and others are introducing reusable rockets to drive down the costs of satellite launches by an order of magnitude. This is opening doors (or more appropriately, sunroofs) for commercial opportunities such as high-definition imagery, broadband internet, and even space tourism (Sir Richard Branson's Virgin Galactic will let you see space for yourself for $250,000; I'd recommend getting the window seat).
Image source: Getty Images.
The opportunity
With the space race reinvigorated, forward-thinking investors will have a plethora of opportunities to choose from. Existing satellite operators like Intelsat (INTE.Q) have a unique advantage by already owning exclusive orbital location rights. Several smaller and privately held companies, such as OneWeb, are developing capabilities in providing high-speed internet. Many of these companies are backed by Softbank, meaning they could soon become publicly traded.
To better understand the space opportunity, I sought out the advice of experts. Andrew Chanin and Micah Walter-Range founded the Procure Space ETF (ticker UFO), the world's first pure-play space ETF. All of the companies the fund is invested in derive the majority of revenue from space-based activities.
In our recent conversation, Andrew and Micah described the space economy's most intriguing opportunities, the challenges that still need to be solved, and the role that will be played by both the private and the public sector.
A transcript follows the audio conversation below.
Transcript
Simon Erickson: Hi, everyone, Motley Fool Explorer lead advisor Simon Erickson here. We're talking this afternoon about the space economy, which is something that's getting a lot of attention. But we're joined by two special guests that live in this space on a daily basis.
My guests are Andrew Chanin and he's the CEO of Procure AM. He's joined by his strategic advisor, Micah Walter-Range, and together they've created and founded the world's first pure-play space ETF. The ticker on that is UFO, quite appropriately.
Andrew and Micah, thanks very much for joining me this afternoon!
Andrew Chanin: Thanks for having us.
Erickson: Guys, we've talked about space in the headlines a lot, probably for decades now. Andrew, my first question for you is "Why now?" What are the catalysts that you're seeing that would warrant an investment in the space economy right now?
Chanin: We've seen an immense amount of investor appetite recently for investing in various transformational technologies.
Some of those areas that I would consider fall into this group would be things like cloud computing, Internet of Things, connected devices, and 5G. To me, what that really says is that people that are buying into those investments are saying, "There is going to be an immense amount of data being created over these next several years and decades to come." Each of these technologies will make our lives better and faster and more convenient. But the common thread is that there's going to be more and more data every second. The area that I think people are missing out on is having this exposure to the backbone and the infrastructure for what is going to make all of those technologies possible.
Just like the toll road operators, the people selling the picks and shovels. In my mind, that backbone and those picks and shovels for those megatrends, that are super data-heavy, are satellites and various space technology. In my mind, I think a really interesting exposure for people that are looking to play this incredible new future that is going to be very dependent on large amounts of data sets may be interested in actually investing in space. In satellite companies. In these companies that are actually helping and allowing for all this data that's being generated to go from origination to outer space, where it gets sent back down to Earth from these satellites.
I think that that's an angle that most people don't really consider when thinking of how are all these transformational technologies going to work.
Erickson: Micah, jumping on that, you're the one that created the S-Network Space Index, the underlying index that the ETF is based upon. Andrew just mentioned satellites. I know that satellite TV and music radio is one of those applications right now.
But where are you seeing the biggest opportunities in the space economy? Are those the largest right now that are more consumer-driven? Or is this more of a defense/government opportunity that you see?
Where is this field heading? Where's the future for the space economy going to end up?
Micah Walter-Range: A little bit of everything, to be perfectly honest.
The two largest commercial sectors right now are certainly satellite television, and then you could call it a multitude of subsectors. But it's all of the location-based services. We all carry around smartphones and have access to other devices every day that use that location information that's constantly beaming down from space. Most of those devices are connected to the GPS system, which is a U.S. Air Force system that was originally intended to guide weapons and assist with other military operations. But that signal is freely available. Countless commercial applications have been built on the back of that including things like Uber and Lyft, which we don't need to get into the economics of those companies right now.
But I think it demonstrates the power of having that knowledge at our fingertips at all times. Where we are, where we're going, even something as simple as what time it is. Which is critical for maintaining the global financial infrastructure, keeping all of the computers in sync.
That's the other huge market that is only going to keep on expanding as devices become more self-aware or connected or whatever the term you want to use for that. As infrastructure becomes able to monitor its own health and communicate. "I need to be replaced," "Send someone out," "Here's where the problem in the pipeline is," "Here's the strut on the bridge that needs to be fixed before the bridge collapses." All of these different applications. There's tremendous growth there.
And then on the government side, there is this renewed and reinvigorated sense of exploration. There's almost sense of urgency to go out and build new things and send people back into deep space again rather than restricting human activity to low Earth orbit and below.
Erickson: On that note of the exploration and the sense of urgency for the governments, we've seen -- and I'll keep this with you for the first part of this, Micah -- private companies now becoming much more interested in space. It's not just NASA multibillion-dollar missions that take years or decades to plan out. But now you've got Elon [Musk] with SpaceX, you've got Jeff [Bezos] with Blue Origin. You've got billionaire entrepreneurs living out their childhood fantasy of getting to the moon or other planets or space colonies.
My question on this, though, is twofold. First of all, rather than just having this be publicly funded by governments, what has to happen for this to be economical for private companies? That's my first question.
And then the second is, how does this shift from government to private companies influence either the direction of the mission or the outcomes that come from that?
Walter-Range: Those are definitely some deep questions. Because you're really talking about the future of humanity and who gets to define that.
Whether it is singular wealthy individuals or whether it is, at least in theory, the will of the public as represented by elected officials. The shift that has happened, I think it shouldn't be overplayed, because government is still by far the dominant source of funding for going out and doing these new things.
It's relatively easy for the established space markets. If you want to talk about telecommunications, broadcasting, things like that -- you can go to a bank, you can get a loan, you can explain how you're going to pay back that loan over time and with the revenues from your satellite. If I tell you I'm going to go out and mine asteroids or I'm going to build a colony on the moon...am I going to get a bank to finance that? It's going to be an incredibly hard sell.
So on the one hand, you have these individuals who can just go ahead and finance their own rocket company or orbiting space station company. We've got those, too. And they can do that, and it doesn't really matter to them what the return looks like or how long it takes for that to materialize.
The problem, though, is that each of them is only tackling small pieces of the puzzle. Let's say SpaceX quickly figures out how to send people to Mars. Let's say it happens in five years' time. What do they do once they land there? We don't know how to build the habitats that those people need. We don't know how to protect them from radiation. We don't know how to keep them alive, basically. SpaceX certainly does not have the resources to fund all of that research. The government has not yet committed the resources to figure that out. So you have all of these different parts of the ecosystem that need to evolve side by side and they need to do it in sync.
There are a number of people who are looking at ways to accomplish that. I have a company called Caelus Partners that's actually working on that right now. Figuring out what those opportunities are and how to manage the growth of these companies so that they can be commercially viable at every stage of the process. You're not just telling investors, "Well, come back in 30 years and there might be a market and we might be able to return some money." It is challenging. But the opportunity is almost beyond imagination.
Erickson: Is the lower cost of satellite launches significant right now, and playing a crucial role in the economics of space travel or space economy?
Walter-Range: It certainly is. And it has shifted power from one country to another as some of these companies have gotten up and running. Even as recently as five or six years ago, Russia was the dominant player in terms of commercial satellite launches. If you wanted a relatively inexpensive, fairly reliable rocket to take your satellite to space, you probably would at least talk to Russia and figure out if you can do business.
But now you have SpaceX that is the giant in the market. It's gotten to the point where there was a report from the French government recently that was just generally covering, here are things that are going on, general concerns for the nation, things like that. It called out specifically the threat of SpaceX to the European launch industry. That it was, in fact, a national security issue if SpaceX and some of the other commercial companies siphon off all of the commercial launches began. Then that means that French launch companies, or really multinational European launch companies, they will be solely dependent on government rather than having commercial customers.
And that will probably never reached that extreme. But I think it shows how seriously some of these governments are taking that issue of commercialization and who benefits from it the most.
Erickson: The follow-up I have on that is, it sounds like each company or each country or everybody that's interested in space is going to collaboratively contribute a piece to this giant puzzle. But you've got to balance out a lot of factors, right? How do we balance out one nation's interests that are sovereign, whether that's defense, whether that's -- like you mentioned -- the profit stream that's going to that country versus the fact that we need to all play a piece of this if we're going to get anywhere. How do you see that playing out: sovereign interest versus collaborative interest?
Walter-Range: Ultimately, I think that the solution is going to have to come from the private sector. If it is left entirely in the hands of national governments, then we're going to see certain types of cooperation that will work very well for government-to-government programs. But to truly unlock the commercial potential of space, we're going to have to see a lot more business-to-business integration and cooperation across national boundaries.
The question then is, will the governments step back enough to allow this to happen? I believe that they will, once they are shown the benefits. Because it can benefit each nation in different ways, but they have to be open to new possibilities and new ways of thinking about space.
Now, in the short term, the companies that are already in existence -- the multinational satellite telecommunications operators, the manufacturers of hardware, all of the consumer devices that we use -- that part of the market is working very well. That's really what we're tracking, like the index and the ETF, is enabling investors to have access to those markets and the growth that's going along there.
