Future of Space Stocks Amid Financial Turmoil: In a turbulent financial year, space stocks are facing significant declines in 2023, with the Federal Reserve’s interest rate hikes rendering it more costly for companies to secure funding, particularly impacting capital-intensive industries.
Virgin Galactic (SPCE), the brainchild of billionaire Richard Branson and a pioneer in space tourism, has witnessed a staggering 37% decline year-to-date. Simultaneously, Planet Labs (PL), a satellite imagery company, is grappling with a nearly 50% decrease in its stock value, while Astra Space (ASTR), a startup providing rocket launch services, is down by a staggering 80% this year.
The space industry, known for its substantial investments in uncharted technologies, is grappling with financial challenges. Even SpaceX, spearheaded by Elon Musk, reportedly only managed to achieve a slim profit in the first quarter of the year, breaking a streak of two years of losses.
Andrew Chanin, founder of the Procure Space ETF (UFO), emphasized the adverse impact of higher interest rates on space companies, stating, “Higher interest rates are not helping any company in the space industry.” UFO, which includes international and domestic holdings such as Virgin Galactic, Planet Labs, Rocket Lab (RKLB), Boeing (BA), and Honeywell (HON), has experienced a 17% decline year-to-date.
In response to the financial pressures, some companies are taking measures to weather potential turbulence ahead. Virgin Galactic, for instance, saw a 20% surge in its stock earlier this month after announcing an 18% reduction in its workforce and a strategic shift towards a new, more profitable spacecraft.
Virgin Galactic’s CEO, Michael Colglazier, expressed optimism during the latest earnings call, highlighting the completion of significant expenses like engineering and factory infrastructure. He asserted that “the need for cash on hand is less than you may have seen from us in the past.”
While Virgin Galactic appears equipped to navigate the challenging financial environment, others in the industry may not be as fortunate. Virgin Orbit, a satellite launch startup, filed for Chapter 11 earlier this year, laying off 85% of its workforce. Astra Space, facing declining cash reserves, recently had its founders propose taking the company private after laying off 25% of its staff.
Future of Space Stock Investments:
The decreasing stock prices pose challenges for companies seeking capital from public markets. However, it also opens doors for potential deal opportunities for private equity firms or larger players in the space industry. In May, Maxar Technologies completed its $6.4 billion sale to private equity firm Advent International, showcasing the trend of private investment in space-related ventures.
Astra’s CFO, Alex Martinez, revealed ongoing discussions with capital market participants on debt and equity financings to extend their financial runway, emphasizing the strategic need for additional funds.
Speculation about potential mergers and acquisitions (M&A) is on the rise, with Chanin suggesting that the current market conditions may lead to an M&A wave involving viable technologies and companies.
Investors looking to navigate the space industry’s financial challenges may consider diversified options, including defense and aerospace giants such as Raytheon (RTX), Northrup (NOC), and Lockheed Martin (LMT), seen as more secure bets in this uncertain landscape. Chanin also highlights Boeing (BA) and Lockheed Martin’s joint venture, the United Launch Alliance, as providing exposure to the space industry without necessarily being pure-play investments.
The future of space stocks emerges as a dynamic interplay between overcoming immediate hurdles and strategically embracing the potential opportunities that lie beyond. As the space industry grapples with financial headwinds, the possibility of IPOs and strategic shifts, exemplified by SpaceX’s reported consideration of spinning off Starlink, keeps investors on the edge as they assess potential opportunities amidst the challenges.
Source: Yahoo Finance
