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Not Every Space SPAC Is a Star

With billionaires flying to space and building the biggest-ever spaceships, more and more investors are looking toward the space economy. In 2020, private investment in spacetech hit a record $8.9 billion, according to a report from Space Capital. With $5.7 billion in investments during Q1 2021, according to Quilty Analytics, the space market was expected to set another record in 2021, which is yet to be calculated. The space market was significantly enriched by deals with special-purpose acquisition companies (SPACs), as the trend of organizing initial public offerings (IPOs) through merging with blank-check companies has also skyrocketed within the space sector.

The first space company that went public through a merger with an SPAC was the satellite communications company Iridium in 2008. But the real SPAC boom in the space sector followed after Virgin Galactic’s merger in 2019. During 2021, Astra, Momentus, Spire, Rocket Lab, Planet Labs, Redwire Space, AST SpaceMobile, and FarmersEdge completed their mergers with SPACs and are now publicly traded under own tickers.

The experience of space companies that have gone or are going public through SPAC deals could provide valuable insights for investors. Even risky investors should think twice before investing in such businesses. On the one hand, the SPAC frenzy and hype around spacetech provides opportunities to buy shares in a booming business and subsequently get high profits. On the other hand, most of these companies do not generate revenue and do not even have viable products or services. Often, their business models are unproven, so their prospects are hardly predictable.

In the case of spacetech, potential matters because investing in space SPACs is all about the future. In most cases, getting revenue and providing viable products are only aspirations of these companies and promises of their top management. Sometimes it sounds reasonable. After all, spacetech companies require millions to develop a product, so they need to attract investments first. But dealing with space is actually rocket science; it’s about overcoming gravity, deep freezes, and the heat of the sun. Thus, plans and obligations are routinely postponed by years or unrealized because the product is not ready — not to mention overcoming all the obstacles of bureaucracy, regulations, and competitors on the road to space.

For example, the suborbital flights of Virgin Galactic, which Richard Branson founded in 2004, were supposed to start in 2008. It took over a dozen years before the company managed to carry their founder, accompanied by two pilots and three crewmates, to the edge of space and back. And one should take into account that the SpaceShipTwo was not built from scratch – it is a scaled-up version of SpaceShipOne, which won the $10 million Ansari X Prize in 2004. Still, commercial flights of SpaceShipTwo have not yet begun and were postponed to 2022. This news, along with the sale by Richard Branson of $300 million of stock in Virgin Galactic Holdings Inc., were among the reasons why Virgin Galactic stock dropped by almost half to about $26 per share after Branson’s flight.

As of the end of 2021, the company was trading at around $14 per share, compared to their all-time high of over $60 in February 2021. But with Branson’s flight, the company validated the technology, resumed ticket sales, and almost doubled ticket prices to $450,000. Virgin Galactic’s chances to become profitable in the next few years are rising, but investors should be ready to wait again. In 2020, the company had revenue of $238,000 and a loss of $273 million. It reported quarterly revenue of $0.6 million in Q2 FY 2021, while four quarters before there was no revenue at all.

While Virgin Galactic cultivates patience among its investors and clients, the space company Momentus gives a lesson on political risks and trust. The company and the Stable Road SPAC were fined a total of $8 million by the US Securities and Exchange Commission for misleading investors about the technology and the national security risks associated with Momentus’s Russian founder, Mikhail Kokorich. The US securities regulator claimed that Kokorich and his company insured investors that they had successfully tested their technology in space, but in fact the only test had failed to achieve its primary objectives or demonstrate commercial viability.

As a result, Momentus’s merger with the SPAC was postponed, the company’s valuation was cut in half, from $1.1 billion to $567 million, and Kokorich, who resigned before the deal, left the US. After completing the SPAC merger and the start of public trading, Momentus stock was performing poorly, trading below $5 at the end of December 2021, just one-fifth of its top price of $27.42 in February at the time of the SPAC merger. Besides issues with the SEC, one reason the company’s shares dropped was the news that Momentus did not expect to conduct any mission in 2021, so investors will have to wait while the company starts operational activity. Taking into account all the issues, the company revised its revenue projection this year to $0, and next year’s to $5 million.

Astra, another space startup that went public with an SPAC, was just starting to provide commercial launches in 2021 while planning to perform daily flights four years from now. It’s positioned as a young and fast-growing company founded in 2016, though it was created on the basis of the rocket firm Ventions, with its roots in 2005. Astra spent $200 million to develop its current Rocket 3-series launch vehicle and had numerous delays in test flights.

Most risks for investors are hidden in Astra’s unproven business model. Even if the company proves the technology, Astra is not alone on the market, so its total revenue in 2025 is highly overestimated, as is the company itself. In its Q2 FY 2021 report, Astra stated no revenue and $31.3 million in net losses. Astra stocks are highly volatile, currently trading at slightly more than $7 just five months after going public and trading at around $15.

One more space company that went public through an SPAC merger this past summer was Rocket Lab. Unlike Virgin Galactic, Momentus, and Astra, this company is actually launching satellites into space, but it also demonstrates that the rocket business’s reliance on technology and regulations is very strong. When a Rocket Lab mission failed in May 2021, it was the third failure of Rocket Lab in 20 launches, giving the Electron rocket only 85% reliability. Even with the last mission being successful, the low reliability of the Rocket Lab launch vehicle is a risk factor that could influence the company’s future performance and revenue.

Currently, Rocket Lab provides flights only from New Zealand, as the company still hasn’t managed to achieve certification of the Launch Complex 2 they built in the US in 2019. The company even had to relocate the launch of their first Moon mission, CAPSTONE, planned in late 2021, to New Zealand, though it was originally scheduled for early 2021 from NASA’s Wallops facility in Virginia. By the way, Rocket Lab is under political pressure in New Zealand after launching the satellite Gunsmoke-J from the Mahia site for US military purposes in March 2021. This launch provoked discussions in New Zealand concerning Rocket Lab and national security. The Green Party, the third largest political party in the New Zealand Parliament, has even drafted a bill to stop Rocket Lab launching “military hardware” into space.

Another potential national security concern in the case of Rocket Lab is that a member of the board of directors, Matt Ocko, has strong links to China, and his family members have cooperated with the Chinese government for decades. That could be an issue, as cooperation with the US military is part of Rocket Lab’s business model. The company’s revenue reached $35 million in 2020, but Rocket Lab is far from being profitable, with $55 million in net losses in 2020. Moreover, Rocket Lab expects to continue to incur losses for the next several years.

Certainly, the SPAC merger of a space company can be successful in the long run. For example, Iridium, the first space SPAC, went public in 2008 with a valuation of $591 million and managed to achieve $583 million in revenue in 2020. But before the SPAC, Iridium was already a stable operating business; the company earned $260 million in 2007. Iridium had a long way to success, and its shares traded below $10 for seven years, while now the price is around $40 per share.

Other space companies with proven technologies and business models, such as the satellite imagery and data provider Planet Labs (over 190 satellites in orbit, $113 million in revenue in 2020) or the small satellite builder and data specialist Spire (over 110 satellites in orbit, revenue $36 million in 2020) went public in 2021 as well. Though Planet Labs has proven technology and gained solid revenue last year, its share price has fallen from $11.65 at the moment it went public to $6.14 at the end of December 2021. Yet the price has not fallen threefold or fourfold, as it has with other companies. Spire, which also showed revenue in 2020 before going public, reached its highest price in September 2021, at $19.50 per share. The company has seen a significant drop in its stock price since that time to around $3.50 by the end of 2021.

But as the examples above demonstrate, even companies with validated products and proven revenue do not offer significant opportunities for investors. The promises of such companies could mislead investors and end in their losing money or seeing their investments frozen for years. Moreover, such experiences could distract investors from companies that are really worth investing in and the space industry as a whole. Playing with space SPACs is a risky game and perhaps not the best option for investors.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes

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