In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

   1. RKLB, PL, RDW, and LUNR vibe checked

   2. SPIR + Kpler go to court

   3. Starlink Super Bowl ad boosts ASTS + $43M SDA deal

   4. Boardroom drama spoils ETL.PA earnings

   5. Potential C-band sales drive SESG.PA

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

The markets experienced a vibe shift in February 2025, as increasingly glaring risks ranging from economic slowdown to geopolitics, trade wars, and lofty valuations resulted in heightened stock volatility; riskier assets like the space SPACs and companies held by the ARK Innovation ETF experienced a sharp correction in February, erasing gains made in January.

Notably, while macro uncertainty is already at extreme levels, market uncertainty is still rising (see charts below). Given that it seems unlikely economic and geopolitical uncertainty will be resolved in the near-term, I think there’s room for fear in the markets to increase, and investors should probably buckle up for continued volatility

Private Markets

I won’t go into as much private market detail here, but check out these resources for private market news and/or trends:

• Karman Space & Defense’s IPO Raises $506 Million, Priced Above Range

  • Note from Space Case: We plan to add Karman Space & Defense (KRMN) to our space stock tracker in future editions of Case Closed—stay tuned!

• Historical returns for name-brand VCs:

  • General Catalyst

  • Altimeter

  • Union Square Ventures

  • Lightspeed

2. SPACE STOCK COMMENTARY

Rocket Lab / RKLB (-29%), Planet Labs / PL (-24%), Redwire / RDW (-42%), and Intuitive Machines / LUNR (-33%) all saw January gains wiped out in February, though they remain well above their pre-election levels

• I am not surprised to see these four stocks decline in February given that they had gone up +163% after the T2 Admin’s US election win in early November through the end of January

• While material post-election news like Planet Labs’ $230M deal to manufacture satellites for SKY Perfect JSAT or Redwire’s acquisition of Edge Autonomy might have actually justified such large stock movement, I think it makes sense that these four stocks pulled back in February amid the market’s negative vibe shift in February given their outsized gains since November

Spire Global / SPIR declined -33% in February after the company disclosed that it was suing Belgian analytics provider Kpler for backing out of a deal to acquire SPIR’s commercial ship-tracking business for $241M (link to SEC filing)

• Spire Global announced plans to sell its maritime business in November 2024, with anticipated deal close in early 2025. Despite Spire claiming the deal process met all conditions for closing up to this point, Kpler refused to close the deal, leading Spire to sue for enforcement and breach of contract with the Delaware Chancery Court on 2/10

• Investors reacted poorly to this news, with SPIR shares declining -49% the day after Spire disclosed the lawsuit. Spire had intended to use the proceeds from this transaction to eliminate its outstanding debt and invest in growth opportunities; without the cash infusion from this asset sale, Spire faces near-term debt repayment challenges (>$90M due for repayment within 12mo from 3Q24). Investors are clearly concerned about the company’s ability to manage its debt obligations given that Spire only had $19.2M of cash on hand as of 12/31/2024 (link)

AST SpaceMobile / ASTS went up +34% in February as Direct-to-Cell (D2C) satellite communications (satcom) went mainstream and the company disclosed its 1st firm revenue-generating contract

• On 2/9, T-Mobile / TMUS aired a Super Bowl commercial announcing the beta launch of its D2C service in partnership with Starlink (link to video). While this commercial didn’t directly involve AST SpaceMobile, ASTS shares increased +17% the next day because the commercial 1) brought attention to the growing interest in D2C and with AST being the only publicly traded D2C pure play, it likely benefitted from the related Starlink x T-Mobile media buzz; and 2) the Starlink x T-Mobile D2C service’s pricing & packaging (free for T-Mobile’s premium tier service customer, $15/mo for other T-Mobile customers, and $20/mo for non-T-Mobile customers) revealed key details that investors have debated for some time. In particular, the $15-$20/mo pricing was significantly higher than most had anticipated for consumer D2C service, and given that this was for Starlink’s text-only level of connectivity (for now), AST shareholders viewed this news as a positive sign of a “floor” pricing for D2C (at least in the US) since AST’s D2C service is expected to provide broadband-level data rates

  • However, I believe T-Mobile’s pricing & packaging structure is set up to drive customers to the company’s premium service tier (Go5G Next, $100/mo for 1 line), and in general I believe this will be the primary motivation for how US wireless carriers structure D2C pricing & packaging; I think it is unlikely that many customers will pay $15-$20/mo specifically for D2C service more often than when they know they will need it (such as when they have planned travel to remote areas that are known to be out of traditional cellular network range)

  • If we go along with my assumption that consumer D2C service usage will primarily come from customers who get it for “free” via their premium tier wireless data plans, then revenue kickback to D2C providers will be based on actual D2C usage, akin to how roaming fees are charged to a customer’s account when they use their mobile devices outside their provider's coverage area, incurring charges based on the services consumed on a partner network. In this light, instead of assuming D2C operators get 50% of $15-$20/mo, they will get 50% of something more along the lines of roaming fees; for reference, T-Mobile’s current roaming fee structure is $0.10/text, $0.25/min for calls, and $2-$5/MB of data (link)

• On 2/26, AST announced it had won $43M from a prime contractor in support of the US Space Development Agency’s (SDA) Proliferated Warfighter Space Architecture (PWSA); the SDA is a U.S. Department of Defense agency focused on deploying a resilient, low Earth orbit satellite network (the PWSA) for military communications, missile tracking, and data transport. While ASTS had technically previously signed revenue-generating contracts with AT&T (based on technology readiness) and Vodafone (minimum revenue commitment), I view this SDA contract as the company’s 1st firm, multi-million dollar contract. Of note, the language in the company’s press release for this SDA contract (link) makes it clear that the $43M is not related to AST’s participation in the SDA’s HALO program, where the company has the opportunity to compete directly as a prime contractor for specific prototype orders (link).

  • In general, I think the D2C market for government customers is more compelling than the opportunity for consumer customers, and I view AST’s quicker go-to-market success with government customers as proof of this. Government agencies, especially the military and emergency responders, require reliable communication in remote areas where terrestrial coverage is absent; while legacy fixed or mobile satcom services can solve this problem by providing connectivity in areas where terrestrial networks can’t, they require specific user hardware that is oftentimes bulky and/or very expensive. Consumers may view 100% network availability as a “nice to have,” but government customers cannot afford service lapses. They already view legacy satcom-enabled connectivity as mission-critical (hence tens of billions of dollars per year in dedicated budget for satcom) and I think the potential for D2C mobile connectivity via “ruggedized” standard devices has the potential to unlock enhanced satcom capabilities relative to legacy solutions

Eutelsat / ETL.PA saw shares decrease -31% in February following an unusual earnings announcement

• Eutelsat reported fiscal 1H25 results on 2/14 and although results were in-line with expectations (with OneWeb monetization continuing to disappoint), the big news of the day was that four members of the company’s board of directors announced their resignation and the chairman of the board announced their retirement (link)! Although the press release uses the words “resign” and “retire” I can’t help but wonder about this highly unusual event. Eutelsat shares were down -19% the day of the earnings release, and they continued to decline throughout the rest of February

SES / SESG.PA saw shares increase +34% in February following speculation around returns from C-band spectrum sales and strong 4Q earnings relative vs guidance

• On 2/6 the FCC announced that it was considering changing how the upper portion of C-band spectrum is used (link); the spectrum in question is currently owned by geostationary (GEO) satellite operators SES and Eutelsat. In the past, a different portion of C-band spectrum (owned by Intelsat (soon to be acquired by SES), SES, and Eutelsat) was auctioned off by the FCC so that wireless companies (mostly Verizon, AT&T, and T-Mobile) could use it for 5G; the satellite owners were given a portion of auction proceeds ($9.7B) as compensation. SESG.PA shares increased +11% the day after this news broke, and shares continued to increase for a week+ afterwards; one analyst estimated that SES could see over $2.9B in proceeds if this C-band spectrum was auctioned off at similar pricing as the prior C-band auction (link)

• On 2/26, SES posted 4Q24 earnings, which beat management’s previously issued guidance, with strength in the company’s Government (U.S. and international) and Mobility (aviation and cruise) segments. Of note, on the earnings call management 1) highlighted the new C-band spectrum sale potential, noting that the T2 Admin’s FCC is motivated to move quickly to generate revenue for the US Treasury (via spectrum sales); and 2) reaffirmed SES’s plans to close its proposed merger with Intelsat in 2H25 and noted that original guidance for the newco’s financial profile is unchanged. These details were viewed positively in contrast to Moody’s downgrade of SES’ outlook from stable to negative on 2/18 (link)

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

   1. Earth Observation Valuation Re-Rating

   2. Redwire Acquires Edge Autonomy

   3. EchoStar Future Optionality

   4. Globalstar and MDA’s Silly Selloff

   5. Comtech Woes Continue

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

The space SPACs led the way yet again in January, though nearly every asset class from stocks, to gold, crypto, government bonds, and real estate notched gains last month despite uncertainty from escalating trade disputes, an uncertain path for interest rates, and concern around impact to AI infrastructure demand following the DeepSeek AI shock.

This is seemingly a continuation of the trend we saw post-US election in late 2024 where President Trump’s win triggered a broad market rally driven by positive investor sentiment around anticipated tax cuts and deregulation. Space stocks have disproportionately benefited from this rally given the general point of view that T2 (President Trump’s 2nd admin) loves space and Elon Musk’s growing relationship with President Trump could benefit the US commercial space industry; and space SPACs have disproportionately benefitted from improved sentiment around space stocks as they were trading at (somewhat) subdued valuations prior to the election.

Space SPAC 4Q24 earnings (likely released at the end of February/beginning of March) will be key to SPAC momentum continuing, so keep an eye out for releases from the Cosmic 4 leaders like Rocket Lab, AST SpaceMobile, Intuitive Machines, and Redwire.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Starlink 2024 Annual Report (enter your email at bottom of page to view)

• The tyranny of the VC equation

• Venture-backed startup shutdown trends

• Number of US venture capital firms falls

• Global startup investments rebound while number of deals fall

• Bootstrapped startups are on the rise

• Venture capital unbundled

• Picking winners is a myth

• The pervasive, head-scratching, risk-exploding problem with venture capital

• How should LPs think about VC fund size?

• On building quality institutional LP relationships

2. SPACE STOCK COMMENTARY

A Quick Note from Space Case:

Hey everyone, quick housekeeping item - we are adding Eutelsat / ETL.PA, SES / SESG.PA, and Telesat / TSAT to our space coverage this year.

• Satellite communications (satcom) is a critical segment of the space industry and I want to cover these companies to force myself to do a better job staying on top of their activity, particularly in the context of legacy GEO companies struggling to figure out how to compete in light of Starlink’s dominance of the global satcom market.

• We considered adding other smaller space companies to our coverage, but companies like Mynaric / MYNA, Satixfy / SATX, and Imagesat International / ISI don’t report quarterly results and/or host calls with analysts, so I passed on covering them in 2025.

Earth observation (EO) stocks (BlackSky / BKSY, Planet Labs / PL, Satellogic / SATL, and Spire Global / SPIR) crushed it yet again in January, with the group returning +40% last month. This outperformance continues a trend that began post-election, with the four EO stocks up an average of +143% since the election through the end of January compared to +118% for average for all space SPACs and +4.4% for the S&P 500

• While all space SPACs have benefitted from the Trump Bump given anticipated greater US federal government spending on commercial space services, I view the EO SPAC outperformance as benefitting from a valuation re-rating to align with SaaS (software as a service) company valuation ranges

  

• When the EO SPACs went public they all made the argument that their valuations should be compared against SaaS companies given somewhat similar business profiles (see image above for select slides from PL, BKSY, SATL, and SPIR’s original SPAC deal presentations); the primary similarity between SaaS business models and EO business models is that both groups generate the majority of revenue from high-margin, multi-year agreements. SaaS businesses generally trade on a premium revenue multiple (the long-term pre-COVID next-12mo (NTM) revenue multiple for SaaS businesses was 7.8x, per Altimeter’s Jamin Ball) so it is understandable why the emerging EO category wanted to be compared against them, because then they too might be valued with premium multiples

• However, when interest rates began to rise in 2022, the EO SPACs were thrown in the trash and valued like all other unprofitable technology companies (remember that interest rates disproportionately hurt unprofitable companies, link), and they traded at 1-3x revenue between 2022-24 (see above)

• Fast-forward to the modern day, and the EO SPACs are getting a second chance, with investors looking into space stocks and finding that these companies have better fundamentals than in 2022 (i.e. near or at profit and cash breakeven) and the earth observation market is likely to continue growing for the foreseeable future as governments across the world increasingly rely on commercial EO companies for intelligence, surveillance, and reconnaissance data, analytics, insights, and systems

  

• In fact, if we compare BKSY, PL, and SPIR vs current SaaS company valuations and NTM revenue growth expectations (see above from Jamin Ball’s “Clouded Judgement” newsletter, link) there is meaningful valuation upside for BKSY and SPIR, while PL seems to be fairly valued. However, note that this is a fairly narrow POV of company valuation (only looking at NTM revenue growth) and doesn’t mean the EO SPACs should be valued exactly the same as SaaS companies

Redwire Space / RDW saw +45% share price movement in January after the company announced plans to acquire Edge Autonomy (press release, slide deck, call transcript) on 1/20

• At first glance, it seems like Redwire didn’t overpay to acquire Edge Autonomy (a profitable uncrewed airborne systems (UAS) technology company), in a transformative transaction that changes Redwire’s strategic positioning from a space infrastructure pure play to a multi-domain defense contractor

• However, upon closer inspection a key detail of this transaction is that AE Industrials, a leading aerospace private investment firm, has material ownership in both companies; it created Redwire Space via combination of nine different smaller space hardware companies between 2020 and 2024 and took the company public via SPAC in Sept’21, and it acquired Edge Autonomy (then called UAV Factory) in Jan’21 (link)

• With this context, the attractive price that Redwire paid for Edge Autonomy ($925M, or 4.2x trailing 12mo revenue and 12.8x trailing 12mo EBITDA) makes sense since it is really AEI combining two of its own assets. A recent comparable transaction (Aerovironment’s acquisition of Blue Halo, link to PR and slides) was done at 4.7x trailing 12mo revenue and 24x EBITDA, which suggests Redwire was able to “acquire” Edge Autonomy for something like a 50% discount

• Given enthusiasm for defense investing right now, this deal was well-received by the markets, with RDW increasing +51% the day after the deal was announced

  

EchoStar / SATS saw +21% share price movement in January

• Given that the company’s core underlying fundamentals are mostly declining, I assume SATS’ recent appreciation (the stock is +130% since DISH Networks and EchoStar merged in January 2024) is reflective of investor optimism surrounding the company’s future optionality tied to some combination of the company’s unique 5G network architecture, its stated desire to pursue direct-to-device (D2D) satcom connectivity, or its rich spectrum assets (which the company values at $39B on its balance sheet and analysts have valued even higher in a spectrum sale scenario)

Globalstar / GSAT and MDA Space / MDA both suffered declines in January (-26% and -22%, respectively) thanks to Apple / AAPL and Starlink

• On 1/28, news broke that AAPL has been working with Starlink and T-Mobile / TMUS to add support for the Starlink network in its latest iPhone software, providing an alternative to the company’s in-house satellite-communication service that it has developed in partnership with GSAT

• The following day, both GSAT and MDA saw material share declines (-18% and -9%, respectively) which continued through the end of January. I believe these movements were driven by investors assuming that AAPL’s work with Starlink means Apple is abandoning its partnership with Globalstar (and therefore MDA, since that is who is leading the buildout of Globalstar’s constellation)

• I think this reaction was foolish—it doesn’t make sense for Apple to literally just in 4Q24 commit to investing up to $1.7B in Globalstar to deepen the partnership between the two companies, and then turn around and abandon GSAT in January 2025. I’m sure the Apple / Starlink testing was happening when GSAT and AAPL made their deal last year, so this feels like an overreaction to me

For such a small company that isn’t a SPAC, I sure do write about Comtech / CMTL a lot, and this month is no different because in January CMTL declined -50% after a challenging fiscal 1Q25 earnings report

• CMTL’s bad performance in January was driven by the company’s fiscal 1Q earnings released on 1/13, where the company announced an abrupt change at CEO (the prior CEO had just transitioned from interim CEO to permanent CEO on October 30th), 1Q results missed vs guidance (despite issuing the guidance at nearly the end of 1Q on the 4Q call), and the company noted that it expected to be in violation of debt covenants beginning in February 2025

• After the call, analysts revised their revenue and EBITDA estimates for fiscal year 2025 down -10% and down -58% (respectively) and I believe this material reduction in the company’s financial outlook is the driver of CMTL’s adverse stock movement in January

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

Space SPACs roared back to life in November 2024 following Donald Trump’s presidential election victory, ending the month up +100%(!)

President Trump’s win triggered a broad market rally driven by positive investor sentiment around anticipated tax cuts and deregulation.

Space stocks disproportionately benefited from this rally given the general point of view that: 1) President Trump seemingly loves space (both the US Space Force and the Artemis Program were established during his first term in office) which could translate to more federal budget for space technology during his 2nd term in office; and 2) Elon Musk’s growing relationship with President Trump + his role as co-lead of the Department of Government Efficiency (DOGE) could benefit the US commercial space industry

Notably, it was primarily the SPACs that benefited from this rally and not legacy space companies, likely due to a combination of the SPACs trading at (somewhat) subdued valuations prior to the election + concerns around defense budget growth under the new Trump administration (which would more disproportionately impact the aerospace & defense primes)

Despite a slight pullback in December, the space SPACs + the S&P 500 finished the year strong at +329% and +23%, respectively.

Driven by an AI-fueled rally in big tech stocks in 2024, the S&P 500 wrapped up its best consecutive years (+24% in 2023 and +23% in 2024) since 1997 and 1998 (+31% and +27%, respectively) per the WSJ (link).

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• State of Venture from the LP POV - 2024 Review

• What is Venture Capital Now Anyway? (New York Times)

• Growth stage VC power law

• VC investment trends by stage, 1Q24-3Q24 (Carta)

• Down round trends (Carta)

• VC fundraising power law (Pitchbook)

• 2024 US VC-backed startup valuation ranges (Carta)

• “When will the IPO window open?” (Contrary Research)

• Will your startup get acquired? (Carta)

• AeroVironment to acquire BlueHalo - a good M&A comp for dual-use investors + VC/PE backed companies (deal slides, transcript)

2. SPACE STOCK COMMENTARY

2024 was an extreme example of ‘haves’ vs the ‘have-nots’ for space stocks—five companies saw their stock grow over +100% and six companies saw their stock decline -30% or more. While the majority of space stocks saw performance somewhere between -30% and +100%, I find it much easier to read the tea leaves for the companies at the extreme ends of the spectrum:

• You’ve heard of the FAANG and the Mag7, but are you ready for the Cosmic 5? The Cosmic 5 space stocks that saw >100% performance in 2024 (LUNR, RDW, RKLB, ASTS, MDA) are all companies that have demonstrated explosive growth potential, steady execution, and ability to raise capital as needed; all of these companies were trading at a discount relative to their growth prospects prior to 2024, but due to a combination of material company-specific catalysts + broader investor interest in space, they each experienced rapid re-ratings throughout the year, particularly in 2H24. Though SpaceX is dominating nearly every category of the space industry that it participates in, investors are interested in “what else” is out there in the space industry given SpaceX’s astounding $350B valuation, and they seemingly view the Cosmic 5 (LUNR, RDW, RKLB, ASTS, and MDA) as “the next best thing” they can invest in to get exposure to space

• The six companies that saw double-digit declines (IRDM, BA, CMTL, MNTS, VSAT, SPCE) were primarily the victims of company-specific pain: BA suffered from downstream effects of “Welchification” (link for more); CMTL never recovered from early 2024 re-financing anxiety; MNTS is in “cockroach mode” and no one understands how the company hasn’t gone under yet (link); VSAT is facing an existential threat from Starlink (link); SPCE is burning through cash faster than a re-entry capsule and investors are skeptical of its business model + scaling plans; and IRDM’s cash generation + growth is at risk as Starlink’s momentum continues.

Going into 2025, here is what is top of mind for me as I think about key themes for space stocks next year:

• I expect investor interest in space companies will remain high, driven by SpaceX’s rapid develop of Starship and the continued expansion of Starlink; the higher SpaceX’s valuation climbs, the more investors will continue to look for “the next big thing” in space or “the next best thing to” SpaceX

• 2025 will be a big year of growing up for the space SPACs, which could lead to volatility depending on progress vs key initiatives: 1) the earth observation SPACs (ex-SATL) will have to demonstrate ability to generate FCF as they have been promising for years, while continuing to balance growth (SATL just needs to generate more revenue); 2) Redwire will have to demonstrate ability to secure larger contracts from bigger programs; 3) Rocket Lab will have to launch Neutron, successfully deploy the satellites it built for MDA / Globalstar, and potentially reveal more details about their planned space application business; 4) AST SpaceMobile will have to demonstrate ability to scale manufacturing + satellite operations as it ramps from 6 satellites on orbit to 45-60 over 2025-26, receive FCC approval for testing with AT&T + Verizon, and continue its momentum with commercialization and generating revenue; 5) Intuitive Machines needs to nail its next CLIPS mission; 6) and Momentus needs to show some signs of life and generate revenue

• New Space Development Agency (SDA) Proliferated Warfighter Space Architecture (PWSA) awards will continue to be a key driver of success for any company that manufactures satellites given the 8-9 figure contracts that awards generally represent; within my space stock coverage, these awards could affect RDW, RKLB, ASTS, MDA, RTX, LMT, GD, NOC, LHX, BKSY, BA, and MNTS

• I will be on the lookout for any changes to US federal spending on commercial space capabilities, whether that is in the form of: 1) SpaceX favoritism given Musk’s relationship with President Trump, position with DOGE, and incoming NASA Administrator Jared Isaacman’s relationship with Musk and SpaceX; or 2) increased budget for space in general given President Trump’s supposed love for space and Musk’s close relationship with the president

Satellogic / SATL’s stock rose +187% in November and December (though in early December SATL was up nearly +380% vs the end of October); the company saw a mix of good and bad news over the last two months:

• The main positive catalyst for SATL was that on 11/19, Howard Lutnick was picked by President Trump to be Secretary of Commerce; Lutnick was a board member at Satellogic (he has resigned from the role since being named Commerce Secretary) and SATL shares rose over +370% in next three weeks following this announcement. Investors clearly included SATL in the bucket of “could benefit under a Trump admin” as a result of Lutnick’s connections to the company (Lutnick owned 13.9M shares of SATL as of 11/27, link)

• SATL’s momentum was halted on 12/10 however, when the company announced a $10M private placement (i.e. a block sale of new shares) with Alyeska Investment Group. While a $10M infusion of cash for an unprofitable company would seem like good news, what stood out was that the deal was priced at $2.80/sh vs SATL shares trading at $4.74 the day prior to the announcement (a 40% discount!); on top of this, SATL also filed for a future $50M equity offering, which is again nice to know that the company has support to raise $50M of equity again in the future, but bad because it represents material potential dilution. Unsurprisingly, the combination of these two pieces of news caused SATL to trade down -40% from 12/9 to 12/31

• However, a material piece of good news that might have gotten lost in the mix was Satellogic announcing a partnership with Maxar, where Satellogic granted Maxar exclusive rights to task Satellogic’s constellation and use its satellite imagery to support national security missions for the U.S. Government and select U.S. partners internationally. This partnership is significant for Satellogic because 1) Satellogic has struggled to secure contracts with the USG given its international roots (+early relationship with Chinese customers, link); 2) the USG is the largest buyer of commercial earth observation data & analytics and Maxar has an extremely strong relationship with this customer (e.g. Maxar won a $3.24B / 10yr deal with the NRO in 2022, link; and Maxar recognized $722M of imagery & analytics revenue from work with the USG in 2022, link); 3) this relationship essentially unlocks Satellogic’s ability to sell to with USG seemingly without having to invest the capital they would otherwise have needed to do so. While we don’t know how much revenue this relationship will generate for Satellogic, and Maxar taking its cut of sales will probably make this revenue lower margin than the 70-80% gross margins that Satellogic has targeted in the past, this is undoubtedly a good deal for Satellogic since it gives them access to the largest buyer of commercial EO imagery. It seems like a safe bet to assume this deal will drive Y/y revenue growth for the company

• Having said all this, let’s look at Satellogic’s valuation ($271M market cap at the time of writing). Unless Satellogic generates >$90M of revenue in 2025, then it is currently trading well above the ~3x revenue multiple that BlackSky / BKSY, Planet Labs / PL, and Spire Global / SPIR trade at. Given that the company’s revenue has grown from $4.2M in 2021 to $6.0M in 2022, $10.1M in 2023, and I estimate between $14M-$20M of revenue in 2024, it seems highly unlikely that the company will suddenly grow revenue >4x to $90M in 2025 (even with its new Maxar deal in place). Unfortunately, Satellogic doesn’t report its results on a quarterly basis so we don’t have anywhere close to real-time data on the its financial status (they just reported 1H24 in Dec’24), and we don’t get regular updates from the company’s management team

Rocket Lab / RKLB grew +138% through November and December and the company is now valued at nearly $13B (as of the time of writing); RKLB is now up >600% from the stock’s <$4.00/sh lows in April 2024 when its market cap was as low as $1.7B

• While Rocket Lab has always traded at a premium vs the other space SPACs (even at the stock’s low point this year, it was valued >$1B and ~4x revenue vs <$1B and 1x-2x revenue for most of the other space SPACs at their low points), the company has been the primary beneficiary of renewed investor interest in space companies given comparisons to SpaceX, which is currently valued at $350B

• Though Rocket Lab doesn’t have stated ambitions to colonize Mars like SpaceX does, the company does have similar ambitions to build a vertically integrated space business (which RKLB management refers to as building an “end-to-end space business”). To date, RKLB has established credibility in its potential ability to achieve this goal given its firm footing in launch as the 2nd highest cadence US launcher behind SpaceX and the impending initial launch of its medium-lift, partially reusable Neutron rocket; it has rapidly grown its satellite manufacturing operations to a 9-figure business; and it is planning to take advantage of its ability to build and launch satellites at cost to develop a space application business at some point in the future (details are TBD). So it makes sense why investors might get excited about Rocket Lab—Rocket Lab is the closest thing to SpaceX that public market investors can own, and because it is earlier in its development as a vertically integrated space company, there is great long-term upside potential

• The SpaceX / Rocket Lab connection is clearly reflected in Rocket Lab’s valuation, which is a mirror of SpaceX’s at this point in time: SpaceX’s $350B valuation is ~20x 2025 revenue, which is very similar to Rocket Lab’s 22x 2025 revenue multiple (at the time of writing); Rocket Lab’s $12.6B valuation (as of 12/31) is 3.6% of SpaceX’s $350B valuation, which matches Rocket Lab’s $600M 2025 consensus revenue estimate representing 3.5% of SpaceX’s $17B of 2025 revenue (my own ballpark estimate, I don’t have insider information about the company).

• However, I don’t think Rocket Lab deserves the same multiple as SpaceX and I don’t think this SpaceX-ratio approach to valuation is the right way to think about Rocket Lab’s valuation given that an investment in Rocket Lab has more inherent risks than an investment in SpaceX. For example, Rocket Lab’s future depends on its next-gen Neutron rocket, which hasn’t been flown 1x yet let alone proven partial reusability; the company hasn’t fully proven that it can mass manufacture satellites yet (it hasn’t deployed the 17 satellites it is building for MDA/Globalstar yet, or the 18 satellites it was contracted to build for the SDA); and it isn’t operating + commercializing its own constellation of satellites yet. The 20x multiple SpaceX currently has is a monopoly multiple—Falcon served ~90% of the global launch demand in 2024, Dragon is the most reliable western in-space transportation provider, and Starlink is the fastest growing business in the multi-trillion dollar global telecom market. While it is credible to believe that Rocket Lab can get Neutron to work, scale its satellite manufacturing business, and build a space application business, it is still has a long way to go in its journey and I don’t think it deserves the same valuation premium as SpaceX.

• To back up my point here we can actually use a different SpaceX comparison—when SpaceX was at a similar stage of maturity as Rocket Lab back in the 2012-2014 time frame (before it had proven Falcon 9 was partially reusable and before Starlink) and was also in a similar revenue range as Rocket Lab (on the path from hundreds of millions to $1B), it had a ~10-13x revenue multiple (secondary sales valued SpaceX at $4B-$5B in 2012 (per Pitchbook), the same year it generated ~$400M of revenue, link).

• While Rocket Lab is probably going to be worth more in the future if it executes on management’s long term vision, companies that trade at high valuations have high expectations—the company’s 20x revenue multiple suggests that investors are assuming it can achieve all of its developmental milestones without issue. But if Rocket Lab slips up on any of their major technical, scaling, and execution milestones it still needs to de-risk in the coming years, the stock could easily see material declines. As I have stated previously, be honest with yourself if you are buying RKLB right now—is it out of FOMO seeing the stock price go up so much in the last few months, or do you have a real investment thesis and have underwritten specific investment scenarios?

Globalstar / GSAT saw its stock increase +97% through November and December, primarily driven by the company’s expanded relationship with Apple / AAPL announced in early November

• On 11/1, GSAT filed an 8-K (link) outlining an expansion of its existing relationship with Apple, where Apple will invest over $1.7B for a new constellation of satellites that will deliver “extended mobile satellite services (MSS);” the $1.7B investment is comprised of $232M for GSAT debt refinancing, $1.1B for network buildout costs, and $400M for Apple to take a 20% stake in the legal entity that will own the constellation

• GSAT’s existing relationship with Apple gives Apple 85% of the network capacity of Globalstar’s existing 31 satellites + an upcoming 17 refreshment satellite (which Apple is using to provide iPhone customers free text service when they are off the grid with no cellular or WiFi coverage in the US and Canada); while the extended MSS network’s designs and capabilities are TBD at this point in time (management has given limited details on their plans), it is safe to assume this constellation is the key driver of the company’s recent guidance for revenue to reach nearly $500M long term (vs consensus for $247M in 2024)

• Understandably, GSAT shares closed +73% the day after the news broke and GSAT shares continued to trend upward through the end of 2024

• On a related note, on 12/6 Bloomberg broke news that Apple is exploring the development of its own modem technology (link); while these new modems will debut with new iPhones in 2025, they are also expected to be deployed in Macs and Vision Pros, which could potentially bring cellular connectivity to those devices for the 1st time (to date, cellular connectivity has been reserved for iPhone, Apple Watch, and iPads). It doesn’t strike me as coincidence that this news broke within a month of the expanded Apple / Globalstar partnership; I expect Globalstar’s direct-to-device connectivity will expand beyond just iPhones and is likely to increase in capability beyond texting as Globalstar builds out its extended MSS network

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

Both space SPACs and the broader stock market ended 5-month winning streaks in October, with negative monthly returns for the 1st time since April 2024.

The market bounced between positive and negative returns multiple times during October, which suggests that investor uncertainty around the economy, the geopolitical landscape, and in particular, the US election continued to weigh on market sentiment.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Venture trends are clearly back to “normal” (i.e. pre-2021 levels of funding)

• The number of active VCs is down >50% from 2021

• Misalignment of incentives between GPs, LPs, and founders

• Thesis-driven investing vs founder-energy investing

• “If you had to invest in one startups at any stage today, and hold it for the next 30 years, who would they be and why?”

2. SPACE STOCK COMMENTARY

Terran Orbital / LLAP was officially acquired by Lockheed Martin in October, reducing the number of space SPACs we cover to just 10 companies

• Following LLAP’s distressed acquisition, we now have three failed space SPACs (LLAP, Virgin Orbit / VORB, Astra Space / ASTR) from the class of 2020-23

BlackSky / BKSY shares partially recovered in October (+33% in the month) following a tough September (-47%)

• Remember that we previously discussed how BKSY shares tumbled in September following a surprise 1-for-8 reverse stock split announcement on 9/4, which signaled an upcoming equity dilution; once the fundraise was officially announced on 9/24 however, management disclosed that a portion of the proceeds would be used “to gain more control over the parties that impact our Gen-3 supply chain and production operations.” This comment suggested M&A was the reason for the raise, not underlying weakness in BKSY’s business.

• Sure enough, on BKSY’s 3Q24 earnings call management disclosed that it was acquiring the 50% of LeoStella that it didn’t already own (LeoStella is a satellite manufacturing company, originally created as a joint venture between BlackSky and Thales Alenia Space; LeoStella manufactures BlackSky’s remote sensing satellites)

• Since the 9/24 disclosure that foreshadowed M&A and dispelled fundamental business momentum concerns, BKSY shares increased +25% through the end of October and +60% as of 11/10/24. Given that BKSY is now trading at pre 1-for-8 reverse split-panic levels, the “buy the dip” opportunity for BKSY shares seems to be over for now

Rocket Lab / RKLB (+10%) and Redwire / RDW (+12%) each saw solid gains in October

• With neither company announcing material news in the month, I view recent gains as being driven by greater awareness of each company given strong year-to-date returns (RKLB shares have increased +94% through October and RDW shares have increased +170% through October; RKLB in particular has seen its market cap grow from $2B earlier this year to nearly $7B, which makes it easier for large institutional investors to take a meaningful position in the company) as well as a more general “risk-on” attitude from investors as interest rates come down

• Anecdotally, I am seeing a TON of retail investor interest on social media around space companies (primarily AST SpaceMobile / ASTS, Intuitive Machines / LUNR, and RKLB) as the market has heated up over the last 6mo

I have been ignoring Momentus / MNTS for months now because the company hasn’t been filing quarterly earnings reports or 10-Qs and I didn’t understand how/why the company hasn’t gone bankrupt yet (and with a market cap of $10M-$20M these days, frankly the company hasn’t been worth discussing); however, MNTS filed its 1Q24 and 2Q24 10-Q filings in October, so I will share what I learned from reading them

• To recap for those who haven’t been paying attention to Momentus, things have not been going well for the company since it decided to go public via SPAC: its founder and CEO left the company because of US Department of Defense concerns and the company was hamstrung by NatSec regulatory approvals for years afterwards (link); the company was accused of lying to investors about the maturity of its technology and was fined by the SEC (link); the company suffered anomalies in two missions since going public; and management has paused recent planned missions due to lack of cash and announced layoffs to preserve remaining capital (link). Additionally, the company has been extremely delayed filing its financial statements with the SEC—we have basically been in the dark with what has been going on at Momentus from a financial standpoint for the last year; However, with its 2023 annual filing made in June and its 1Q24 / 2Q24 filings made in October, we now have an updated POV

  • For background on what Momentus does, go to page 1 and read “The Company” section here (link)

• Here is what I think is going on at the company based on recent SEC filings: 1) Momentus has successfully gone into “cockroach mode,” slowing monthly cash burn from ~$5M/mo in 2023 to just $374k/mo in 2Q24; 2) following completion of its National Security Agreement (which satisfied the Department of Defense’s prior NatSec concerns about the company) in January 2024, Momentus is clearly focused on serving the US government (USG) with nearly 100% of revenue ($1.7M in total) through 1H24 coming from USG contracts in 2024; the company has publicly announced contract wins from NASA (for launch services, flight and payload integration services), DARPA (classified defense space work, support of “large-scale space structures”) and the Space Development Agency (HALO program) thus far 2024, though I assume most if not all of these contracts are small-dollar research & development contracts; 3) Momentus has been living hand-to-mouth since 4Q23 when its cash balance hit ~$2M, but it has avoided going bankrupt by: A) raising ~$13M in equity and convertible notes; and B) selling a SpaceX rideshare spot to D-Orbit for $1.2M; I estimate that the company has ~$4M of cash on hand right now based on the timing of these raises

• While it may seem like Momentus is showing signs of life, note that the company has been in noncompliance with NASDAQ listing rules for some time now and management is in the process of appealing a potential delisting from the exchange (which would obviously be bad for MNTS shares). Investing in a publicly traded company this small is inherently risky

ViaSat / VSAT was down -20% in October and is now down -68% YTD

• I think those of us that follow the space industry and satellite communications understand why VSAT is under pressure these days (Starlink + fixed-wireless access operators are eating its lunch), but I thought it was interesting to see VSAT pop up as a US Presidential election investment play (see screenshot below) in recent days

• Taking an even further step back, VSAT has actually been a profitable short investment for the last five years, which aligns with Starlink’s constellation buildout (v1.0 satellite launches began in late 2019)

Comtech / CMTL was down -23% in the month following a major strategic update

• On 10/17 CMTL management disclosed that the company was undergoing a strategic review of its assets to potentially sell its terrestrial & wireless networks business to focus purely on satellite and space communications (link)

• While the market initially reacted positively to the news with CMTL shares trading +16% the day after the announ q cement, CMTL shares resumed a decline that had begun at the end of September the following day, so it seems like this news wasn’t welcomed warmly by investors. Analysts on the company’s F4Q earnings call on 10/31 seemed skeptical of the current management’s strategic realignment plan since prior management teams at CMTL had attempted to (and didn’t succeed in) selling the company’s terrestrial & wireless networks business in the past

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

Stocks saw strong returns in September, with the Space SPACs leading the way at +16%.

Investors piled back into stocks in September as the Federal Reserve made its first, long-awaited interest rate cut since beginning a rate hike cycle in March 2022; given a backdrop of continued cooling inflation and other indicators suggesting that the economy is healthy enough to avoid a recession, the positive investor sentiment makes sense.

As I have repeatedly pointed out (link), lower interest rates disproportionately benefit riskier assets, including unprofitable (but higher growth) stocks like the space SPACs, companies included in the ARK Innovation ETF, and tech stocks included in the NASDAQ (link).

While September is historically the worst month of the year for stocks (see below), the S&P 500 actually had its best September performance in 11 years this year (link).

The phenomena where stocks struggle in September is referred to as “the September effect” and while there are many attempted explanations for why this happens most years, my take is that in September, Wall Street is coming back from summer vacation and buckling down to not only finish the current year strong, but begin processing their outlook for the next year; this requires portfolio rebalancing, which results in September stock volatility.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Coatue's founder Thomas Laffont on "The State of the Unicorn Economy" (1st 20min)

• Down round trends (Carta)

• Startup valuations vs round volume (Carta)

2. SPACE STOCK COMMENTARY

BlackSky / BKSY shares tumbled -47% in September due to the company’s $46M equity fundraise, which diluted existing shareholders by -39%

• On 9/4, BKSY surprised shareholders when it announced it would execute a 1-for-8 reverse stock split, meaning that shareholders would get 1 new BKSY share for every 8 BKSY shares they already owned; this would artificially increase price per share while proportionately reducing the number of shares outstanding (and thus keep BlackSky’s equity value unchanged). BKSY shares declined -21% the following day

• While management didn’t offer a reason why they were doing this, companies generally pursue reverse stock splits when their stock is consistently trading below the minimum price requirement of the exchange they trade on (ex. trading below $1.00/sh for 30 consecutive days will get you a warning from the NYSE) or else they risk being de-listed (which is bad because it would limit BKSY’s access to investors and and damage its reputation); BKSY shares had been trading at +/- $1.00/sh for the last 12mo, but hadn’t violated NYSE minimum price requirements

• The clear readthrough from this action was that management was proactively increasing BKSY’s price per share because they intended to raise capital via an equity raise, which would dilute existing shareholders and drive down BKSY’s share price. If they hadn’t executed the reverse-split, BKSY shares would have almost certainly traded below the minimum $1.00/sh after the raise (they were at $1.11/sh the day before the announcement)

• It took another three weeks, but BKSY did formally announced an equity raise on 9/24; it initially planned for a $40M raise (vs a pre-split market cap of $163M) but ultimately raised $46M, a 39% dilution for existing shareholders (based on number of shares outstanding). Unfortunately this raise distracted from the fact that BKSY announced three more contract wins in the month of September with defense, civil, and commercial customers

• The reverse share split and equity fundraise/dilution was surprising because one month before the split on the 2Q earnings call in August, management had said they believed they had “sufficient liquidity for the foreseeable future” with cash on hand + anticipated customer payments + vendor financing. However, it seems that management needed to raise additional cash “to gain more control over the parties that impact our Gen-3 supply chain and production operations” (per ‘use of proceeds’ commentary in the company’s prospectus, link)

• For context, BKSY is averaging mid to high-teens cash burn on a trailing 12mo basis, but investments related to the company’s Gen-3 satellites are driving heightened capex over the next 18mo

Rocket Lab / RKLB shares launched upwards +55% in September, propelled by general market sentiment

• I don’t think there was any one catalyst that drove Rocket Lab’s strong performance in September; instead, RKLB benefitted as investor enthusiasm for taking on more risky assets grew throughout the month—evidence of this can be seen in RKLB shares beginning a +67% run from 9/6 through 9/30, which matches the same timeframe where the S&P 500 / SPY reversed a local minimum and began a similar (but smaller in magnitude) movement upwards through the end of the month

• I am biased, but I view RKLB as the highest quality space SPAC in terms of management and execution + many investors view the company as the closest thing to SpaceX they can own in the public markets, so it makes sense to me that the company has benefitted as near-term market sentiment towards unprofitable / growth stocks has improved

• However, the most recent move puts RKLB at a rich valuation—its $5.5B enterprise value (as of 10/16/2024) is the highest the company has been valued at in 35mo and its 11.2x next 12mo revenue multiple is its highest in 29mo. Investors who are planning to hold onto RKLB shares longer term would probably note the company is much cheaper if you look at its 2030 revenue multiple (currently 2.2x based on Koyfin consensus estimates as of 10/16)

• All this is to say—know what you are underwriting if you are investing in the stock at these levels

Intuitive Machines / LUNR saw a massive +62% movement in September following its contract win for NASA’s Near Space Network (NSN) services, where it will provide communications and navigation services at the moon to support the Artemis lunar exploration campaign

• Retail investors online were freaking out when this award was first announced because it has a maximum potential value of $4.8B (yes, billion) which would be quite a win for a company with a market cap of $694M prior to the award announcement

• However, this contract is an IDIQ (Indefinite Delivery/Indefinite Quantity), a type of contract used by the U.S. federal government (USG) to purchase goods and services when the USG doesn't know the exact quantity of a product or service it needs, but it does know the general range. IDIQs always have a giant maximum value, but sometimes there is $0 guaranteed dollars; you can’t count your IDIQ eggs before they hatch

• For this NSN contract, Intuitive Machines is guaranteed $150M over a five-year period (link) and can win up to $585M over the first five years (link); if the company executes well over that first five years, NASA has an option to award them another 5yr contract that could be worth up to $4.2B. So yes, a $150M contract is great for LUNR, but it is not a $4.8B contract (only 12% of total potential contract value is guaranteed)

• Initially, I though the market’s reaction to this contract was an overreaction because people who aren’t used to government contracting usually don’t know that an IDIQ will have a big headline figure and little guaranteed money (link to a bunch of people calling me dumb on X)

• However, I was actually wrong - the market does have a clue what an IDIQ is. since the announcement, the market has basically taken the guaranteed money ($150M), multiplied it by LUNR’s pre-announcement revenue multiple (2.1x) and added the total ($315M) to LUNR’s market cap ($694M pre-announcement; now $1.0B-$1.1B post-announcement)

• While we don’t know the mechanics of this contract, I expect management to address this at conferences and/or on its next earnings call. Examples of questions I would have for LUNR’s management team include: Will LUNR receive all $150M of the guaranteed money in 2024 like the market is assuming, or is the award money given out over a longer period of time based on performance milestones? What is the risk that another company gets added to this IDIQ and LUNR has to compete for money vs having a sole source contract? What would it take for LUNR to win all $585M of the initial contract? What is timing for NASA to make its decision for the optional 2nd five-year period?

EchoStar / SATS increased +34% in September, potentially driven by leaked rumors around the long-awaited merger of DISH TV (owned by EchoStar) with DirecTV (owned by AT&T and TPG)

• For years there has been speculation around a merger between DirecTV, the leading satellite TV provider and once the largest pay-TV operator in the US, and DISH Network, the other major US satellite TV provider; given that they have both been hemorrhaging pay-TV subscribers for a decade+ following the advent of streaming services like Netflix and virtual Pay-TV operators like YouTube TV and Hulu Live, there was sound logic behind the idea of merging to form a single, stronger satellite TV operator, as well as realize material cost synergies

• Most years I dismissed the “news” of DISH and DirecTV being in merger discussions since we hear this rumor every year and nothing ever happens, but with DISH’s parent company EchoStar due to repay $2B of debt in November and it not having the cash on hand to do so, I paid attention when then rumor mill started on 9/13/24 (link); of note, DISH’s founder and Chairman, Charlie Ergen, is known as a wild deal maker and this seemed exactly like the kind of thing he would do to get EchoStar out of a sticky situation (there is an industry saying “never bet against Charlie Ergen;” link to an article that explains Ergen’s background)

• Lo and behold, on 9/30 the two businesses announced plans to merge (link to more details around the deal)

• Was SATS’ runup the result of leaked rumors around a potential merger? While potential M&A is usually strictly confidential and disclosure by either company or bankers/lawyers involved could count as insider trading, I’m not sure what else would explain SATS performance in the month other than general anticipation of Ergen swooping in to save the day for EchoStar’s debt situation. At this point, it doesn’t matter, but it’s fun to think about the potential drama

ViaSat / VSAT declined -24% in the month as company’s valuation right-sized following unusual volatility in July and August

• As I highlighted last month (link), VSAT experienced some unusually volatile share movement over the summer (including a random +38% single-day movement in early August); however, the stock finally returned to pre-volatility levels by the end of September and has continued to decline even further into October

Comtech / CMTL shares launched upwards +52% in September for no good reason

• There was no material news for Comtech in September. Given how small the company is ($450M enterprise value, $137M market cap at month-end) perhaps the stock was just a material beneficiary of improved investor sentiment towards risky assets (the definition of which often includes micro-cap stocks, like CMTL)?

Boeing / BA’s stock declined -12% in September, driven by investor concern related to an ongoing labor union strike against the company

• Boeing’s bad news continued in September with its largest labor union (33k members) going on strike (link), halting 737 production and “jeopardiz[ing] our recovery” (per the company’s CFO; link)

• The WSJ estimates that the strike could cost Boeing $500M a week (link) and credit ratings agencies have warned that they might downgrade Boeing’s debt if the strike drags on; this would be bad for Boeing and certaintly send shares down further given that the company is reliant on debt to fund its business in the near-term as it looks to get back on track with consistent free cash flow generation following a myriad of 737 jet production issues. Boeing is barely above “junk bond” status right now and a downgrade would materially increase the cost of any debt it would attempt to raise (link to my dated, but still relevant discussion about Boeing’s debt and why it wants to avoid a downgrade)

After very busy 3Q24, we are publishing a delayed double-feature analyzing BOTH July + August space stock trends; in just a few weeks’ time, subscribers will receive the September Space Stock review on the traditional beginning-of-the-month schedule. Enjoy!

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

3Q24 has been a Space SPAC Summer.

Led by AST SpaceMobile, the space SPACs handily beat the broader market and legacy space stocks in both July and August; however, even excluding ASTS’ +78% and +40% returns in July and August (respectively), the SPACs still led the way with nearly +13% and +12% returns the past two months.

In July and August, the SPAC’s volatile performance is similar to, but the opposite of broader market volatility over the same time period.

Over the past two months, investor uncertainty has increased as economic data has begun to indicate that underlying economic trends are weakening; while we are on the verge of interest rate cuts that investors have been looking forward to for some time now, the concern is that high interest rates meant to combat inflation have been successful at the expense of harming underlying economic growth and that rate cuts are coming too late to avoid a recession.

This economic uncertainty may explain the strong July + August for Aerospace & Defense primes, as defensive stocks (i.e. companies that generally produce consistent earnings regardless of economic conditions) have benefitted during this period as some investors look to decrease their exposure to risk, and the Aerospace & Defense primes are considered defensive stocks (no pun intended).

At the same time, interest rate-sensitive stocks have also benefitted recently, as the one-two punch of decelerating inflation and weakening economic conditions increases the odds of a lower interest rate outlook—as I have described many times before (link to my previously written primer on “Why Should Space Investors Care About Interest Rates?”), high-growth and unprofitable companies disproportionately benefit from lower interest rates since the majority of their cash flows are in the future and the present value of their future cash flows are worth more in the present day if interest rates are lower vs higher (all else equal).

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Startup valuation trends from Carta: Part 1, Part 2, Part 3, Part 4

• Carta’s 2Q24 State of the Private Markets

• Deep tech doesn’t have to be capital & time intensive (from Arpit Dwivedi, founder of Cache Energy)

• Seed to series A progression trends

• Series A to series B progression trends

• VC fund DPI trends

2. SPACE STOCK COMMENTARY

A Note from Space Case: there have been notice a few changes to our SPAC groupings (see above) since our last Space Stock Review in July

• Astra has been removed since it is no longer a public company

• Rocket Lab was moved to the “manufacturing” category since its old grouping with Virgin Galactic in the “launcher” category no longer made sense and for the foreseeable future, the majority of Rocket Lab’s revenue will be coming from its Space Systems manufacturing business

• Virgin Galactic was moved from the now defunct “launcher” category (and let’s be real, it was never a launch company) to the new “in-space movement” category with Intuitive Machines and Momentus (which were previously categorized as “cislunar”). I am not sure these three companies belong grouped together, so feel free to suggest an alternative grouping for name for these companies in the comment section if you have ideas

Planet Labs’ / PL returned to positive year-to-date returns (+9%; YTD) in July and August following a strong two-month period

• These positive results can probably be attributed to a string of good news for the company over the summer where it disclosed winning five government contracts and two contracts with humanitarian non-government organizations (NGOs) (link for more information)

• This series of announcements was encouraging given that Planet has been increasingly relying on government customers to drive its revenue growth, and management has been alluding to upcoming government contract awards the past few earnings calls (link for details)

Spire Global / SPIR had good news in July and August overshadowed by accounting missteps disclosed by the company on 8/14

• On 7/24, Spire announced that it would release its 2Q24 earnings on 8/14; however, when 8/14 came around the company abruptly announced that it needed to reschedule the call due to an inability to file its 2Q24 10-Q filing because of an ongoing internal investigation into revenue recognition practices related to its Space Systems line of business (i.e. hosted payload contracts; see here for more details on the contentious situation between Spire and one of its customers that is probably behind this situation - link). Spire noted that although its cash position would be unaffected by this review, revenue could be affected by $10M-$15M/yr and management believed the company was now violating the covenants (i.e. rules) of its $120M debt agreement with Blue Torch Capital

• Needless to say, the markets did not like this and SPIR shares traded down -34% the day after this news was announced

• Later in August however, the company announced that it had worked out an agreement with Blue Torch: in exchange for a $10M payment, Spire was able to renegotiate its debt agreement so that it wasn’t violating any covenants. While the payment was painful for Spire (which only had $46M of cash on hand prior to this agreement and hasn’t reach consistent cash generation from its operations yet), putting the covenant violation to bed is a relief for equity investors. However, Spire still hasn’t filed its 2Q24 10-Q and has yet to announce the conclusion of its internal revenue recognition practices, so the company isn’t through the woods yet with this situation

• Unfortunately this accounting drama overshadowed four multi-million contract wins for Spire in July and August (all from government customers; link to SPIR press releases)

AST SpaceMobile / ASTS’ hot streak continued in July and August, with ASTS shares appreciating +150% over the two month period. There were two main updates from the company that seemed to act as catalysts for ASTS in July and August:

• On 7/25, ASTS shares jumped +25% on the news that AST’s 1st five commercial (i.e. revenue-generating) satellites were fully assembled and prepared for shipment to SpaceX for launch. Personally I don’t think this news merited that kind of share price movement, but it did officially kick off the hype train ahead of the company’s 1st multi-satellite launch, and ASTS shares continued to move steadily upward through mid-August; perhaps shareholders were relieved that the company’s launch plans weren’t impacted by SpaceX’s mission failure on 7/12, which resulted in the FAA grounding the company’s rockets until it completed a mishap investigation

• On 8/15, ASTS shares increased +51% following its 2Q24 earnings call where I don’t think there was any one piece of good news that drove shares higher, but rather a string a positive updates from management as AST transitions from R&D mode to commercialization mode, including: 1) the launch of AST’s 1st five commercial satellites was officially scheduled for the first half of September; 2) AST had begun production for its next 17 satellites, with launches for these satellites beginning in 1Q25; 3) AST’s next-gen ASIC chipsets that will 10x the bandwidth of the company’s satellites successfully taped out (i.e. finished design and were sent out for manufacturing); 4) AST’s partners, Verizon and AT&T, were supporting AST’s ongoing FCC regulatory approval processes; 5) the company is executing upon its initial US government (USG) contract and anticipates winning additional USG contracts in coming months; and 6) management reiterated funding plans centered on non-dilutive capital, including that AST continues to work with the Ex-IM bank for a debt financing package + management doesn’t anticipate pursuing a public equity offering to raise capital through the remainder of 2024 due to prioritization of prepayments from MNO partners instead

• Following its strong July + August, ASTS’ market capitalization (i.e. the value of its equity) was 40% greater than the combined market cap of the other 10 space SPACs ($7.8B for ASTS vs $5.7B for the other 10 space SPACs)

Terran Orbital / LLAP shares declined -65% in August after the company announced plans to be acquired by Lockheed Martin / LMT for $450M, a -25% discount versus LMT’s previous ~$600M offer, but a -75% difference for equity shareholders since Terran’s equity was now being valued at $0.25/sh vs $1.00/sh prior

• As I noted previously (link), Terran management was playing a game of chicken with Lockheed by rejecting the company’s March takeover offer of $600M in hopes that Terran’s biggest potential customer (Rivada Space) would actually begin to make material payments on its $2.4B contract for 300 satellites; if this had happened, Terran might have been able to self-fund its business and remain independent, or it at least would have been able to argue that it was worth more than $600M

• However, Rivada never came to save the day and Terran didn’t get its “winner winner, chicken dinner,” likely due to Rivada’s own funding issues (see the following SEC filing from Terran Orbital detailing their engagement with Rivada + why Terran removed the $2.4B Rivada contract from its backlog here, link); notably, since Terran’s acquisition announcement, Rivada’s CEO has made a number of interesting statements including: that Terran’s acquisition by Lockheed is a “real confidence builder;” Rivada continues to be financially is supported by sovereign wealth funds; and the company still anticipates meetings its regulatory constellation buildout deadline of 300 satellites on orbit by 2026 (link)

ViaSat / VSAT had an unusually volatile July and August, where shares spiked +59% in July and then declined -22% in August (and have since trended back to June levels in September, completely erasing July gains)

• I can’t point to any fundamental reasons why VSAT shares would have increased so much in July (the company didn’t announce any material news that would have acted like a sharp positive catalyst), so it makes sense to me that VSAT has since drifted back down to pre-July share price levels

MDA Space / MDA’s +20% gain in August was driven by the company’s 2Q earnings report

• Notably, the 2Q report included positive updates on the company’s 2024 guidance, including: 1) increasing 2024 revenue guidance to +30% y/y growth vs +25% y/y growth guidance prior, with matching higher EBITDA dollars (though margin stayed the same); 2) an improved cash flow outlook, where the company now expects to generate free cash flow in 2024 (vs 2025 prior, due to changes in working capital requirements) and plans to continue delevering its balance sheet (i.e. paying off debt) as a result

• In general, this earnings report underscores MDA’s momentum as a key manufacturing player in the space industry, with its backlog now at a company record high of $4.6B for projects across civil space and commercial space (though just two deals, the $1B Canadarm3 contract and $2.4 billion Telesat Lightspeed contract, make up the majority of this backlog)

Aerospace & Defense Primes (in particular, Lockheed / LMT, Northrop Grumman / NOC, and Raytheon / RTX) all saw strong performance in July and August

• As I noted earlier in this post, uncertainty related to mixed economic data may explain the strong July + August for Aerospace & Defense primes, as defensive stocks (i.e. companies that generally produce consistent earnings regardless of economic conditions; again, no pun intended) have benefitted during this period as some investors look to decrease their exposure to risk

• LMT, NOC and RTX in particular all raised 2024 guidance metrics and shared a generally a positive outlook for 2025 during their 2Q earnings reports in late July—the timing of doing so was perfect to emphasize to more risk-averse investors that these companies can continue to drive earnings growth in uncertain economic conditions

• 📖 This post was inspired by reading “Eccentric Orbits: The Iridium Story,” a book about the most famous failure in the history of the space industry

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. All information in this post is either publicly available or based on Space Case estimates. Please do your own research before investing.

Starlink is unusual in the world of satellite communications (satcom) because it hasn’t gone bankrupt.

Early satcom businesses in the 1960s-80s almost entirely used geostationary (GEO) satellites to deliver radio communication, broadcast TV, telephony, and eventually internet connectivity to places terrestrial networks either couldn’t economically build out to (i.e. rural and remote locations) or couldn’t reach at all (maritime, in-flight, etc).

This changed in 1987 when Motorola proposed the Iridium system, the first low earth orbit (LEO) satcom network, which promised better performance than GEO systems.

While Iridium is a profitable, multi-billion dollar business in the present day, in 1999 the company defaulted on $1.5B of debt and was forced to file one of the largest bankruptcy claims in US history (at the time).

Iridium is not alone in its early failure—all major attempts to build LEO satcom businesses have failed at first, except for one: Starlink

Unless you have been living under a rock, you have definitely heard of Starlink (SpaceX’s satcom business)—and for good reason:

• Starlink’s 6,215 satellites on orbit represent 60% of all satellites currently orbiting the earth (as of 7/26/20241)

• Since debuting commercial service in 2020, Starlink has amassed over 3 million users and is targeting $10 billion of revenue in 20242

• SpaceX’s valuation growth from $10B in 2015 (the year Starlink was announced) to $210B3 as of July 2024 has mostly driven by the growth of Starlink (I believe Starlink accounts for at least $150B of SpaceX’s total $210B valuation, if not more)

However, as a student of history and knowing what has happened to LEO satcom ventures of the past, I can’t help but question Starlink’s future since believing it can become a viable business without failing at first requires you to utter the four most dangerous words in investing: “this time is different.”

Is Starlink set to repeat history and go bankrupt before emerging as a viable LEO satcom business? Or will it buck the trend and become the first LEO satcom company to build a self-sustaining business from the beginning?

In this post, we will answer the question “is this time different?” for Starlink by discussing the following:

1. Why Build a LEO Satcom Business?

2. What Went Wrong with Past LEO Satcom Ventures?

3. Is this time different for Starlink?

4. Conclusion

5. Investor Considerations

1. WHY BUILD A LEO SATCOM BUSINESS?

Early satcom businesses used GEO satellites because they are able to provide consistent service to broad areas of earth.

• GEO satellites orbit earth the at the same rotational speed as our planet, making them appear stationary at a fixed position in the sky and thus capable of providing consistent and reliable satcom coverage since ground antennas can be aimed in one direction and don’t have to track the satellite’s motion across the sky

  

  

• Additionally, GEO satellites are so far away from the earth (nearly 36k kilometers or 22k miles) that one GEO satellite can see up to one third of the earth at a time and three GEO satellites working together can cover nearly the entire earth’s surface

  

However, the reliability and broad coverage of GEO comes with a price—latency.

Every communications network has latency (the time delay between a user request for data and a server’s response to the request), but GEO satcom is the biggest offender:

• Terrestrial cable and fiber networks have as little as 20-30 milliseconds of latency, which is near the limit of the human brain’s ability to perceive change in the outside world

• This compares to GEO satcom which has AT BEST 0.5-1.0 seconds of latency; GEO satellites are so far from earth that it takes signals hundreds of milliseconds to physically travel through the network in space

Unlike GEO satcom however, LEO satcom has low latency that is comparable to terrestrial networks (in the range of 30-70ms4); this is because LEO satellites orbit the earth “only” 300km-2,000km (200mi-1,200mi) away vs 36,000km (22,000mi) for GEO

• Signals travel ~10x less distance between space and earth in LEO systems compared to GEO systems, and as a result LEO systems have 10x lower latency

[Source for video above is Starlink’s website, link]

However, just like GEO satcom’s broad coverage and reliable service comes with the cost of high latency, LEO satcom’s low latency comes with a cost as well—massive scale needed for global coverage.

LEO satellites are so close to earth that they can only “see” a few percent of the earth’s surface at a time—a global LEO system requires hundred to thousands of satellites for robust service, which adds up to billions of dollars in buildout costs!

[video above visualizes the growth of Starlink’s >6k satellite constellation; video is from Starwalkapp on Instagram, link]

In a world increasingly reliant on high-volume and high-speed communication of data, the latency in GEO satcom systems has rendered GEO basically unusable for applications that require real-time communications (like streaming, video conferencing, online gaming, and other high data rate activities); while building a global LEO system of hundreds to thousands of satellites seems daunting, the potential for creating a global broadband network is an opportunity too alluring to ignore.

2. WHAT WENT WRONG WITH PAST LEO SATCOM VENTURES?

Despite the intimidating scale of what it takes to build a LEO satcom system (billions and billions of dollars), there have been five brave (crazy?) attempts to create LEO satcom businesses prior to Starlink…and each of them failed at first:

1. Iridium (went bankrupt, but is now a profitable, publicly traded company)

2. ORBCOMM (went bankrupt, was later acquired by private equity)

3. Teledesic (returned capital to shareholders and shut down)

4. Globalstar (went bankrupt, but is now a profitable, publicly traded company)

5. OneWeb (went bankrupt, and was later acquired by Eutelsat)

Each of these companies had their own unique circumstances, but rather than going through the details of their individual stories in this post (there are books that do this for us, links in the footnotes5) let’s review the four main reasons for their failures:

1. Building Cool Technology vs Solving Real Customer Problems

(Guilty: Iridium, ORBCOMM, Globalstar)

The cardinal sin that Iridium, ORBCOMM, Globalstar committed was focusing too much on technological innovation and not enough on product innovation—they wanted to build a novel communications system instead of building a solution for a known customer pain point in a way that required novel technology. Customers don’t care if your product’s underlying technology is LEO satcom or “magic moon rocks” (link), they just care about solving their problem.

Iridium, ORBCOMM, Globalstar never truly established product-market-fit and they entered bankruptcy because the subscribers they thought would flock to their satellite telephone and low-bandwidth data services didn’t materialize quickly enough to service their debt payments.

Obviously hindsight is 20/20, but in Teledesic co-founder Tren Griffin’s post about Iridium (highly recommended link), he notes that the excitement around Iridium’s new technology led to a “goal-seek” business forecast from the company that justified the costs required to build out the constellation.

Additionally, this case study from Dartmouth’s Tuck School of Business (link) highlighted the mental hoops that Iridium’s stakeholders went through to approve the full Iridium system buildout despite its numerous red flags.

2. Poor Unit Economics

(Guilty: Iridium, ORBCOMM, Globalstar, Teledesic)

Looking back at early LEO satcom ventures from the present day, we now know that the technology needed to economically develop a LEO satcom constellation just didn’t exist in the late 1990s / early 2000s. The Iridium, Globalstar, and ORBCOMM constellations were extremely expensive to build relative to the level of service they could deliver because:

• Launch costs were an order of magnitude too high

• Satellite manufacturing costs were multiple orders of magnitude too high

• Ground equipment technology used in modern day systems (phased array antennas) hadn’t moved beyond military applications yet, so the cost of developing them for commercial applications would have been too high

Teledesic escapes some of my commentary here since the constellation aimed to deliver 100Mbps speed service to customers and was originally projected to cost $9B (implying a buildout cost vs service quality profile similar to that of Starlink), but given that the venture was in large part shut down due to ballooning costs, the $9B build cost estimate clearly turned out to be too optimistic.

There are a TON more details on unit economics of early LEO satcom businesses vs Starlink later in this post to back up my claims, so read on!

3. Taking Too Long to Commercialize

(Guilty: Iridium, ORBCOMM, Globalstar, Teledesic, OneWeb)

On average, it took the early LEO satcom businesses ~10 years to begin selling service to customers, largely due to regulatory hurdles and manufacturing challenges associated with the newness of LEO satcom as a category:

• The communications industry is highly regulated and there was not a set regulatory process for approving LEO satcom systems in the 1990s; businesses like Iridium, Globalstar, ORBCOMM, and Teledesic had to both establish a number of regulatory “1sts” as well as appease legacy communications operators prior to rolling out their service.

• Additionally, satellite manufacturers in the 1990s were used to building only a handful of GEO satellites per year—they were not prepared to build 10s of satellites per year for LEO satcom customers, so it took time to get the supply chain established for these new LEO satcom ventures

Unfortunately, this delay between idea conception (early 1990s) and go-to-market (late 90s / early 2000s) played a large role in the downfall of LEO satcom businesses because the rapidly evolving telecommunications market moved on without them:

• Iridium, Globalstar, and ORBCOMM had originally been targeting markets that terrestrial networks couldn’t serve (ex. Iridium had infamously based a large portion of its original business model on serving “the traveling businessman”)

• However, while the LEO satcom systems were busy getting regulatory approval, building out their supply chain, and then launching their satellites, the terrestrial communications industry experienced significant growth and investment in the 1990s fueled by the expansion of the internet and the introduction of wireless technology (this was a time period known as The Telecom Bubble)

• The Telecom Bubble of the 1990s and early 2000s resulted in a massive buildout of terrestrial communications network footprints (both wireless and fixed networks) that ultimately encroached on LEO satcom’s anticipated “unserved markets,” causing LEO satcom offerings to seem both outdated and expensive in comparison—as a result, LEO satcom was relegated to even smaller niche markets when they did roll out service. The companies were unable to generate the returns on investment needed to support their business models

OneWeb is in a slightly different situation given that its quality of service today is semi-competitive with terrestrial (up to 195Mbps downloads speeds), but the company is still guilty of taking too long to move from idea to commercialization (9 years from public announcement to service launch)—OneWeb might have avoided bankruptcy if it had been closer to fully funded when the COVID crisis occurred in 2020, allowing the company to avoid the need to raise capital in terrible market conditions (of course this is easier said than done and hindsight is 20/20)

4. Overreliance on Debt + Capital Markets Volatility

(Guilty: Iridium, ORBCOMM, Globalstar, Teledesic, OneWeb)

Debt is a dangerous tool for any unprofitable business, let alone pre-revenue startups.

Given the slower-than-expected growth for Iridium, Globalstar, and ORBCOMM’s businesses, these companies all filed for Chapter 11 bankruptcy within 3yrs of launching commercial service once it become apparent they wouldn’t be able to make necessary interest payments on the debt they had raised; making matters worse was that these companies went into distress right around the time the Dotcom and Telecom bubbles burst in the early 2000s—market sentiment was absolutely terrible, and investors were not interested in funding these floundering businesses, instead forcing them to be restructured in bankruptcy.

Having operated and attempted fundraising during this difficult period, Teledesic co-founder Tren Griffin put it best when describing how bad market conditions were in the early 2000s:

“One day you could raise billions of dollars to build something like a massive fiber based national or global telecommunications network and the next you could literally not raise 3 cents. Just reading about this shift in the ability of a business to raise new funds is not sufficient to convey how swift the change from internet bubble to internet bust really was. If you went through the internet bubble and its collapse you were forever changed. Your muscle memory is just different than other people who did not have the same experience.”

- Tren Griffin, “A Dozen Things I Learned Being Involved in one of the Most Ambitious Startups Ever Conceived (Teledesic),” 25iq (link)

While Teledesic escaped bankruptcy (I assume because it didn’t raise debt), the company did ultimately close down its operations because of frozen capital market conditions and inability to fundraise.

Similar to the early LEO satcom businesses, OneWeb financed its operations using billions of dollars of debt prior to generating any revenue; also similar to the early LEO satcom businesses, OneWeb management was forced to file for bankruptcy due to frozen capital market conditions in 2020 related to the COVID-19 pandemic damaging the company’s ability to fundraise.

3. IS THIS TIME DIFFERENT FOR STARLINK?

I think this time is DEFINITELY different for Starlink because unlike prior LEO satcom attempts:

• Starlink has materially lower launch, satellite, and ground equipment costs

• Starlink’s service is competitive with existing communications services

• Starlink has rapidly built and monetized its technology

• Elon Musk (and therefore SpaceX/Starlink) can raise capital at will

1. Starlink Has Materially Lower Launch, Satellite, and Ground Equipment Costs

Lower Launch Costs

SpaceX has disrupted the space industry with its partially reusable Falcon 9 rocket offering customers all-time low pricing for launch service (expressed in dollars per kilogram); however, Starlink is the only satellite operator truly reaping the game-changing cost benefits enabled by high cadence, reusable rockets6

• External SpaceX customers can purchase a ride to LEO on a Falcon 9 rocket for $69.75M or $3,170/kg7

• But Starlink is part of SpaceX, so there is no markup on Falcon 9 launch pricing and Starlink satellites are launched at-cost; as a result, Starlink “pays” $28M8 or $1,591/kg per mission on a Falcon 9 rocket

Compared to the failed prior LEO satcom businesses, Starlink’s launch cost advantage is even more dramatic:

• Compared to the earliest LEO satcom businesses (Iridium, Globalstar, and ORBCOMM), Starlink’s launch costs are ~10x lower than what they paid for launch (on a $/kg basis)

• Compared to OneWeb (a good proxy for modern day LEO satcom businesses not exclusively using SpaceX for launch), Starlink’s launch costs are 80% lower on a $/kg basis

Going forward, Starlink’s launch costs should continue to decline as SpaceX’s rocket technology becomes even more efficient; SpaceX’s next-gen Starship rocket could enable Starlink launch costs in the $500-$100/kg range in the future vs just under $1,600/kg today in 2024.

Lower Satellites Costs

In general, all electronic devices have benefited from Moore’s Law, the 1965 prediction from Intel co-founder Gordon Moore that microelectronics would steadily become more cost efficient and enable smaller and smaller electronics to become more and more powerful.9

However, not only have smaller and more cost-performant microelectronics allowed your iPhone to pack more compute capability into its 6-inch body than the entire Apollo rocket had when it launched men to the moon in 1969, but satellites today are more cost-performant than ever thanks to Moore’s Law enabling aerospace engineers to build more computing capability into smaller satellite form factors.

This is especially important for LEO constellations since they require hundreds to thousands of satellites—operators need to carefully balance the relationship of each satellite’s processing power vs manufacturing cost and mass (which influences launch cost)10.

To measure how much Moore’s Law has benefitted satcom technology cost-performance since the 1990s / early 2000s, we will analyze two key satellite unit economic metrics:

1. Manufacturing cost per bit ($ / bit): this metric compares a satellite’s manufacturing cost vs its data transmission bandwidth; cost per bit represents the expense of transmitting a single bit of information through the satellite—a lower cost per bit figure is better!

   

   1. The difference between the cost per bit of the satellites made in the 1990s (Iridium is the only company we have solid data for) and the satellites made in the 2010s/2020s (OneWeb, Starlink) shows the impact of Moore’s Law improving the cost efficiency of satellite microelectronics over the last 20+ years

   2. The difference between OneWeb’s cost per bit and Starlink’s cost per bit can partially be explained by Starlink’s vertical integration, where the company builds its satellites in-house and aggressively focuses on reducing costs by simplifying its supply chain and using the cheapest components possible that still meet mission requirements; this compares to OneWeb outsourcing its satellite manufacturing to a legacy space prime (Airbus) that captured some margin of profit on top of what it charged OneWeb (and with Airbus’ supply chain vendors charging their own profit margins on top of that). Starlink’s satellites also benefit from economies of scale, since the company has built more than 10x the number of satellites that OneWeb has (over 6,000 for Starlink vs over 600 for OneWeb). The combination of these two forces has resulted in Starlink’s satellites being ~10x more cost performant than its LEO satcom competitor, OneWeb.

2. Throughput per kilogram (bit / kg): this metric shows how effectively a satellite's mass is used for data transmission, which is critical for minimizing launch costs—a higher bit per kilogram figure is better!

   

   1. Using bits per kilogram, it is again very clear to see how modern LEO satcom satellites are more cost-performant than older LEO satcom satellites (again, we only have reliable data for Iridium) thanks to Moore’s Law improving the mass efficiency of satellite microelectronics over the last 20+ years

   2. We can also see that Starlink satellites are more mass efficient vs OneWeb satellites, but the advantage is not as great as it was with cost per bit; we note that Starlink is already launching its 3rd iteration of satellites (v2 mini) and its fourth gen satellite (v3.0) should be launching within the next year—this rapid rate of innovation has given the company more chances to improve its satellite’s performance to mass ratio relative to OneWeb (which is still on its 1st generation satellites, and has paused development of its 2nd generation satellites for the time being)

Lower Ground Equipment Costs

Although ground equipment isn’t as sexy as satellites and rockets, a satcom system isn’t worth anything without terminals that connect users to the network; additionally, group equipment plays a crucial role in the business model for satcom systems because they usually accounts for a significant portion of satcom system total costs.

We can’t compare Starlink ground equipment costs vs prior LEO satcom ventures due to lack of reliable data, but focusing on just Starlink, we can see that the company has quickly reduced the financial burden of manufacturing its ground equipment:

• When Starlink first debuted in 2020, user terminals cost the company $3,00011 to manufacture vs the dishes being sold to customers for $599; there was clearly a strong need to reduce this cost, since no company can provide a $2,401 subsidy to customers indefinitely

• By April 2021, Starlink had reduced terminal costs by 50% to ~$1,50012; while this represented significant progress, the company was still heavily subsidizing terminal manufacturing since the dishes were still being sold to customers at $599/terminal

• However, in September 2023 Starlink announced that the cost to manufacture user terminals had finally been reduced to under $59913 so that the company was no longer subsidizing user equipment

• In the present day of August 2024, Starlink is now offering its standard user terminal for $499/terminal (at least in the US); the $100 lower sales price vs late 2023 potentially reflects further reductions in terminal manufacturing costs, with the company passing along cost savings to customers.

2. Starlink Service is Competitive with Existing Internet Service Providers

Starlink originally targeted providing internet connectivity to rural areas primarily served by GEO satcom or low-quality terrestrial internet service providers (i.e. non-fiber offerings); with over 3M users 3-4 years after debuting commercial service, it is clear the market likes Starlink’s service…and we believe the company is no longer satisfied with just serving rural markets.

Starlink internet service quality varies by subscription tier and geographic location, but most customers receive >100Mbps download speed and <100ms latency service.

The standard pricing for fixed (i.e. not mobile) internet for US customers is $120/mo (+$299-$499 in upfront equipment fees); international subscription pricing and equipment fees vary greatly by country, but are generally <$100/mo and $250-$499 for equipment (link).

These are expensive prices relative to the level of service delivered—when looking at monthly service price vs median download speed ($ / Mbps), Starlink generally ranks worse than most terrestrial broadband providers14 (and this metric doesn’t take into account the upfront fees required to purchase Starlink’s necessary satellite dish + router equipment, which is often several hundred dollars)

• Similar to the cost per bit metric we looked at in the prior section, price per Mbps is a cost-performance metric that looks at monthly price charged to customers vs Mbps of median download speed

  

However, despite this, Starlink’s quality of service is generally better than competition in the rural markets where it has initially gained traction (see below image); as a result, users have been willing to fork over the extra cash for its service

Going forward, Starlink is likely planning to graduate from dominating less competitive, but small rural markets and will increasingly look to compete in larger, but more competitive suburban and urban markets.

While this would suggest Starlink needs to materially improve its service quality to deliver median download speeds of at least 200Mbps before it can compete with Fiber + Cable (see image above), we believe the company will instead likely balance discounting either user equipment (which we are already seeing) or monthly service fees (as we’ve seen the company do in non-US markets) to win market share:

• We have seen other internet service providers successfully utilize this discounting strategy in the United States where Verizon and T-Mobile have captured ~100% of broadband industry subscriber growth for the last several years via their fixed-wireless products (i.e. in-home internet delivered via the company’s wireless service instead of a wired connection) which offer lower speed internet (100Mbps - 200Mbps median download speeds) at a lower prices ($30-$50/mo)

• Starlink will probably look to avoid lowering its monthly service price where possible and will instead tempt customers with equipment discounting (which it is increasingly able to do as the manufacturing cost of its terminals continues to decline)

• However, at some point Starlink’s terminal manufacturing cost declines will likely stagnate and the company will have to balance the tradeoffs of volume growth vs profitability in deciding if it wants to lower service pricing in core markets like the United States

Additionally, in suburban and urban markets Starlink may even benefit simply by acting as an alternative to existing internet service providers - at least in the United States, internet services is one of the most hated B2C industries

3. Starlink’s Rapid Buildout and Monetization

Time is money for satellite businesses—satellites on the ground can’t generate revenue and the longer it takes to build a constellation and debut a product or service, the more cash a company will burn in the meantime.

While Starlink’s path to becoming a multi-billion dollar annual sales business hasn’t been without hiccups and delays, the company has clearly been focused on moving quickly since day 1 and it was able to launch service almost 40% faster than prior LEO satcom businesses.

However, the company’s sense of urgency didn’t stop at the debut of commercial service—as Starlink’s constellation buildout has accelerated over the last four years, so has its revenue growth.

4. Elon Musk (and Therefore SpaceX/Starlink) Can Raise Capital at Will

A company’s ability to fundraise ultimately comes down to its CEO’s “capital magnetism,” which means Elon Musk is the primary driver of SpaceX’s (and thus Starlink’s) fundraising efforts.

Based on the numbers, Elon Musk is one of the greatest entrepreneurs of all time, having co-founded 8 companies worth a combined $931B that have collectively raised $31.4B of investor capital.

Musk’s entrepreneurial success has given him strong credibility with investors, which has been crucial for Starlink’s development: Starlink was originally estimated to require $10B of capital15 before it would become a self-sustaining business and SpaceX’s rocket business, while profitable, would not be able to foot the entire bill—fundraising external investor capital was destined to play a key role in building Starlink.

However, since Starlink’s establishment in 2015 to the present day in 2024, Musk and his team at SpaceX have been able to pull off what the early LEO satcom businesses couldn’t do, raising over $9.1B (per Pitchbook) to fund not only Starlink’s development, but Starship’s development as well…without going bankrupt!

• In the modern day, there is such investor demand for SpaceX equity that the company has created a semi-annual process for employees to sell their stock compensation to external investors (a highly unusual process for a private company); SpaceX management chooses what investors get to participate in the process, and investing in the SpaceX “has become one of the investing world’s most exclusive clubs” (link).

• SpaceX has been able to fundraise in good and bad economic times; while prior LEO satcom ventures went into bankruptcy when broader market conditions got nasty, SpaceX’s reportedly largest round of fundraising ($1.9B raised16) took place in 2020 when the financial markets were spooked because of the COVID-19 pandemic (remember that these same market conditions caused OneWeb to fold and go bankrupt)

Past LEO satcom ventures did not this kind of access to capital markets.

4. CONCLUSION

While LEO satcom ventures of the past failed due to lack of product-market-fit, exorbitant costs, not moving fast enough, and overreliance on debt / inability to fundraise, I believe we can safely say this time is different for Starlink.

Lower costs have enabled Starlink to build out a global network with service that is competitive enough that customers are willing to pay a premium for it; Starlink has reached scale quickly enough that management was successfully able to fund the business through its cash negative phase of development17, and now Starlink has is poised to begin its real purpose of generating the cash needed to fund SpaceX’s overarching mission of building a self-sustaining colony on Mars to make life multiplanetary (link).

5. CONSIDERATIONS FOR INVESTORS

SpaceX investors only have one question they need to answer: just because this time is different for Starlink, does that justify SpaceX’s $210B valuation?

For Non-SpaceX Investors: There are a number of other LEO satcom businesses in development right now, including Telesat’s Lightspeed, Amazon’s Kuiper, AST SpaceMobile, Lynk Global, and Rivada Space Networks.

For investors and stakeholders of those businesses reading this post and wondering to themselves, “is this time different for my LEO satcom business?” both in respect to avoiding bankruptcy as well as considering competitiveness with Starlink, consider the following questions in your own analysis:

• Are your costs (launch, satellite, ground equipment, etc) lower than Starlink?

  • If not, you probably can’t compete head-to-head with Starlink

• Are you delivering a service that is actually desired by humans on earth?

  • Since you probably can’t compete on price with Starlink, you must either deliver better service or target a different market segment than what Starlink is going after

• Are you moving quickly enough?

  • Satellites on the ground don’t generate revenue; the longer it takes to launch satellites, the more cash you will burn

• Can your raise the capital needed to build your business?

  • The capital journey of building a business is one of the most critical strategy decisions a management team will make; fundraising is never easy, so make sure it is a good plan

6

Starlink’s high cadence of launch (see chart below to see how the growth of annual Starlink launches) allows SpaceX to reduce its internal per-launch costs due to economies of scale (since more launches enables the company to spread out its fixed costs over a larger number of missions) and Wright’s Law (the manufacturing concept that as the production volume of an item increases, its cost fall and quality improves more quickly as the company learns to improve the process). In turn, Starlink also benefits from these launch cost reductions—I recommend listening to Payload Space’s “Pathfinder” podcast featuring economist Pierre Lionnet (link, 39:35 mark) to learn more about the virtuous cycle between SpaceX’s launch costs and Starlink’s launch demand.

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

Space SPACs crushed the market in June, returning +18% vs +6% for the NASDAQ and +3% for the S&P 500; combined with the SPACs’ +9% in May, this marks the group’s 1st two-month streak of positive returns since November/December 2023. Legacy space lagged, with its -2% in June, making the group 50/50 with positive/negative return months in 2024.

More broadly, the market’s returns continue to be driven by a small number of AI-related stocks and analysts note that while indices have seen relatively steady price movement in 2024, underlying single-stock volatility is notably high.

Interestingly we have seen similar trends within space SPAC performance this year, demonstrating extreme volatility and performance being driven by just 2 stocks:

• The SPACs were down as much as -23% year-to-date (YTD) in April before swinging to +74% YTD in June

• The SPACs +74% YTD returns have been entirely driven by Redwire (+152%) and AST SpaceMobile (+93%); meanwhile 8 of the other 10 SPACs are not only lagging the S&P 500, but are down double-digits on the year

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• There is a lot less startup M&A transaction volume than you’d think

• Venture dilution trends

• Evolution of venture round size

• $100M+ venture round trends

• Seed round stagnation

• Series A valuation gap

• Series A to B graduation rate trends

2. SPACE STOCK COMMENTARY

Virgin Galactic / SPCE shares declined -51% this month after it began a planned shutdown of commercial operations to focus on developing its next-gen vehicle (the Delta class spacecraft) which the company hopes to debut in 2026.

• I believe SPCE’s June decline was clearly attributable to the company’s commercial operations shutdown—its last flight with its current vehicle and the commercial ops shutdown was on 6/8 (a Friday) and the stock began a -53% decline starting on 6/11 (Tuesday) the following week. While this drop continues a steady decline in SPCE shares since its 1st successful commercial flight in summer 2021, I view the latest sell-off as a sign that investors don’t believe SPCE management can pull off its current business plan.

• For context—the strategy behind Virgin’s decision to pause commercial operations is that its current spacecraft design has bad unit economics (it generates <$2M of revenue per flight) and isn’t designed for rapid reusability (thus severely limiting the vehicle’s lifetime revenue generation potential); the company is shutting down commercial operations to preserve capital and entirely focus on a next-gen vehicle that can generate more revenue per flight + unlocks a path to profitability via a vehicle design that can withstand >60 flights per year (read here for more information on this situation, link)

• While this sounds great in theory, SPCE does not have a strong track record of executing its strategy on time (it took two decades to build a vehicle that would make a total of seven commercial flights) or on budget (it has been burning >$100M/quarter of cash for the last seven quarters). Given that the company has reportedly struggled to raise additional capital (link), it is understandable why the markets are taking a pessimistic view of SPCE’s ability to not run out of money before realizing its strategic goals

Spire Global / SPIR increased +18% last month, with most of the month’s returns coming after the company’s announcement on 6/13 that it has partnered with Thales and European Satellite Services Provider (ESSP) to develop a space-based, real-time air traffic surveillance service (link). In this partnership Spire will build the 100+ satellite constellation that will collect airplane automatic dependent surveillance-broadcast (ADB-S) signals from space + transmit the data back to earth in real-time; the goal is to launch this service in 2027

• While the press release threw around some big numbers (100+ satellites just for this use case compares to Spire having built 175 total satellites over its 12yr history), it seems more like a planned new service announcement vs announcement of a new revenue-generating contract. Additionally, given that the service won’t go live until 2027, I am not holding my breath hoping to see new customer contracts related to this partnership any time soon

• While there wasn’t mention of this in the press release, last year Spire was awarded a €16M contract from the European Space Agency (ESA) for the EURIALO project (link) to build and test preliminary designs for a space-based aircraft surveillance system—perhaps this new partnership with Thales and ESSP is related to the EURIALO project

• While we mostly only have questions and no answers right now, I assume we will learn more about this partnership from SPIR management on the 2Q earnings call—it will be helpful to get clarification around the dynamics of this partnership and how Spire makes money from it; what is the investment required for this project + what could return on investment look like; and who are key potential customers?

Redwire Space / RDW increased +39% last month, with half of that gain coming the day after the company announced that its Roll-Out Solar Array (ROSA) wings were designed-in to Thales Alenia Space’s newest GEO satcom satellites (Space Inspire)

• While GEO satellite manufacturing is a dying industry, it seems like Thales already has up to seven orders for its Space Inspire satellite (link). This PR didn’t include enough details to know if Redwire will make solar arrays for all of those seven satellites, but the market clearly liked seeing Redwire align with a key prime satellite manufacturer (the stock traded up +20% the day after this was announced). I hope to get more details on this relationship from the company on the next earnings call

While I am not sure there was any one driver of Viasat / VSAT’s decline last month (other than general angst about ongoing impact to its business from Starlink), I did find it interesting to see that Baupost, one of Viasat’s largest institutional investors, recently let go ~20% of its investment staff—this is something to watch in case their VSAT position is affected by staff turnover.

Comtech / CMTL increased +22% in the month because the company finally announced a long-awaited debt refinancing.

• CMTL shares have been under pressure since December 2023 when the company missed guidance on timing of when management said it would refinance $168M of debt due in October 2024; following the miss, investors began to fear the company wouldn’t be able to line up the necessary financing to push out the date of repayment beyond October 2024, and CMTL shares declined -83% between Dec’23 and mid-June’24 (it didn’t help that the CEO was dismissed by the board of directors during this time period)

• However, on 6/17, as part of its F3Q earnings release the company announced it had strengthened its balance sheet by acquiring a new $222M credit facility that alleviated the need for a $168M payment in the fall + provided additional debt capital—CMTL shares increase +88% the next day

• Given how much these debt woes have weighed on CMTL shares the last six months, I am curious to see if shares will continue to recover to pre-debt crisis levels in the future

Gilat / GILT declined -19% in June following the company’s announcement to acquire Stellar Blu, a satcom terminal manufacturer with a product currently in-market for in-flight connectivity (IFC); the company hopes to make satcom terminals for other mobile use cases (trains, drones, maritime, etc) some day in the future (link).

• On one hand, I like the strategy to acquire a company actively in the market producing multi-orbit terminals given the strong satcom trend of end-customers desiring “one terminal to rule them all” that is spectrum and constellation operator agnostic (to avoid lock-in to any one connectivity provider) (see here for context on the multi-orbit trend)

• However, investors were clearly not happy with the choice to buy vs build this type of technology—GILT shares are down -15% since this deal was announced—likely because GILT had been attempting to develop the same capabilities in-house, and the price GILT paid for Stellar Blu ($98M base, up to $245M total) is more than GILT’s current enterprise value of $141M (as of 6/30)

• At the same time, the expert analysts at Quilty Space suggests that this could be a reasonable acquisition price according to their base + upside case scenarios (link)

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 🛰️ Thoughts on AST SpaceMobile

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing.

1. MARKET COMMENTARY

Public Markets

It was a tale of two cities for space investors in May 2024—either you owned AST SpaceMobile / ASTS shares, or you didn’t (ASTS shares increased 275% last month following commercial agreements with both AT&T and Verizon).

However, even ex-ASTS, both the SPACs and broader stock market bounced back in May after a tough April with solid gains as economic indicators continued to suggest that inflation is moderating and the US economy is less stable than it seemed earlier this year (both of which suggest to investors that the Federal Reserve may still cut interest rates in 2024).

Notably, the broader market’s returns in May were entirely driven by just 4 AI-related stocks—Nvidia (of course), Microsoft, Apple, and Alphabet; per the WSJ (link), those four companies added more value to their market caps than the other 499 S&P 500 companies combined (note: there are actually 503 companies in the S&P 500—the name is a lie!).

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Carta 1Q24 State of Private Markets

• Downrounds on the rise

• Employee option pool size

• Series A headcount trends

2. SPACE STOCK COMMENTARY

Redwire / RDW had another strong month in May, with its +36% performance bringing the stock to +80% YTD.

• While the stock’s momentum this month was helped by broad positive investor sentiment in May, Redwire also benefitted from another solid earnings report where the company grew revenue (for the 8th straight quarter), reported positive EBITDA (5th straight quarter), and generated positive free cash flow (3rd out of the last four quarters) in 1Q24

• As I’ve said before, Redwire’s consistently positive financial performance sets it apart from the rest of the space SPAC pack for the time being, though the earth observation SPACs are nipping at its heels as they near profit and cash breakeven themselves

• Going forward, RDW shareholders must ask themselves: 1) How long can RDW continue to grow topline and at what rate? 2) Will the company require purchasing more assets to continue growing revenue, and if so, what types of companies will it pursue? 3) Can the company continue to grow margins?

The Terran Orbital / LLAP drama continued in May, with the stock dropping -30% in the month after Lockheed Martin / LMT withdrew its bid to acquire LLAP

• LLAP shares dropped -17% the day after LMT withdrew its bid for the company, and they have been in freefall since then, indicating that investors are negative on the company’s outlook as an independent company

• Not helping matters is the fact that Rivada—the mystery LEO megaconstellation whose $2.4B satellite manufacturing contract is seemingly the only way Terran can survive as an independent company (link 1, link 2 to prior discussion of this deal)—only paid LLAP $1.7M in 1Q24 (per LLAP’s 1Q24 10-Q, link); this adds credence to the idea that Rivada hasn’t yet secured the funding needed to pay Terran to build its 300 satellite constellation

• On the 1Q earnings call, LLAP management said investors + analysts should expect to see increasing payments from Rivada to LLAP as 2024 progresses—this story isn’t over yet!

I was surprised to see EchoStar / SATS’ stock up +20% in May

• There was little positive news in the company’s 1Q earnings, which included continued subscriber hemorrhaging (-81k Boost mobile subscriber losses, -26k broadband subscriber losses, and -348k pay-TV subscriber losses), continued free cash flow losses (-$226M FCF in the quarter) and no update on the company’s planned debt refinancing (>$2B of debt maturities in the next 12mo vs $887M of cash & cash equivalents on the balance sheet)

• Analyst reactions post-call generally estimate that SATS has <6mo before the company will be forced to file for bankruptcy (link), so unless we are all missing something, SATS’ positive performance in May seems misguided

3. AST SPACEMOBILE’S VIBE SHIFT

The Sp🅰️ceMob cult has to be feeling pretty good after AST SpaceMobile / ASTS’ absolutely insane May, where shares increased 275% in the month following commercial agreements with both AT&T and Verizon.

ASTS shares were near all-time lows in April following 1) the company’s much delayed, dilutive and somewhat underwhelming funding announcements in January (see here and here), as well as 2) further delays for the launch of the company’s 1st revenue-generating satellites (shifted from 2Q24 to 3Q24).

However, there was a vibe shift in May:

• First, on 5/15 the company reported 1Q earnings which included a number of positive developments including signing the company’s 1st official commercial agreement with AT&T (which management believes created a template for other telcos to build off of and would lead to more commercial agreements). See here for more of my thoughts on the company’s 1Q earnings report (link)

• Then, on 5/29 in an unexpected surprise, Verizon announced both an official commercial agreement with AST as well as its commitment to $100M of funding for AST ($65M in prepayments for service and $35M of convertible debt). See here for @spacanpanman’s succinct takeaways on the significance of this agreement + funding (link)

At this point, non-Sp🅰️ceMob cult investors may be starting to believe that AST has both less funding risk as well as regulatory risk than prior to the AT&T / Verizon deals:

• On Funding Risk: I estimate at least five of AST’s current MOU partners are large enough to underwrite somewhere between $100M-$200M in pre-payments and strategic investments (Telefonica, Orange, Claro, MTN, and Etisalat are all roughly AT&T/Verizon-sized (link)). Additionally, the US Export-Import Bank (a common source of project funding for satcom companies) is reportedly reviewing $5B of proposed satcom loans right now—obviously a large chunk of that is from the European-based Rivada Space Networks (which needs to fund its multi-$B constellation), but the Ex-IM bank generally loans at least $1B-$2B/year to US companies, so AST could be in-line to receive some portion of that funding. Between these two sources, AST might be able to raise the $350M-$400M needed to fully fund its 1st 25 revenue-generating BlueBird satellites without further diluting shareholders—remember this is far from a sure thing however

• On Regulatory Risk: AST has yet to receive market access approval in the US from the FCC. However, with both AT&T and Verizon (two companies that are generally opponents) on its side, regulatory approval seems like it is probable (though admittedly I don’t read FCC filings as obssessively as I do SEC filings, so there could be something important I am missing here); if the company does receive FCC approval, I assume other international regulatory bodies will then use a framework for market access approval similar to the framework that the FCC and AST agreed upon.

As AST finally nears commercialization (“only” 2yrs later than management expected in their original SPAC presentation materials, link) I view constellation monetization as the biggest question mark for the company:

• Telco carriers probably don’t actually care if retail customers sign up for SpaceMobile services, since partnerships allows them to use SpaceMobile service as a marketing tool without committing more than their agreed upon investment or prepayment dollar amount (which is a drop in the bucket relative to the billions of dollars they spent on marketing or network capex in a given year anyways); any revenue generated from customers signing up for SpaceMobile will just be upside benefit.

• I am always wary of companies pitching ‘we will capture a small percent of a large market’ and after iPhone user ambivalence towards the value-add of SOS satellite texting (link), I can’t help but be skeptical towards large-scale consumer adoption of SpaceMobile; the government and IoT use cases are much more interesting in my opinion, since contracts can be larger and customers are less price sensitive / are willing to pay a lot for certain capabilities

• We won’t know anything about SpaceMobile uptake until at least 4Q24/1Q25 once the initial BlueBird satellites are on-orbit and commissioned, but we may get some insight into Starlink + T-Mobile’s mobile satcom go-to-market strategy (and success) fall this year (link).

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of PL, RKLB, and SPIR at the time of this post (5/8/24).

1. MARKET COMMENTARY

Public Markets

Old habits die hard—the space SPACs recorded another double-digit decline in April.

However, the SPACs weren’t alone in their subpar performance as the broader market also went down in April, breaking a five-month streak of positive returns for the S&P 500 & the NASDAQ.

Meanwhile legacy space outperformed in April (down just -1%) due to positive returns from the aerospace & defense primes (ex-Boeing), potentially reflecting impact of headlines such as the fiscal 2024 defense budget being passed in late March and the Senate + Biden Administration approving an additional $94B of aid for Ukraine, Israel, and Taiwan in April.

Overall market sentiment soured in April as economic data (such as March’s CPI readout) and commentary from the Federal Reserve suggested that inflation isn’t as close to being tamed as investors had hoped, dousing hopes of near-term interest rate cuts and renewing fears of rates being higher for longer.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• 1Q24 VC fundraising trends

• Carta’s 1Q24 Pre-Seed trends

• 1Q24 early-stage fundraising cheat sheet

• SAFE trends

• Bridge round trends

• Seed to Series A graduation rate trends

• JPMorgan’s Jamie Dimon on the “extreme importance of interest rates” for investors (Space Case note: this link isn’t purely related to private markets, but it does relate to my constant ranting on the importance of interest rates for unprofitable company valuations, and since most VC backed companies aren’t profitable I am including it here!)

2. SPACE STOCK COMMENTARY

Virgin Galactic / SPCE’s -41% decline in April resulted in the company having a month-end enterprise value (i.e. market cap + debt - cash) of -$178M; generally, a negative valuation reflects strong negative investor sentiment towards a stock

• While the market assigning a negative valuation to Virgin Galactic is likely not going to last because the company still had $946M of cash on the balance sheet (as of YE23) and it probably has cash runway for a few more years, negative valuation (even if temporary) is usually indicative of serious negative sentiment toward a company’s future prospects (note that both Astra / ASTR and Momentus / MNTS—companies flirting with bankruptcy—have traded at negative valuations in recent months)

• I don’t disagree with investors who are down on SPCE; the company burned -$452M of cash in 2023 and it is projecting a serious ramp in mission cadence in 2025/26, which I am skeptical that they can achieve

• Additionally, in March/April SPCE was sued by Boeing / BA over SPCE’s lack of payments for R&D work Boeing had done for SPCE’s next-gen vehicle (link) + SPCE counter-sued Boeing saying the work done was poor quality (link); this litigation is burning more of SPCE’s cash, is potentially distracting management, and Boeing’s contracted work might have to be re-bid, causing further tech roadmap delays—no bueno

Planet Labs / PL’s -34% decline in April now has the company trading <1x revenue, which makes it interesting from a valuation perspective

• While PL is rightfully trading at a discount to SPIR and BKSY given a slower revenue growth outlook, a longer timeline for reaching FCF generation, and a worse outlook for long-term margins vs it’s publicly traded earth observation peers, I can’t help but wonder if the company is over-sold right now

• For context, look at the chart below for a comparison of enterprise value / next-12 months revenue multiples for SPIR, BKSY, and PL—PL’s current valuation is an all time-low for the earth observation companies! (note that there are some differences between multiples quoted in the chart below and the multiples included in my comp table due to sources of information (I use Google Finance, company filings, and Refinitiv consensus for my multiples; chart below is sourced from Koyfin.com) + date of data pull (my comp sheet is as of 4/30 and the chart below is as of 5/3))

Iridium / IRDM had a nice April, up +18% in the month, with returns almost entirely occuring after its 1Q earnings report on 4/18.

• To give credit where credit is due, I think it was the IRDM management’s color commentary on the earnings call that drove shares higher in April, namely: 1) reiterating commitment to ~$3B of capital returns to shareholders through 2030 + noting the potential for near-term acceleration in share repurchases; 2) commentary on the satcom competitive landscape that quelled fears related to Starlink’s anticipated impact on Iridium (ex. mgmt alluded to the potential to actually be sold as a complement alongside Starlink for maritime customers); and 3) management’s belief that Iridium’s growth + FCF profile suggests the company should trade more in-line with cellular tower and data center REITs, which have EV/EBITDA multiples nearly 2x that of IRDM (high-teens to low 20s for the towers / data center REITs vs low double-digits for IRDM)

• Given that I am doing a deep dive on Berkshire Hathaway shareholder letters right now, it is refreshing to hear the Iridium management team speak with clarity on their capital allocation plans + valuation goals; however, I need to think through + validate management’s rationale for why IRDM should trade at tower / data center REIT valuations (of note, Globalstar / GSAT already trades at ~20x EBITDA and has slightly lower margins vs IRDM, but higher growth)

Comtech / CMTL’s downslide continued in April

• I didn’t see any incremental news that would have caused CMTL shares to decline -45% in the month, so see here (link) for my prior commentary on the myriad of reasons why the stock is down over -80% since December 2023

The aerospace & defense primes (A&D stocks; ex-Boeing) had positive returns in April, outperforming the broader market

• Given that April’s outperformance was likely at least partially attributable to the nearly $100B aid package for Ukraine, Israel, and Taiwan that was approved in April, I decided to update my chart tracking A&D stock performance since the October 7, 2023 Hamas terrorist attack—through 5/3/24, A&D stocks (+26%) are outperforming the S&P 500 (+19%)

  

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 💡4Q23 SPAC Earnings Financial Review

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of PL, RKLB, and SPIR at the time of this post (4/21/24).

1. MARKET COMMENTARY

Public Markets

Stocks continued to climb higher in March 2024, with the S&P 500 capping off its strongest 1Q since 2019; legacy space companies took the pole position in March, with aerospace & defense leading the way (RTX (+9%), LMT (+6%) and NOC (+4%)), while the space SPACs lagged.

Broadly speaking, the market’s strength in March was driven by continued economic optimism and an outlook toward interest rate cuts, combined with investor enthusiasm regarding the potential of artificial intelligence.

However, market sentiment has soured in April as recent economic data (such as March’s CPI readout, see above) and commentary from the Federal Reserve has suggested that inflation isn’t as close to being tamed as investors had hoped, dousing hopes of interest rate cuts and renewing fears of rates being higher for longer.

As I have discussed numerous times before (link to my previously written primer on “Why Should Space Investors Care About Interest Rates?”), higher interest rates are worse for growth companies (like the space SPACs or stocks held by the ARK Innovation ETF) relative to more established companies like legacy space or those included in the S&P 500; the chart above shows how ARKK shares have had a much stronger negative reaction to the change in investor sentiment vs the S&P 500.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Equity sold to investors by round cheat sheet

• VC valuation multiple step downs at each new round

• The 5 biggest trends in startup hiring & compensation

• VC-backed startup cohort analysis: where is the class of 2018 now?

• Venture firms are calling more capital

• 1Q24 VC valuation trends

• SAFE dilution trends

• 1Q24 VC fundraising trends

• VC fund 1—>fund 2 graduation rate trends

2. SPACE STOCK COMMENTARY

I have been questioning why Astra / ASTR is trading above its take-private offer of $0.50/sh for months.

• While a -50% decline in March brought the stock closer to where I think it should my opinion, ASTR is still trading at $0.61/sh as of 4/19, representing 22% downside for anyone who is somehow still holding this stock

• In the meantime, Astra’s management team gave us one last creative forecast before disappearing from the public eye. An SEC filing from the other week shows the company splitting its launch and spacecraft engine businesses + providing quarterly forecasts through 2025 (see below + link)

  

Rocket Lab / RKLB shares are down -34% in 2024 (as of 4/19) and down -56% since their 52-week high of $8.05/sh in July 2023. I have seen quite a few folks on X lament the share price declines and question why the stock is doing so poorly. While I think RKLB is the best-in-class space SPAC (and I am a shareholder), I believe RKLB shares actually have more near-term downside potential from here:

• Although RKLB is trading at an all-time low-valuation (see chart below), at 3.7x next-12mo revenue the stock is still valued at a premium vs SPAC peers, which have traditionally traded at ~2x revenue

  

• Additionally, while there is material upside potential for shares long-term, RKLB is capital intensive, has lumpy revenue, and manufacturing isn’t traditionally a high margin business—all these factors could contribute to downward pressure on shares in a high interest rate environment (like right now).

• I don’t anticipate RKLB appreciating until we see some combination of company narrative progression (Neutron tech and/or business development, satellite manufacturing deals, M&A, etc) and more broadly a risk-on attitude in the markets; missing/beating Neutron development timeline guidance could also impact the stock in the near-term.

Terran Orbital / LLAP and Momentus / MNTS both didn’t hold 4Q23 earnings calls, but for different reasons:

• LLAP 1st delayed its 4Q23 earnings release, and when it did release earnings it cancelled the actual earnings call…probably because it is impossible to speak to analysts and investors about the business outlook while negotiating an acquisition with Lockheed behind the scenes! (link to context on LMT takeover bid for LLAP)

• MNTS on the other hand told the SEC that it couldn’t file its 10-K on time, and has shared zero communications about a 4Q call with the investing community. I am guessing management is very busy figuring out the company’s cash flow situation right now—Momentus has been averaging low-teens quarterly cash burn for the last few quarters compared to $10M of cash as of 3Q23 + $19M of capital raised since 3Q23, which suggests the business is running on fumes right now…

Redwire / RDW had a great March with a +36% performance (though shares have come back to earth in April and have mostly given up March’s gains).

• Last month’s strong performance was driven by the company’s solid 4Q23 earnings, where the company reported its 4th straight EBITDA-positive quarter and its 2nd FCF-positive quarter out of the last three quarters. This is on top of 2024 guidance for $300M of revenue (+23% growth y/y), which was well ahead of pre-earnings consensus of $278M.

• The combination of these results puts RDW is in a class of its own vs SPAC peers given consistent profitable operations + the beginnings of FCF generation + material revenue growth.

Comtech / CMTL shares had a brutal March, down -49% after the company reported F2Q24 earnings that missed revenue guidance and saw analysts revise full-year 2024 revenue and EBITDA down -9% and -18% respectively after the report.

• CMTL’s tough March continues the stock’s downward trajectory which began in December 2023 when the company announced that it had not re-financed a credit facility that was now due for repayment in less than 1yr (October 2024).

• Since then, CMTL shares have declined -85% (through 4/19) as the company has still yet to announce a refinancing for its $168M of debt due in October. On the earnings call, the CFO did indicate the company is closing in on a debt restructuring plan “consisting of a term loan coupled with an asset-based revolving loan,” but the call ended without the company taking questions from analysts likely because on 3/12 (six days before the earnings report) the Comtech board of directors terminated the company’s CEO “for cause due to conduct unrelated to Comtech’s business strategy, financial results or previously filed financial statements”

3. 4Q23 SPACE SPAC EARNINGS REVIEW

Longtime Case Closed readers are familiar with my ‘Space SPAC Earnings Scorecard’ which we use as a simple framework to qualitatively analyze each company’s progress toward “default alive” status before digging into more qualitative analysis (such as comparing results vs previously issued guidance or analyst expectations, reading management commentary, etc); if you are unfamiliar with my Earnings Scorecard, see here for a refresher (link).

This simplified earnings analysis framework was inspired by Josh Wolfe’s quote “survival is a necessary precondition for growth (link),” and I originally made it in 2022 to identify which space SPACs were in a position to survive the oncoming economic and fundraising “winter” and therefore might be suitable to invest in amidst a market downturn (link to my original “Winter is Here” post).

Recently, I have not found the framework to be as useful as it once was. In my opinion, it is already clear which companies seem to be “default alive” (and I basically called this back in August 2022):

• PL, SPIR, RKLB, RDW, and BKSY are okay

• For SATL, ASTR, LLAP, MNTS, SPCE, LUNR and ASTS it is not yet clear if they are out of the woods

However, I still find it useful to look at capital management and scaling efficiency metrics to see where each SPAC company is in its maturation journey.

Redwire / RDW, Spire Global / SPIR, BlackSky / BKSY - “Unbothered. Moisturized. Happy. In Their Lanes. Focused. Flourishing.”

• These companies have all successfully balanced growth with profitability and are all at or near FCF and EBITDA breakeven.

Rocket Lab / RKLB, Planet Labs / PL - “Overcapitalized and Investing for the Future”

• With either moderate cash spend since going public (Planet Labs) or demonstrating the ability to tap into the capital markets at will (Rocket Lab) these two companies are still a ways off from FCF/EBITDA breakeven due to investments in future growth initiatives (Neutron for Rocket Lab, new satellite constellations + data platform for Planet), but they have so much available capital that they aren’t worried about it.

AST SpaceMobile / ASTS, Virgin Galactic / SPCE - “Blowin Money Fast”

• ASTS and SPCE are both essentially pre-revenue companies that are on the hook to spend a lot of capital up-front to build the actual hardware they hope to monetize in the future. While they both have raised hundreds of millions of capital to date, elevated FCF burn requires them to constantly raise more money and both company’s management teams have seen increasing difficulty fundraising as of late. There is still fundraising risk with these stocks.

Intuitive Machines / LUNR - “This Isn’t What It Looks Like”

• At first glance, LUNR’s financial profile above seems to have almost every metric moving in the wrong direction—however, what is not reflected in the company’s past financials is the $719M NASA OMS III contract that kicked in December 2023 and is set to deliver the company ~$12M of revenue per month for the next 4-5yrs. Management expects that this contract should improve Intuitive Machines’ margin and cash burn profile in 2024 vs 2023.

Satellogic / SATL and Terran Orbital / LLAP - “Too Soon to Tell, But It Isn’t Looking Great…”

• While SATL and LLAP both grew revenue and improved cash burn efficiency vs the prior year, I can’t help but wonder if it is too little too late for both companies give cash runways that are set to expire in 4Q24. Unless these companies are expecting significant upswings in revenue generation (which is potentially the case for LLAP if Rivada is a real customer), they will need to tap into a difficult capital markets environment to fundraise.

Astra / ASTR - “I Have Nothing Good to Say, So I Won’t Say Anything”

• Rather than discuss the soon-to-be-private company, I used AI to write a song about Astra—check it out! (link below)

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of PL, RKLB, and SPIR at the time of this post (3/6/24).

1. MARKET COMMENTARY

Public Markets

February 2024 was a great month for stocks.

Space stocks bounced back after a tough January and the S&P 500 + NASDAQ indices both hit new all-time highs after their strongest February performances since 2015 (per the WSJ), driven by investor optimism underpinned by AI-tech enthusiasm (euphoria?) and a continued outlook for lower interest rates.

Year-to-date, similar to 2023 the SPACs are beating legacy space at -1.0% vs -3.5% (respectively), but both groups are lagging the broader market.

However, if we zoom out and look at performance since October 2023, despite the S&P 500 and NASDAQ’s four-straight months of gains over this time period, growth stocks (i.e. ARK Innovation + space SPACs) are actually in the lead (and legacy space lags in this POV as well).

Private Markets

We won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends + insightful analysis:

• Tech M&A: Valuation vs Growth (from Friends & Family Capital)

• Down-rounds by Sector in 2023 (Carta)

  • Overall VC down-rounds

• Venture rounds have gotten a lot smaller over the past two years

• SAFE fundraising benchmarks (Carta)

• SPAC aftermath

• 2024 private market predictions (Carta)

• Dilution by round (Carta)

• How many years does it take the average startup to get to each venture stage? (Carta)

• Venture valuation trends + seed strength

2. SPACE STOCK COMMENARY

Astra / ASTR is still trading above the latest take-private offer from its founders ($0.80/sh as of 3/4 vs $0.50/sh take-private offer)

• I originally highlighted this mispricing in December (link) after ASTR shares were trading 50% above a take-private offer of $1.50/sh

• Now at $0.80/sh (as of 3/4) vs an updated $0.50/sh take-private offer, the mispricing difference is even greater with a 60% delta!

• I can’t explain why this is—it makes no sense!

Spire Global / SPIR shares rocketed +74% higher in February following the announcement of a partnership with Signal Ocean, as well as a strategic investment from the Signal Ocean that valued Spire at $12.00/sh (link to press release)

• While the $10M investment + plans to partner with Signal Ocean to “drive digitization of the maritime economy” are nice, the real difference-maker here was Signal Ocean investing in SPIR at a ~50% higher valuation than market value the day before the announcement ($8.15/sh on 2/8 vs $12.00/sh for the Signal Ocean investment)

• In present day, SPIR shares now trade at ~$12.00/sh and for the 1st time Spire Global is trading at a premium versus optical earth observation (EO) peers BlackSky Space / BKSY and Planet Labs / PL

  

• Since 2023, no earth observation company has been able to hold onto the title of “king of EO” and the premium valuation multiple that comes with it for more than 1-2 quarters; for Spire to do this, the company needs to: continue marching towards profitability; print results that match management’s goals to grow revenue well into the double-digits y/y for the foreseeable future; and simultaneously manage Wall Street growth expectations from getting too high—not an easy task!

  • Having worked in investor relations for a publicly traded company, I know how hard it can be to tamp analyst estimates down when they get excited about growth prospects. While it is easier to let forecasts keep going up since doing so generally leads to the stock going up, not nipping forecasting overenthusiasm in the bud leads to a painful correction + potential lack of investor trust in management in the future

I’m going to skip to the juicy news for Terran Orbital / LLAP and discuss the announcement that on 3/1 Lockheed Martin / LMT made an offer to purchase Terran for ~$600M, or $1.00/sh (link to offer letter; Payload Space overview of the deal)

• First, let’s address the elephant in the room—Lockheed Martin couldn’t be more clear in stating that it doesn’t see Rivada Space Networks as a real customer (see quote below). If we believe LLAP management commentary, Rivada’s $2.4B order makes up $2.4B of LLAP’s $2.6B backlog; meanwhile in its takeover proposal, LMT says it expects to remain LLAP’s largest customer for the foreseeable future (i.e. Rivada ain’t real)

“We have invested significant resources conducting our due diligence inclusive of a detailed review of the forward revenue projections and are substantially finished with our process.

Lockheed Martin continues to be Terran's largest revenue generating customer accounting for the majority of the backlog (81% as of December 31st, 2022). In addition to being the largest historical revenue generating customer we are confident that we will continue to be the largest revenue generating customer for Terran for the foreseeable future. As a result, we are uniquely qualified to assess the Company’s near and long-term outlook and accurately ascribe fair value to Terran’s business for all its stakeholders.”

- Lockheed Martin Non-Binding Proposal, 3/1/2024 (link)

• On the proposed deal valuation—I actually think $600M is pretty fair, though LLAP shareholders may not like it since $1.00/sh was below the closing price of $1.07/sh prior the announcement and values the company at just 1.4x 2024E revenue. If LLAP management accepts the offer then it means Rivada isn’t a real customer and Terran’s business wouldn’t survive without a bailout from LMT—in case, LLAP shareholders are lucky to get a takeout at the proposed $600M valuation vs something potentially lower in the future as LLAP’s cash reserves dwindle

  

• However, Terran did adopt a “poison pill” following this takeover proposal to guard against any hostile takeover attempts by Lockheed (link), which indicates that management likely isn’t looking to accept this initial proposal. This situation could drag out for months, so buckle up!

Intuitive Machines / LUNR saw its stock run up as high as +121% during its 1st lunar landing mission, with share price volatility mirroring the space community’s blood pressure as we awaited IM-1’s touchdown on the moon

• However, as the IM-1 mission concluded on 2/29 and we could all breathe normally again, LUNR share price also settled back to pre-mission levels as well

Iridium / IRDM shares declined -20% in February, including a -13% decline on 2/15 following the company’s 4Q23 earnings report where management highlighted expectations for decelerating revenue and EBITDA growth in 2024

• Though management emphasized their focus on free cash flow generation and returning excess capital to shareholders (statements that warm my heart to hear), it is hard to overlook the fact that in the near term IRDM is investing more to generate lower growth vs the recent past (including incremental spending on a nascent direct-to-device business, which won’t be generating revenue for several years)

• On top of this, while Iridium is seeing headwinds from Starlink (which management expects to subside by 2025) management also extended the anticipated lifespan of its satellites, which seems to indicate the company isn’t planning to upgrade its underlying technology anytime soon

• This situation gives me flashbacks to working in the cable industry where extremely profitable, but slow/no growth incumbents were having incremental market growth eaten away by new entrants with better technology—the story first played out with cable taking copper telco market share, but later it was telco fiber + fixed wireless taking share from cable

  • The incumbent was always having to invest in their own network to keep up with new entrants, but with questionable returns on new builds

MDA Space / MDA saw its shares grow +30% in February

• Though MDA reported solid 4Q earnings + 2024 guidance in February, this was not the source of the stock’s performance in the month given that it reported earnings at the very end of February—honestly I can’t point to anything specific that drove the stock’s performance!

• What stands out most to me about MDA however is that although the stock has already seen a great run-up in 2024 (+27% YTD) it potentially has further room to appreciate given that you could argue its above-average anticipated growth should merit the company a valuation premium versus other legacy space companies (MDA 11.5x 2024E EBITDA multiple vs 11x-14x for other legacy space companies)

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 👀 In Case You Missed It: Best of Case’s X Posts

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of PL, RKLB, and SPIR at the time of this post (2/6/24).

1. MARKET COMMENTARY

Public Markets

Space stocks did poorly versus the broader market in January 2024, with legacy space and the space SPACs both seeing month-over-month declines compared to the S&P 500 and NASDAQ each continuing their 3rd straight month of gains.

Despite a higher-than-expected December inflation readout, the stock market continued to rally in January (as it has since November) given sold underlying economic conditions (ex. 4Q23 US GDP growth beat expectations) and an outlook for interest rate cuts later in 2024.

Notably, the Magnificent 7 stocks (META, MSFT, AMZN, AAPL, GOOGL, NVDA, and TSLA) continued to lead the market higher after reporting solid 4Q earnings in January (though it was really the Magnificent 6 in January, as TSLA had a tough month and reported meh 4Q earnings).

We don’t disagree with investor interest in artificial intelligence (AI) stocks right now given the long-term growth potential for AI-related products and services; however, we would also say that now is a good time to evaluate space stocks (when they are out of favor) to be ready for when investor enthusiasm for space returns.

Private Markets

We won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends + insightful analysis:

• State of Private Markets: Q4 2023 and FY 2023

  • Visual Summary of^^^

• Jamin Ball (Altimeter Capital) on the current venture cycle

• This Silicon Valley clip is making the rounds again, and it is just too good

  • “Why didn’t anyone tell me I could take less?!”

• Cowboy Capital on ZIRP-icorns

• What Did It Take To Raise A Series A Round In 2023?

• Getting to the next stage in venture is taking longer

2. SPACE STOCK COMMENARY

Changes to Coverage in 2024

We’re making two changes to space stocks we cover in 2024:

• Honeywell / HON was removed from the Aerospace & Defense subsector

  • Only ~10% of Honeywell’s revenues come from space, and it has a larger consumer business than the other A&D companies - it doesn’t make sense to include going forward

• MDA Space / MDA has been added to the Manufacturing subsector

  • We generally only cover US stocks, but we are making an exception for MDA since it is just across the border in Canada and the company reports nice clean quarterly earnings (unlike most foreign companies, which generally only provide annual or 6mo reports)

• Despite closing over $300M in much-needed financing (link, link), AST SpaceMobile / ASTS declined -52% in January; the capital came from a combination of strategic partners ($155M from AT&T, Google, Vodafone), existing investors ($51.5M from an existing credit facility) and an equity offering ($100M)

  • While a $307M raise with more than half coming from high-quality partners should have been reason to celebrate, ASTS shares traded down on the news for a variety of reasons:

    • The $100M equity offering was priced at $3.10/sh vs $4.16/sh pre-announcement (a 25% discount), indicating lack of institutional investor interest in the offering

    • The fundraise was only ~50% of management’s previously stated goal of $550M-$650M additional capital they said they would need to raise to fund building, launching, and operating the company’s 1st 25 satellites

    • The fundraise was executed poorly (see here for an articulation of investor frustration)

• Terran Orbital / LLAP declined -27% in January despite receiving (some amount of) payment from its lead customer, Rivada Networks

  • Context: Rivada’s contract with LLAP makes up $2.4B of Terran’s $2.6B contracted backlog, and Rivada was supposed to have paid Terran $180M by YE23. However, in 4Q23 LLAP management said they didn’t expect to receive the money from Rivada before the end of 2023

  • On January 2, LLAP announced they had received a payment from Rivada and without stating the size of the payment, LLAP said Rivada was “current on all outstanding invoices” (link); given the lack of clarity on payment size, it feels safe to assume Rivada paid less than the expected $180M. Additionally, in the press release LLAP management said it “does not plan to provide any further updates or otherwise publicly comment on the Rivada Contract…except as required by the Securities and Exchange Commission or in updates in connection with the Company’s quarterly and annual financial reporting”

  • Investors hate uncertainty, and the combination of not announcing the Rivada payment amount + the weird statement about not wanting to comment on the Rivada contract (which accounts for 92% of LLAP’s backlog) have clearly left investors feeling increasingly uncertain about LLAP’s future

• Intuitive Machines / LUNR had a volatile January, trading -18% before ending up +48% to end the month; the only material news we could find for LUNR in January was that the company raised $11.8M of cash from warrant conversion related to its original SPAC transaction

  • More cash is always good news for unprofitable companies, but this news likely wasn’t the driver of LUNR’s January performance

• Fresh off completing a merger with Dish Networks, we are highly skeptical of the new EchoStar / SATS—a business with declining revenue, below-average margins, and 11x net debt to EBITDA (alarmingly high)—continuing to trade at 16x EBITDA (in-line with LEO satcom peers) for very long

• As we noted last month (link), Comtech’s / CMTL stock has suffered since the company missed a projected timeline to refinance its $184M of debt (CMTL shares are down -50% since the management told investors this news); while the company received a $45M strategic investment in January (which helps with financial flexibility and working capital), CMTL’s October 2024 debt repayment still looms large

  • Context: CMTL management had hoped to refinance the company’s $184M credit facility by October 2023, but it did not, and as a result the debt turned into a ‘current liability’ (i.e. debt due in <1yr) since it is due for repayment in October 2024, which has created uncertainty for investors (and investors hate uncertainty)

• Another month, another announcement of bad news for Boeing / BA; this time, BA shares are down -16% since 1/5 when the door of a 737 Max blew off mid-flight

  • This terrible quality control issue overshadows what seems to be solid demand for Boeing’s aviation products, as Boeing has recently resumed commercial plane sales in China after a multi-year pause and backlog for the company’s Commercial Airplanes segment is now at $441B

  • See here (link) for an overview of more issues found with the 737 Max on 2/5

3. IN CASE YOU MISSED IT: BEST OF CASE’S X POSTS

We post a lot more on X than for the Case Closed newsletter; in case you don’t follow Space Case on X, here are our best X posts from January 2024:

The US military has a long history of using space technology.

Since launching its first satellite onto orbit in 1958, the US military has increasingly relied upon space tech for:

• Intelligence, surveillance, and reconnaissance (ISR)

• Satellite communications (Satcom)

• Position, navigation, and timing (PNT)

However, as space has transitioned from a purely peaceful sanctuary of science and exploration to a warfighting domain, legacy military space capabilities are now outdated and vulnerable. As a result, the US government created the US Space Force and its budget has doubled in just three years, going from $15B in 2021 to $30B in 2024.

Within the Space Force, one of the most exciting modernization efforts comes from the newly formed Space Development Agency (SDA), both because of its ambitious goals for quickly implementing new technology as well as its plans to leverage the commercial space industry manufacturing base.

With an annual budget of $4B-$5B, the SDA’s plans to build a new military satellite constellation for communications and hypersonic missile defense have created an exciting opportunity for satellite manufacturers—since 2020, the SDA has already awarded nearly $11B worth of contracts to build, launch and operate 455 satellites, and through the end of the decade it will likely award up to $20B more worth of contracts.

While the SDA is still just a fledgling agency, its early success with quickly procuring (i.e. purchasing) and deploying cutting edge space technology by utilizing commercial capabilities has positioned the agency as a symbol of hope that the Department of Defense (DoD) can procure new technology on a timeline of relevance in the face of an increasingly hostile geopolitical landscape.

In this post I will provide an overview of:

1. What are GEO Satellites? Why Does the US Military Use Them?

2. Why does the US military want to upgrade its space technology?

3. What is the SDA and why is it supposedly a “fix” given the current geopolitical environment?

4. The $30B+ SDA contract opportunity through the 2020s + Who has won how much money already?

5. Investor Considerations

6. Conclusion

1. WHAT ARE GEO SATELLITES? WHY DOES THE US MILITARY USE THEM?

Traditionally the government has used geostationary or geosynchronous (GEO) satellites for ISR, satcom, and PNT.

As the name suggests, satellites in GEO orbits travel at the same rotational rate as Earth and appear to remain fixed over a location on the ground below, providing a stationary platform for the continuous relay of communications signals or earth observation data.

GEO satellites are great for providing broad-based and reliable capabilities and it is clear why the US military (or any global superpower) would like using them:

• You can position GEO satellites to provide service to a specific area on earth (ex. satellites can focus on places like southeast Asia, the Middle East, eastern Europe, etc.).

• It only takes 3 GEO satellites to cover the entire earth

• You always know where the GEO satellites are, which helps with mission planning

However, the reliability of using traditional GEO satellites come with a cost because GEO satellites are:

• Massive (as big as a school bus)

• Costly (generally >$1B per satellite)

• Take so long to design and build (~7.5yrs) that the tech onboard the satellites is often outdated before leaving the ground

  

In addition to being big, expensive, and hard to replace, military GEO satellites also make for “big, fat, juicy targets” for potential adversaries because:

• Their fixed position above earth’s surface makes their location very predictable

• Each satellite plays a crucial role (satellite locations are chosen for specific reasons; each satellite provides service for thousands of people and assets)

• Legacy GEO satellites have limited maneuverability (fuel is precious; they generally weren’t made to move around more than needed to maintain their position above earth)

2. WHY DOES THE US MILITARY WANT TO UPGRADE ITS SPACE TECHNOLOGY?

Reliance on GEO satellites didn’t used to be a problem for the US military—prior to the 90s they were pretty much the only military heavily utilizing space tech.

As a result, prior to the 90s the US military was moreso focused on the functionality of their space-based systems for terrestrial defense, and was less focused on defense of the satellites themselves.1

However, the US’ use of space technology in the decisively won 1991 Gulf War / Operation Desert Storm marked the 1st time where government space technology played a major role in a military conflict; ever since then, other countries have taken note of the strategic advantage that space capabilities present for military operations.

In particular, China has focused on developing its own space capabilities to match and exceed that of the US, as well as develop weapons that could take advantage of weaknesses within the US systems.

The Office of the Director of National Intelligence’s report says that China’s military, the People’s Liberation Army, plans to “match or exceed U.S. capabilities in space to gain the military, economic, and prestige benefits that Washington has accrued from space leadership.” Those counter-space operations will be “integral to potential military campaigns by the PLA.”

- Defense News, April 2021 (link)

And boy has China put its money where its mouth is—since 2005, the country’s pace of space tech innovation has been impressive; for example the country’s launch capabilities have grown from a handful of launches per year in the 1990s to 61 launches in 2022.

Additionally, China has specifically focused on developing space warfighting capabilities that have made US government officials increasingly uneasy.

3. WHAT IS THE SDA AND WHY IS IT SUPPOSEDLY A 'FIX’ GIVEN THE CURRENT GEOPOLITICAL ENVIRONMENT?

Given the looming threat of a conflict with China over Taiwan, there has been a growing sense of urgency to provide the DoD with more resilient ISR and communication capabilities.

Senior leadership in the DoD has known they need to do something different, but for years didn’t take real action—until 2018.

• Enter Mike Griffin—a seasoned technocrat with half a dozen advanced degrees and who previously held senior positions at the Pentagon, NASA, commercial aerospace & defense companies and government think tanks (link to bio)

  • Given his background, I think its safe to say Griffin is intimately familiar with both the vulnerabilities of the US military’s space assets, the US government’s (in)ability to procure innovative technology on a timeline of relevance, and commercial industry’s growing space capabilities

In 2018 Griffin was appointed Under Secretary of Defense for Research and Engineering and within weeks of taking his new position at the Pentagon, he began planning for a new DoD organization that could both reduce dependence on vulnerable GEO satellites as well as enable new space-based capabilities…and do this on a timeline of relevance in the face of growing threat from China.

The result of his effort was the creation of the Space Development Agency (SDA), established in 2019 (link; link) and given a mission to quickly build a low-earth orbit (LEO) constellation of hundreds satellites (i.e. a proliferated constellation) that could be used for missile-defense and communications.

The SDA’s mission to develop a proliferated LEO constellation + creation as an independent organization were chosen for specific reasons:

• Proliferated LEO Constellation: Utilizing LEO would increase resiliency through proliferation since LEO constellations require hundreds of satellites for global coverage given how close they are to earth + the speed that LEO satellites travel (10km/sec) make individual satellites more difficult targets vs stationary GEO satellites

  • Additionally, LEO satellites are smaller, cheaper, and more quickly replaceable than GEO satellites

• New, Independent Organization: The SDA needed to be a brand new organization free of legacy DoD inefficiencies to create a new culture of 1) commercial industry partnership + 2) rapid acquisition methods

  • These goals don’t sound ground breaking, but the standard DoD procurement through PPB&E process is the opposite of quick (taking on average 16yrs from stating a new desire to initial operational capability, link) and it likes costly customized requirements, not what industry is already capable of producing off the shelf.

Now fast forward to the present day…

The SDA’s proposed solution is the Proliferated Warfighter Space Architecture (PWSA), a constellation made of 400-600 LEO satellites that will provide resilient missile-defense and satcom capabilities (link to a PWSA 101 explainer from Payload Space).

Remember that as a new organiztion, the SDA was tasked with 1) commercial industry partnership + 2) rapid acquisition methods—so to build the PWSA as quickly and efficiently as possible, the SDA decided to utilize a “spiral development” program where it will partner with commercial satellite manufacturers to design, build, and then launch satellites for the PWSA in layers (called tranches). New tranches will be ordered every 2 years and will build upon the capabilities of prior tranches.

The SDA has also “audaciously” set a goal for each tranche of satellites to be launched into space and put on orbit in under 3 years from the time of contract award dates; remember this is in comparison to prior satellite constellations that took 10+ years to reach orbit with outdated technology—getting a military satellite on orbit in <3 years is like moving at light speed.

Long term, the SDA hopes to build the PWSA into a 400-600 satellite constellation (300-500 communications satellites referred to as the “Transport Layer”; 100-200 remote sensing satellites referred to as the “Tracking Layer”). This number will fluctuate over time given timing between when the satellites reach their end of life (the SDA is planning for its satellites to have a 3yr lifespan) and when replenishment satellites are launched.

4. THE $30B+ SDA CONTRACT OPPORTUNITY THROUGH THE 2020s + WHO HAS WON HOW MUCH MONEY ALREADY?

Now we get to the good part—the construction and sustainment of the SDA’s PWSA represents a MASSIVE new opportunity for the space industry.

To give some context around how big of an opportunity the PWSA buildout is, look at the SDA’s budget growth—since being founded five years ago, the SDA’s annual budget has gone from <$100M to nearly $5B, a sign of serious support within the Federal Government. Going forward, the agency anticipates a run-rate annual budget of $4B-$5B.

Additionally, as the agency’s budget has ramped, so has the dollar amount of contracts it has awarded—through January 2024, the SDA has awarded nearly $11B worth of contracts to build, launch, and operate 455 satellites.

In the current FY2024, the agency has already awarded $4.4B and will award at least one other $400M-$500M contract (likely in the April/May timeframe) for 20 Tranche 2 Transport “Gamma” variant satellites. Going forward, the SDA will continue to award contracts for new Tranches of satellites every 2 years as the existing satellites on orbit reach their end of life and need to be replenished.

PWSA satellite contracts are not small awards—SDA contracts to build satellites have almost all been 9-figure deals!

Additionally, as the number and complexity of satellites being built has increased, so has the deal size—Tranche 2 contracts have averaged over $700M per award!

Through January 2024, the SDA has given out 20 contracts to 12 different prime (i.e. lead) contractors—this is blazingly fast and includes much more variety of partnerships relative to the traditional world of government contracting for a single project.

Additionally, while traditional aerospace & defense contractors (Northrop Grumman, Lockheed Martin, L3Harris, Raytheon, General Dynamics, and Ball Aerospace) have won 73% of contract value, the SDA has stayed true to its promise of avoiding vendor lock and several companies such as York Space, Rocket Lab, and Sierra Space have successfully won 9-figures or more in SDA contracts.

But it’s not just the prime contractors who are benefitting from SDA contracts—there have been at least 20 different subcontractors that have announced partnerships to provide various components for SDA satellites.

Meanwhile, the actual buildout of the PWSA has gone relatively well.

• 23 Tranche 0 satellites were built + launched between 28mo-33mo after contracts were awarded—well within the organization’s goal of <36mo

  • 1 York satellite was kept on the ground for software testing

  • 4 L3Harris satellites are being held back to share a launch with other DoD satellites to test a different orbit than originally planned

    • Space Case Note: corrected this bullet from erroneously saying these 4 satellites were from RTX

• Tranche 0 satellites have successfully tested capabilities that validate the PWSA’s baseline technology and operating procedures ahead of future generations of the constellation coming online

• Tranche 1 satellite contracts were awarded in 2022/23 and are set to begin launching to space in 2024

• Tranche 2 satellite contracts were / are being awarded in 2023/24 and will begin launching to space in 2026

• Tranche 3 satellite contracts are likely to be awarded in 2025, with satellites launched to space in 2028

5. INVESTOR CONSIDERATIONS

The easiest way to get exposure to the SDA opportunity is to buy stock in one of the 13 publicly traded companies providing satellite manufacturing and/or components for the SDA in the image below (Northrop Grumman, Airbus, Leidos, MDA, Mynaric, Lockheed Martin, Terran Orbital, L3Harris, Redwire, Honeywell, Rocket Lab, RTX, and Microsoft):

However, here are a few things to consider about the SDA opportunity for publicly traded companies:

• SDA contracts are more meaningful for smaller companies versus larger ones

  • Ex. a company like Northrop Grumman has won nearly $3B of contracts from the SDA, but this revenue will be recognized over a multi-year period and is incremental to the company’s $40B annual revenue base

    • SDA contracts are even less meaningful for companies like Honeywell and Microsoft that are subcontractors to only 1 deal each vs their massive revenue bases

  • This compares to Rocket Lab’s $515M contract being recognized over a multi-year period, but on top of an existing revenue base of $250M in 2023 and $430M in 2024 (per consensus estimates)

• There is execution/scaling risk for smaller companies

  • For example, Mynaric has accumulated a backlog of 794 lasercom terminals as of YE23 (up from 256 at YE22), in part driven by orders from Northrop Grumman, RTX, and Ball Aero/Loft Orbital for SDA satellites

  • Consensus is estimating Mynaric’s revenue grows from $4M in 2022 to $141M in 2025 as the company scales it manufacturing capabilities

  • With an enterprise value of ~$150M versus 2024E revenue of $67M, 2.2x 2024E revenue is not a bad valuation, but the company isn’t expected to become profitable until 2025 and it needs to transition from an R&D shop to a scale manufacturing organization—this is serious scaling risk that investors need to consider

• Competition for SDA contracts is growing

  • The SDA has openly admitted to wanting to foster a diverse set of suppliers to avoid vendor lock

  • While early SDA contracts only saw a handful of bidders, the latest round of Tranche 2 contracts saw up to 9 companies bidding for 3 awards

  • I expect this kind of heated competition for SDA contracts to continue, and believe the SDA will strongly consider spreading out contract wins amongst promising new entrants over time

    • This is currently playing out with more recent contract awards, as Rocket Lab and Sierra Space have both won contracts for the first time for Tranche 2 satellites

  • This has the potential for SDA revenue to be “lumpy” and non-recurring if a company doesn’t successfully “defend” its contract wins in future tranches

  • Additionally, remember that the SDA is prioritizing both speedy/reliable satellite deliveries AND low costs—the incentive to submit low-cost bids is likely driving down margins for companies participating in these deals, though this is offset by the large size of deals (both Terran Orbital (link) and Rocket Lab (link) have alluded to this when discussing their SDA deal dynamics)

• New capabilities will lead to new opportunities

  • As the infographic below indicates, each new Tranche of the PWSA aims to incorporate more sophisticated technology and enhanced capabilities for warfighters, which will likely result in more opportunities for new companies to participate over time (either as primes or subcontractors)

6. CONCLUSION

Of course as is the case with anything in the space industry, there will likely be delays that impact the PWSA’s actual deployment and operations, but given progress thus far I am encouraged by the prospects that the SDA can actually deploy T1/2/3 satellites on their projected timelines and deliver warfighters the more resilient communications and ISR capabilities they need, and I am excited by the multi-tens of billions of dollar opportunity that the PWSA buildout + replenishment represents for the commercial space industry over the next decade.

Semper Citius! (Always Faster)

In this month’s Space Stock Review:

1. 📈 Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 😆 Bonus: The Top 25 Case Closed Memes from 2023

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of ASTS, PL, RKLB and SPIR at the time of this post (1/4/24).

1. MARKET COMMENTARY

Public Markets

Space SPACs rallied hard in December, closing out the year with their 2nd consecutive monthly gain over +20%.

However, the SPACs were not alone in having a good December—stocks across the board rose given positive investor sentiment around the possibility of a “soft landing” scenario where inflation decelerates without a recession occurring, and the Federal Reserve signaling it is both done raising rates and likely cutting rates in 2024.

Taking a step back, we can see that 2023 was fairly a volatile year for stocks and there was strong correlation between CNN’s “Fear & Greed Index” (top chart above, link) compared to when the stock market went up or down (bottom chart above):

• Negative shocks like the US banking crisis in March and the October escalation of the Israel-Hamas war drove investor sentiment towards “fear” and drove ~10% declines in the S&P 500

• The emergence of ChatGPT in January/February and Nvidia’s massive earnings beats in May/August created a mania around the potential of artificial intelligence and led to +9% and +19% market rallies

• The end of Federal Reserve rate hikes and the potential for rate cuts in 2024 drove the end of year spike in “greed” and subsequently spurred a very strong 4Q stock rally of +16%

• Zooming back in—the SPACs were not exempt from this volatility, with 9 of 12 months’ returns exceeding 10% (positive or negative)

In the end, the S&P 500 ended the year +24%—more than 2x returns for the space SPACs (+10%) and 6x returns for legacy space (+4%).

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends + insightful analysis:

• Elad Gil on capital efficient businesses

  • Space Case note: if you only read one of the links this month, make it this^^ one

• Late stage venture capital invested is down way more than early stage

• Another POV on the decline of late stage VC investment

• Comparison of VC fundraising from 2020-23 (both cash raised and valuation)

• Carta’s 2023 State of Startups

• Forecast for Series A investing in 2024

• Defense venture investing math - Exits

• Why hedge funds are packing up and leaving VC

2. SPACE STOCK COMMENARY

2023 Performance

I know everyone reading this newsletter loves space and investing, but this was not a great year for space stocks (especially relative to the safer and more conservative alternative of having invested in the S&P 500 which generated +24% returns):

• Only 6 of the 27 space stocks I cover beat the S&P 500, and 11 of the 27 had positive returns for the year

• Launch was the only category that beat the S&P 500 (and only by 1%), driven by the leading space stock of 2023—Rocket Lab🚀🎉

• Position/Navigation/Timing, Manufacturing, and Aerospace & Defense stocks had positive returns, but just barely; and every other category of space stocks was negative

Of course, this assumes investors held their stocks from 12/31/22 through 12/31/23—depending if you bought or sold at some point in the middle of 2023, results may have been better or worse.

December 2023

• Is it just me, or is Astra / ASTR mispriced?

  • At $2.19/share at the time of writing (1/2/2024), Astra is trading 46% above co-founders’ Chris Kemp and Adam London’s take-private offer of $1.50/sh

  • I’m not sure why the stock would trade above that offer price other than the stock getting caught up in low-volume trading at the end of 2023

    

• Rocket Lab / RKLB rallied in December not just because the rest of the market was up, but because the company disclosed a new $515M contract to build 18 satellites for the US government (likely the Space Development Agency, link)

  • While I assume this contract doesn’t affect near-term results because most of this revenue won’t be recognized until 2026/27 when Rocket Lab is actually delivering satellites to its customer, this contract win is notable because it is a sign of the maturation of the company’s Space Systems business

    

• Terran Orbital / LLAP’s +41% in December was likely attributable to rumors that began on 12/11

  • On 12/11 the WSJ published an article (link) stating that LLAP was looking for a buyer by the end of 2023

  • The same day, TechCrunch published an article (link) stating that an internal company memo said CEO Marc Bell was denying the acquisition rumors and he would buy the company with a business partner if Terran did decide to go private

  • Meanwhile an SEC filing on 12/11 (link) disclosed that the company had hired investment bank Jefferies to conduct a formal review of strategic alternatives, which could include an investment, sale of the company, or a take-private transaction

    • Regardless, LLAP traded up 74% from 12/11 through the end of the month—investors were probably hoping to benefit from the premium that an acquisition or take-private offer would entail

  • Momentus / MNTS just can’t catch a break—on 12/5 the company disclosed (link) that three of the five payloads it had planned to deliver into orbit on the 11/11 SpaceX Transporter-9 mission were not released from a 3rd party deployer system

    • MNTS shares traded down -39% between 12/5 and the end of December as yet another mission setback does not bode well for this company and its dwindling cash balance

• EchoStar / SATS traded up nearly +60% in December as the likelihood of its planned merger with Dish Networks increased—notably, shares were +33% through year-end after receiving FCC approval for the merger on 12/7

  • The merger was completed on 12/31/23

• Comtech / CMTL shares took a dive after 12/7 (trading down -33% through YE23) when the company reported F1Q / C3Q earnings and noted that it did not close a debt refinancing agreement it had previously told the investing community it would complete before the 12/7 earnings report

  • The company has until 10/2024 before its existing credit facility is up for repayment, and management remains upbeat about the company’s ability to refinance its debt before then or extend the facility with its current creditor

  • Having said that, the clock is now ticking for management to secure financing in difficult capital market conditions—hence the negative reaction from investors

3. BONUS: THE TOP 25 CASE CLOSED MEMES FROM 2023

If you’ve made it this far in the newsletter—thank you for reading!

Your reward is a list of what I believe are the top 25 memes I made for Case Closed in 2023—please pick your favorite meme from this list and tell me which one it is in the comment section!

Thanks for reading everyone—I’m looking forward to sharing even more space financial analysis in 2024!

In this month’s Space Stock Review:

1. 📈 November Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 🎉 Bonus: 4 Things I Learned in My 1st Year as an Investor

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of ASTS, PL, RKLB and SPIR at the time of this post (12/5/23).

Update from Space Case: Wanted to let folks know we are on track for an upcoming post about the Space Development Agency later in December. I’d hoped to share this SDA post last month, but October + November ended up being busy months filled with travel + due diligence!

1. MARKET COMMENTARY

Public Markets

November was the best month of for stock performance thus far in 2023—4 of our 5 indices recorded their best monthly returns of the year last month, with only the space SPACs not hitting a monthly high (November’s +21% was the SPACs’ 2nd best monthly return in 2023; their best month was January at +28%).

November’s market rally was driven by increasing belief that the Federal Reserve may actually pull off a “soft landing” (i.e. reducing inflation while simultaneously avoiding a recession), as we received both solid inflation data (October’s y/y inflation was down to 3.2%) and solid economic data (3Q GDP growth was +4.9%) in November (see details below).

Additionally, investors are increasingly confident that the Federal Reserve’s current rate hike cycle is likely over and that we might even see rates begin to come down in 2024.

Remember that lower rates are good for all stocks, but particularly good for growth stocks, which have the majority of their profitability in the future (lower rates = higher present day value of those future cash flows). This is partly why the ARK Innovation ETF and the space SPACs had such strong returns this month. (link to my previously written primer on “Why Should Space Investors Care About Interest Rates?”)

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• ARK Invest Thesis on SpaceX

• Pre-seed + Seed SAFE valuation cap trends

• The upcoming founder shortage

• The sad reality of paper returns vs actual cash distributions in VC

2. SPACE STOCK COMMENARY

• Astra Space / ASTR rose 69% (nice) in November after the company’s founders, Chris Kemp and Adam London, offered to take the company private at a $30M valuation (or $1.50/sh; a ~100% premium vs the day before the offer)

  • ASTR shares were trading at $0.74 the day before the offer, shot up 86% to $1.38 the next day, and are now at $1.40 (as of the time of writing). At this point, investors feeling confident that the deal will go through could make ~7% by buying ASTR shares at $1.40 and then having Kemp and London purchase their shares at $1.50.

• Satellogic / SATL announced two notable pieces of news in November that might have influenced the company’s +58% performance in the month:

  • The company received a license from the National Oceanic and Atmospheric Administration (“NOAA”), removing a key regulatory headwind and increasing SATL’s chances of winning business from the US government, the largest buyer of commercial satellite imagery in the world

    • This was a fairly material announcement given that SATL couldn’t do business with the US government without this certification, and might be a positive signal to other foreign governments to do business with the company as well.

  • On 11/29 Satellogic announced a strategic contract with Tata Advanced Systems to develop local space technology capabilities in India to support India’s defense and commercial markets

    • While there was no dollar figures included in this announcement, any progress with monetization of Satellogic’s IP or constellation is good news for the company and shareholders

• Spire Global / SPIR’s +40% performance made me curious about earth observation valuation trends and I realized that I missed a notable event in October—Planet Labs / PL now trades at a discount to both BlackSky Space / BKSY and Spire Global (see chart below for details).

  • We have been tracking this trend since mid-2023 (link) and we find it notable because Planet Labs was once valued at a significant premium vs BlackSky Space and Spire Labs (ex. PL went public at 10x 2023E revenue vs 5x for BKSY and SPIR)

    • While all the SPACs have been beaten down since going public, the loss of a premium valuation versus peers goes to show how much confidence investors have lost in PL’s outlook at this point in time given a series of successive earnings report misses + lower revenue guidance. The company likely needs to both build momentum by beating / meeting quarterly guidance for a number of quarters in a row, and/or reaccelerate revenue growth while continuing to march toward profitability to gain back favor with investors.

    

• AST SpaceMobile / ASTS’s +47% performance in November was in part driven by the company’s 3Q earnings call on 11/14—shares popped +24% the day after the report. The most important disclosure from the report was that management believes they will close an investment from “multiple strategic partners…[by] November or December.”

  • Given that management expects it needs to raise at least $550M to design, assemble, launch, and operate the company’s 1st 25 satellites needed to provide commercial service, strategic funding from potential customers is absolutely crucial.

  • Check out this post for more info on what we learned from ASTS’ 3Q earnings report (link)

• Boeing / BA’s +24% performance in November is mostly attributable to a rumor (link) that China is considering resuming purchasing Boeing’s 737 Max aircraft; the company had essentially been shut out of new orders from Chinese carriers since 2017 amid rising political and trade tensions between Beijing and Washington

  • Since this rumor was first published on 11/12 following meetings between US President Joe Biden and Chinese President Xi Jinping at the APEC summit, BA stock has increased +19%

• Last month I highlighted that since the 10/7 escalation in the Israel-Hamas conflict, defense stocks have been following the same pattern that emerged following outbreak of the Russia-Ukraine war in February 2022

  • Through 12/1/2023, the observed trends have held up (see below); if they continue to follow the same pattern as in 2022 though, we may see defense stocks trail off through December into 2024.

  

3. BONUS: 4 THINGS I LEARNED IN MY 1ST YEAR AS AN INVESTOR

In December 2022 I began my career as an institutional investor, joining a growth equity VC firm where I covered not just space, but also AI and semiconductor technology. (link to my announcement last year + personal backstory)

Given that we are coming up on my one year anniversary since “going pro” and since I usually only wear my analyst hat here on Case Closed (i.e. I write analysis as an unbiased observer) I thought it might be fun to share with everyone here a few things I’ve learned since joining the buyside as an investor (where I put my analysis to work):

1. Intellectual Curiosity is a Must

   1. Part of what made this job feel too good to be true was that I am getting paid to learn new things—constantly, and at a breakneck pace. This was in part due to covering multiple industries, which was both challenging and fun—I had a stronger background in space, but was tasked with helping come up with our thesis on the vertical; AI has been a tough one to keep up with given the pace of innovation since the explosion of ChatGPT this time last year; and although I’ve actually found semiconductors to be nearly as interesting as space, the technical barrier to understanding the intricacies of this industry has kept me on my toes and guessing if I know ANYTHING every time I think I have a grasp on trends.

   2. I can’t say this is the experience everyone who is an investor has, but I have a hard time imagining being good at this job if you aren’t intellectually curious and genuinely passionate about learning.

2. Discipline Requires Patience

   1. When investing in cutting-edge technology, it is easy to get caught up in the excitement of what is “cool” and the potential for massive growth—we all know this happened with space technology the past few years, and this same sentiment is currently sweeping through AI and semiconductors.

   2. Having spent 2021 + 2022 writing and Tweeting about the hysterics of the space SPACs, I came into this VC role determined to not get “SPAC’d” (i.e. to not get fooled by overhyped promises of growth), and I was lucky enough to join a team that was equally focused on discipline. Our diligence process was highly structured and as such, it became (somewhat) easy to say “no” if prospective deals didn’t meet our criteria (deal stage, company sector, business, tech, etc). This also went the opposite way—if we liked a deal, we steel-manned the arguments why it might be a bad investment to pressure test our ideas.

      1. Ultimately, we had to be patient that we would find deals that met ALL the criteria we wanted in our investments.

3. A Good Business Does Not Always Equal a Good Investment

   1. Now let me be clear—just because an investor says “no” to investing in a deal, it doesn’t mean that is a bad company. Some companies might have excellent products and strong market positions, but do not necessarily offer attractive investment opportunities.

   2. Factors like valuation, time to exit, and market size were all reasons we passed on deals with otherwise good companies last year—those factors impacted the returns profile that we were targeting, and it just wasn’t a good fit.

4. Timeframe Matters

   1. This one is more focused on my personal investing—having previously come from the world of public stock investing where a 12-month investment is considered a long time (note: I used to work in equity research and price targets are meant to have a 12mo outlook), it was a real shift to start thinking about investments with a multi-year timeframe.

   2. Going forward, I am fully convinced of the value of using this long-term mindset when investing in stocks in my personal trading account—a longer time horizon gives time for my investment thesis to play out (if I am correct) versus shorter-term trading being impacted by the particular “animal spirits” influencing the market in a given month or quarter.

      1. This point reminds me of the Warren Buffett quote: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” I take this to mean that in the long-run, the truth wins out.

   3. An additional bonus of taking a longer-term POV for investing is a lower capital gains tax rate on profits from investments held over one year (15-20%) versus investments held under one year (taxed at the ordinary income rate).

Overall, there was a very steep learning curve to this job, but I am pleased with how my “rookie year” as an investor went; I look forward to growing and continuing to improve in the future.

In this month’s Space Stock Review:

1. 📈 October Market Overview

2. ✍️ Space Stock Performance + Valuation

3. 🎉 Bonus: SPAC 3Q23 Earnings Reactions

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of ASTS, PL, RKLB and SPIR at the time of this post (11/14/23).

1. MARKET COMMENTARY

Public Markets

Legacy space outperformed an otherwise gloomy stock market in October 2023 following the escalation of the Israel-Hamas conflict; notably, excluding prime defense contractors RTX (+13%), Lockheed Martin (+11%), General Dynamics (+9%) and Northrop Grumman (+7%), legacy space would have declined -2%.

Geopolitical conflict is good for certain stocks (i.e. defense contractor companies), since conflict means more demand from governments for their products and services. Defense stocks are discussed in more detail in the “Space Stock Commentary” section below.

The broader stock market struggled in October, with the S&P 500 declining for the 3rd straight month given continued investor concerns that the Federal Reserve is set to hold rates “higher for longer,” particularly in light of solid economic data in October that suggested the Fed had no reason to consider cutting rates anytime soon.

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• Cantos on Multiple Progression (old post, but so good and so true)

• Carta 3Q Fundraising Valuations + Round Sizes

• What stage offers startup employees the best balance of risk and reward from joining a startup?

• “2024 is going to be far worse for startup shutdowns than *anything* we’ve seen so far”

• Steve Jurvetson on space startup shutdowns

• 20VC on seed stage pricing

• On timing for seed stage VCs to return capital to LPs

2. SPACE STOCK COMMENARY

Virgin Galactic Joins the “Negative Enterprise Value Club”

• Following a -18% share price decline in October, SPCE’s enterprise value flipped negative, meaning its cash balance became greater than the sum of its market cap + debt

  • I interpret this as investors saying “SPCE isn’t worth more than its cash on the balance sheet.” Given the company’s latest update, I don’t think this is an unreasonable take [see more on SPCE in the ‘SPAC Earnings Reaction’ section below]

    • Note: Enterprise value is the total value of a company taking into account both debt and equity shareholders (enterprise value = equity + debt - cash). Normally this figure is thought of as the acquisition price of a company.

• Note that existing “Negative Enterprise Valuation Club” members include Astra and Momentus…

Defense Stocks Mirror February/March 2022

• It is no surprise that most of prime defense contractor stocks included in my legacy space category did well in October given the escalation of the Israel-Hamas conflict

• However, I was surprised to overlay the average returns for Lockheed Martin, Northrop Grumman, Raytheon, and General Dynamics in the 1st 25 days since 10/7 vs the same stocks’ reactions in the first 100 days following the start of the Russia-Ukraine war in February 2022: returns for these defense stocks are following a similar pattern thus far (see below)

  • This is a trend to keep an eye on since defense stocks eventually receded following the initial reaction in 2022.

3. BONUS: SPAC 3Q23 EARNINGS REACTIONS

5 of 12 space SPACs have reported 3Q23 earnings at the time of this writing (11/12).

Below are links to my “quick take” reactions for each company’s earnings report, including an “earnings score” based on my previously discussed SPAC earnings scorecard (link).

Rocket Lab

Spire Global

BlackSky Space

Redwire Space

Virgin Galactic

In this month’s Space Stock Review:

1. 📈 September Market Overview

2. ✍️ Space Stock Performance + Valuation

Disclosure/Disclaimer: Case Closed should not be interpreted as investment advice or an investment recommendation; posts represent Case’s personal opinions only. Please do your own research before investing. Case owns shares of ASTS, PL, RKLB and SPIR at the time of this post (10/10/23).

1. MARKET COMMENTARY

Public Markets

Old habits die hard…

In September the space SPACs registered a second consecutive month of double-digit losses, taking their year-to-date total from +38% at the end of July to -15% at the end of September.

However, it wasn’t just the SPACs that suffered—even the broader market / S&P 500 was down -5% in the month.

These losses are somewhat unsurprising as stocks historically underperform in September, a phenomenon known as the September Effect (see chart below+ link).

There are lots of theories why the September Effect happens each year, but my personal take is that in September Wall Street is coming back from summer vacation and buckling down to not only finish the current year strong, but begin processing their outlook for the next year; this requires portfolio rebalancing, resulting in September stock volatility.

However, this September’s market downturn also has some fundamental drivers—the Federal Reserve indicated that interest rates are likely to remain higher for longer and are not likely to decrease until sometime in 2024; this compares to prior market expectations for potential rate decreases by the end of 2023.

I have no clue how the market is just now digesting the point-of-view of “higher for longer,” I feel like we’ve been talking about “higher for longer” for like a year now (or maybe that’s just been my POV).

Private Markets

I won’t go into as much private market detail here, but check out these resources for a more comprehensive overview of private market trends:

• “Non-Obvious” Aerospace & Defense VC List

• The VC power law curve

• Pre-seed financing trends

• Tech IPOs Could Burn Firms Who Bought Into Hot Startups Too Late

• VCs tell start-ups to delay IPO plans after Arm and Instacart underwhelm

• Startups Squint to Read the IPO Tea Leaves

• Venture fund losses still lag public markets and have yet to recognize the vast majority of losses

• Startup shutdowns increase in 3Q23

2. SPACE STOCK PERFORMANCE + VALUATION

Note: we’ve switched to 2024 valuation multiples—this is typical for analysts and investors to do to at this point in the year, though I doubt most analysts have spent much time refining their 2024 estimates yet and also most publicly traded company management teams probably haven’t given robust guidance / outlook color for 2024 yet. Nonetheless, 2023 is more than half over and Wall Street knows its time to move on.