It’s time to revisit my investment thesis. Many things have changed in the industry over the past few years, and the picture is becoming much clearer now.
A railroad to Space is currently being built, in the form of Starship. Starship will enable things that simply were not possible before. Governments will make serious efforts to build human outposts on the Moon and Mars. Large orbital space stations will be constructed, for space tourism and scientific research. Zero-g factories will be constructed in orbit, to enable the manufacturing of exotic materials that can’t be built on Earth. Orbital solar power plants will be built. Orbital propellant depots will be built to enable more efficient travel to other locations in the solar system. Our new railroad to Space will not just enable all of this new infrastructure, but a vast ecosystem of Space products and services to support it.
At the same time, satellites and spacecraft are becoming cheaper and easier to build. Probes to the Moon and Mars can be built and launched at a tiny fraction of previous prices. Countless probes will soon be sent all over the solar system. Extensive satellite constellations are being built for a variety of use cases, from everything from telecommunications to Earth imaging to missile defense. These constellations will not just be built over Earth, they will also be constructed over the Moon and Mars.
The Space economy consists of three layers, stacked on top of each other, with each inner layer enabling the outer layers on top of it.
The first layer is Launch, which consists of rockets that launch payloads into space. Launch is currently approximately a $10B market. Launch is the least valuable market, but also in many ways the most important, because it enables everything else. It is also the most difficult market to enter, because building rockets is really fucking hard. Building a successful orbital rocket requires technical aptitude that is greater than what is required for the other areas of the space industry, which is why almost every Launch company has failed horribly. They just didn’t have the technical acumen.
Furthermore, Launch companies are gatekeepers to the industry. As such, any company that does Launch will have intimate knowledge of the entire industry. They get to put their hands on all the payloads when the payloads are loaded into their rockets. And launch companies don’t just know the payloads, they know the orbital profiles too. They also understand the economics because Launch is such a big component of the cost of putting anything into space, and launch companies are involved in complex cost negotiations with anyone trying to put anything into space. As such, due to their position at the heart of the industry, successful Launch companies are super competent on a technical level, and know everything about the rest of the industry.
The second layer is Space Systems, which consists of satellites and spacecraft, and the sub-components used to build them such as solar panels, thrusters, reaction wheels, and star trackers. Space Systems is currently approximately a $20B market, twice that of launch. This market is much larger and more diverse than launch. The number of satellites being launched is increasing exponentially, and will continue to do so for many years to come. Finally, any company involved in the manufacture of satellites and satellite components has intimate knowledge about the economics of what it takes to build a profitable satellite and sell services from it.
The final layer is Space Services, which is currently a $320B market, a whopping 32 times the size of Launch and 16 times the size of Space Systems. This market encompasses the services which are sold from infrastructure in space. This encompasses businesses such as telecommunications, Earth imaging, and defense systems like hypersonic missile tracking. But you can’t sell services from space without the Space Systems infrastructure to host them, and the Launch services to put that infrastructure into orbit.
A small group of Space companies stand to benefit the most from the future Space economy. These companies are diversified across all three layers of the space industry, rather than concentrated within a single layer. This is because expertise in an inner layer gives synergies and advantages to the outer layers. The most obvious benefit is vertical integration. If you can launch your own satellites, it’s cheaper and more timely than hiring someone else to launch them. If you can build your own satellites, it’s cheaper than hiring someone else to build them. So on and so on.
A company who can put a rocket into orbit and deliver payloads to precise orbital profiles can easily master controlling the flight of satellites in orbit, and the navigation of spacecraft throughout the solar system. Due to the gatekeeper effect, any company involved in Launch has intimate knowledge about the economics of Space Systems and Space Services. And any company involved in Space Systems has even more intimate knowledge about the economics of Space Services, especially if they are a supplier of satellite components across the entire market, and build satellites for various customers. Simply put, a successful Space Systems company has intimate knowledge about how to build successful satellites, and you need successful satellites to offer competitive Space Services.
There is only one successful company who has diversified and vertically integrated across Launch, Space Systems, and Space Services: SpaceX. And there are only two other companies who have a credible chance to join SpaceX: Rocket Lab and Blue Origin. Of these two, only Rocket Lab has built a successful business vertically integrated across Launch and Space Services. Rocket Lab has a credible plan to enter the Space Services market, having succeeded in the previous two layers, it is only a matter of time. Furthermore, Peter Beck has promised repeatedly that Rocket Lab will build, launch, own, and operate their own constellation of satellites and sell Space Services from it, and that all the groundwork Rocket Lab has laid up until now is to prepare for this eventuality.
Blue Origin is very much a work in progress, as they have still yet to launch anything to orbit or launch any significant commercial products. However, Blue Origin has ample financial resources and is positioned for moderate success in the near future across all three layers of the industry. The only other company that even stands a chance of competing with SpaceX, Rocket Lab, and Blue Origin is Firefly Aerospace, but they are so far behind the other three companies.
Rocket Lab further distinguishes itself from Blue Origin because they have an aerospace engineering prodigy CEO who used to literally build rockets in his own backyard, whereas Blue Origin’s CEO was in charge of Kindles at Amazon. Furthermore, Rocket Lab has a strong track record of fiscal discipline, and have executed almost flawlessly despite raising a small fraction of the capital available to SpaceX and Blue Origin, which have almost unlimited capital. Blue Origin is a bloated and wasteful company that has invested vast sums of money into R&D with very little to show for it. Firefly on the other hand has gone bankrupt once already and is on its third CEO.
Next, the barrier to entry for the Space industry is extremely high. The chances of any other company joining SpaceX, Rocket Lab, and Blue Origin is low. Even Firefly has the odds against them. Simply put, building a successful Space company requires many years of R&D and hundreds of millions of dollars in capital. Many companies have tried to do what Rocket Lab does, but they all keep failing. Just look at Virgin Orbit, Astra, ABL, and Relativity if you want some examples. Space is hard!
It is important to point out that SpaceX won’t be a monopoly. Nobody wants a monopoly, not even SpaceX, as it will bring the ire of the government down upon them. Furthermore, Rocket Lab and Blue Origin are ready to raise hell if SpaceX starts behaving in an anticompetitive way. Aerospace companies love to file lawsuits.
Finally, consider the valuation of SpaceX. They are valued at $250B, whereas Rocket Lab is valued at a measly $10B. As SpaceX builds their railway to space and vastly expands the Space economy, I can easily see their valuation going to $1T and Rocket Lab going to $100B, which is a 10x opportunity from where we currently sit. And even then, Rocket Lab would still be worth only 10% of SpaceX. The notion that Rocket Lab needs to “catch up” to SpaceX in order to be successful is absurd. They only have to reach 10% of SpaceX’s valuation to have massive upside as an investment opportunity. If they reach 20% of SpaceX’s valuation, the upside is ludicrous.
Elon haters should relish the opportunity of investing in Rocket Lab. We all know that the incoming Trump administration’s promise to deregulate the space industry will only help both SpaceX and Rocket Lab. Now, imagine if another administration eventually comes into power that is more hostile to Elon Musk. Imagine if Elon Musk gets the Jack Ma treatment from the US government. If just 20% of SpaceX’s business is shifted to Rocket Lab, that represents $50B in value, or a whopping 500% increase from Rocket Lab’s current valuation. So basically, if SpaceX wins, Rocket Lab is going to be raised up with them. And if Elon Musk loses, Rocket Lab is going to benefit even more. This is important!
I can’t stress enough that Rocket Lab has a proven track record when it comes to execution. Electron would have succeeded on its first launch, if not for a software bug outside of Rocket Lab’s control. Rocket Lab was the fastest commercial company in history to reach the milestone of 50 successful orbital launches, beating even SpaceX. Rocket Lab has successfully diversified into Space Systems, with almost 70% of their revenue being Space Systems. Rocket Lab has hundreds of millions of dollars in revenue which is growing organically at a rate of 55% year over year. This is a real company with real execution. Peter Beck says that he wants everything that goes to space to have a Rocket Lab logo on it somewhere, and he isn’t kidding. For example, Rocket Lab currently manufactures about 50% of the solar panels that go into space.
In conclusion, a great railroad is being built to Space. A vast ecosystem of Space infrastructure and services is about to be created. Rocket Lab is in a key position to dominate this new Space economy, and is surrounded by a huge moat to ward off competitors. It seems undervalued compared to its rival SpaceX. And most importantly, it is the only such company that normal people can invest in; SpaceX, Blue Origin, and even Firefly are all private companies. Rocket Lab’s valuation is soaring, and they will use this public currency to continue acquiring smaller aerospace companies up and down the supply chain to further extend their dominance. As we move into the future, the Space industry will only expand in value while consolidating in players, and Rocket Lab is one of the winners of this new Space Race.
So, does my thesis make sense? Anything I missed? Anything you disagree with?
