As the space investment thesis evolves, more investors are realizing that the final frontier is about much more than space tourism.
Sure, space travel is interesting and grabs headlines, but from an investment perspective, there’s much more to the space story. The ARK Space Exploration and Innovation ETF (ARKX) is a prime example of a space-focused exchange traded fund that more than adequately addresses the expanse that is space investing.
One of the more compelling areas ARKX provides exposure to is orbital aerospace, which includes satellite broadband. This is a potentially lucrative long-term theme for some ARKX member firms.
“According to ARK’s research, satellite broadband revenues could approach $10 billion per year in the US and $40 billion globally during the next 5-10 years. In addition, the hypersonic flight market could scale from nil to $270 billion in annual revenues,” says ARK Investment Management analyst Sam Korus.
The case for satellite broadband is being supported by declining costs for rocket launches and aerospace technologies, making it easier for companies to access space. That’s also the result of ARKX components intersecting with purveyors of other disruptive technologies.
“Aerospace costs are declining thanks to advancements in deep learning, mobile connectivity, sensors, 3D printing, and robotics. As a result, satellite launches and rocket landings are proliferating,” adds Korus.
Due to declining costs, scores of companies, including SpaceX and Amazon (NASDAQ:AMZN) — ARKX’s ninth-largest holding at a weight of 3.31% — are targeting low earth orbit (LEO) satellite launches. As more LEO satellites launch, the quality of satellite broadband is likely to improve and the technology could become accessible to a wider client base at improved pricing.
“The number of active satellites orbiting earth nearly doubled during in the past two years. According to public data, companies are planning an order of magnitude increase in satellite launches during the next ten years. The 75,000 of launches planned by 2030 has tripled since last year,” notes ARK’s Korus.
Wright’s Law is taking shape in the satellite bandwidth industry. In fact, SpaceX’s cost structure is increasingly attractive, indicating that there could be strong demand for that stock should Musk decide to bring the company public.
“Since 2004, the cost of satellite bandwidth has dropped 7,500-fold, from $300,000,000/Gigabits per second (Gbps) to $40,000/Gbps. Based on our research, it could fall another 40-fold during the next five years to ~$1,000/Gbps, thanks to Starship, SpaceX’s next- generation rocket and its next-generation satellites,” concludes Korus. “According to ARK’s research, 1 Gbps can serve 200 customers. At a capital cost of ~$1,000/Gbps, SpaceX could recoup its investment with a one-time charge of $5 per customer.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.