Is It Almost Time For Ordinary Investors To Get A Piece Of 'New Space'?Maureen Rhemann Mar. 18, 2014 9:39 AM ET | Includes: MDDWF
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary
•Converging trends in the "New Space Market" might finally break the ice for ordinary investors.
•"New Space", consisting of emerging small satellite, launch, services and product companies, is on track to be profitable.
•Key trends are colliding: Low cost space, cloud computing, data analytics, and miniaturization are coming together.
•MacDonald Dettwiler & Associates, Ltd. could benefit.
"New Space" has always been exciting to the public because it evokes images of wonder --- like space travel, speeding rockets, and star gates. But it's been pretty boring for ordinary investors because there just aren't many publicly traded companies in this sector. "New Space" often refers to a crop of innovative, commercial upstarts, who are still struggling to get their business models up and running. Many are already in the black. New Space is now in the countdown phase for a major shift. These start-ups include small satellite manufacturers, launch companies, space tourism companies, and a host of space service and product companies, like Skybox Imaging and Space Services, Inc.
Some of these companies will have to rely on publicly traded partners to make their market model work. In the short term, companies, like McDonald Dettwiler, Ltd. (OTCPK:MDDWF), could get a boost. This will give investors at least some action on the New Space frontier. For venture capitalists, angels, and private equity, there may be big payoffs for taking some risk. But for the average investor, few companies are slated for an IPO in the immediate future. New entrants, like Skybox Imaging, a Silicon Valley start-up, offering satellite imaging services, and Planet Labs, another small satellite imaging company, are getting a lot of press attention. Skybox imaging is headlining because it's building a constellation of beer keg sized satellites that can provide quickly available, low cost, commercial imaging products. The beauty is in combining satellite imaging with data analytics to help interpret trends, such as whether or not more cars in the Walmart parking lot mean better earnings.
The market is kicking into high gear with commercial satellites the size of suitcases and footballs, made at only the fraction of the cost of traditional satellites. Now, they're producing new disruptive business models that threaten to upset the status quo. A collision of trends is making that possible:
1) Smaller satellites like microsats (less than 100 Kg) are experiencing nearly a 300% growth rate. Miniaturized satellites are effective in augmenting communications for low data rate functions like messaging, remote sensing, and imaging.
2) Changing processing power and computing from on board the satellite to processing on the ground makes satellites lighter weight and less costly.
3) Cloud computing and data analytics allow incoming data sets to be sliced, diced, analyzed, and productized more efficiently and affordably than ever before.
4) Launch, usually the most expensive part of the satellite equation, is finally getting cheaper. Space-X has rapidly become the darling of the commercial launch market and recently announced that it plans to get launch costs down to single digit millions. That's big news, because launch has been holding the industry hostage for decades.
The satellite market is cyclical and beginning to show signs of market segmentation with larger robust communications satellites carrying more payloads to GEO. Smaller satellites that can do remote sensing or imaging are becoming a rapid growth market. While disruptive innovation will be more pronounced in Low Earth Orbit, the market has also begun to segment markedly in Geosynchronous Orbit. These market indicators bode well for the entire small space supply chain and an onslaught of M&A's. It is also bound to make existing players more competitive.
Skybox Imaging's recent announcement to have Space Systems Loral, a division of MacDonald Dettwiler, build their first satellite constellation really is news, even if it doesn't sound like it. Many market watchers took the outsourcing move as a sign of "back to business as usual" in the satellite market by making a move of outsourcing to an existing manufacturer. Not so fast. Instead, this might well be the harbinger market watchers have been waiting for. While Space Systems Loral has been around for a while, they were acquired by MacDonald Dettwiler Associates (MDA) back in 2012. MDA is no slouch when it comes to being innovative and entrepreneurial. The company has pushed into small satellite solutions, such as the small satellite space imaging platform, Rapid Eye, a commercial 150 Kg satellite providing space imaging for large land masses and agricultural areas, and CASSIOPE, a small satellite that is adaptable to science, technology, earth observation, and geological information delivery. A lot of "old" space companies are feeling the pinch and are getting a re-tooling as market competition heats up. MDA could just be the barking blue heeler that gets this herd of horses running.
For ordinary investors the New Space market is likely to play out by: 1) giving some publicly traded companies a boost through an uptick in new customers; 2) causing a market realignment as publicly traded companies reorganize and sharpen their business model; and 3) pre-fueling the market for a round of upcoming IPO's.
Between M&As, market realignment, and a few IPOs investors are likely to get the chance they've been looking for.
http://seekingalpha.com/article/2095143-is-it-almost-time-for-ordinary-investors-to-get-a-piece-of-new-space?source=yahoo
