Space exploration has long been an endeavor many argue should be public sector domain. Not only is space exploration expensive, the uncertain economic returns are anathema to profit-seeking companies. In addition, critics worry that private sector involvement in space will sully pure science and lead to unrestrained land-grabs that will be difficult to adjudicate in terrestrial courtrooms.

Nevertheless, private sector involvement in space is a reality, and has been since the dawn of space exploration. NASA didn't build the Saturn V rocket, Boeing and its partners did. Likewise, private companies have built, launched and operated satellites for decades, as well as supplied vehicles and gear to NASA, the European Space Agency and other programs.

That said, it does seem we are on the cusp of serious private investment in space. NASA relies on commercial missions to resupply its assets in space. Meanwhile, private companies are investing in space tourism and operations to mine celestial bodies.  Nevertheless, there are not many pure play opportunities for investors to participate in this evolution.

Once the Domain of Giants
Investors have always been able to get some amount of exposure to outer space, but never to a meaningful extent. Boeing (BA), Lockheed Martin (LMT) and Northrop Grumman (NOC) build rockets, spacecraft, satellites and a myriad of other systems that go into operating space programs.   However, this space-based revenue is rarely directly visible or significant to the overall performance of the company. Moreover, this revenue is often tied to military projects, and it can be difficult to discern "space revenue" from "defense revenue." (See also: War's Influence On Wall Street).

In addition, what NASA spends on space exploration is not a significant top-line sales driver for many companies. Historically, NASA allocates about 80% of its budget to contracting. It plans to spend about $22.7 billion in 2020. That leaves about $18 billion for procurement, which is typically spread across several companies. By comparison, Boeing in 2019 reported $76.5 billion in revenue. Consequently, it's hard to say that investing in Boeing is any sort of real investment in space exploration.

The First Generation of Pure Plays
The first generation of space exploration pure plays has already come and gone. Orbital Sciences, which made rocket systems for commercial and government customers, formerly traded on the New York Stock Exchange (NYSE). It merged with Alliant Techsystems in 2014, and Northrop Grumman subsequently bought the merged company in 2018, renaming it Northrop Grumman Innovation Systems. 

Astrotech (ASTC), another pure play on space, is struggling to stay aloft. It was established in 1984 and provided equipment to NASA during the Space Shuttle era, which ended in 2011.  Astrotech barely manages to post quarterly revenue and in some quarters doesn't post any revenue at all.   As of June 2020, it had a market capitalization of $20 million.

In With the New
What is striking about the newest crop of space entrants is their reach-for-the-stars ambition. Two of the most well-known companies are SpaceX and Virgin Galactic (SPCE).

SpaceX, founded by serial entrepreneur Elon Musk, was the first private company to send a resupply craft to the International Space Station (ISS), a feat it achieved in 2012. In May 2020, a SpaceX vehicle ferried two NASA astronauts to ISS—a first for a privately built spacecraft. However, SpaceX wants to be more than a Grubhub and Uber for NASA. It is developing reusable launch systems with the hope of significantly reducing space exploration costs. Its most ambitious project is the Starship, a long-duration vehicle Musk hopes will one day transport a crewed mission to Mars. Another project is Starlink, which plans to launch as many as 42,000 satellites into low-earth orbit to provide global broadband internet access.

The aspirations of Virgin Galactic, founded by billionaire Richard Branson, are not as lofty by comparison. The company aims to fly high-net worth individuals on brief interludes into space, where they can view the earth and experience several minutes of weightlessness. At the end of 2019, Virgin Galactic reported more than 600 reservations and $80 million in deposits, which would translate into $120 million in revenue once realized. Tickets cost about $250,000 each. Virgin Galactic's launch system consists of a reusable spacecraft, the SpaceShipTwo, that is carried to an altitude of 45,000 feet by the WhiteKnightTwo. After separating from the WhiteKnightTwo, the two-person crew of the SpaceShipTwo and its six passengers can enjoy approximately 90 minutes of flight time. In June 2020, Virgin Galactic announced an agreement with NASA to develop a service that would transport private, paying passengers to ISS.

Virgin Galactic debuted on the NYSE in October 2019 with an investment of $800 million from a special purpose acquisition company (SPAC). For 2019, it recorded $3.78 million in revenue and $210.93 million in losses. It ended the year with $411.35 million in cash.

The Bottom Line
For all of the progress private space companies have made, the reality is that Virgin Galactic is really the only option investors have for an investment that is directly tied to space and space exploration. Commercialized space is just too small a part of what companies such as Boeing and Northrop Grumman do to support that investment angle. While there is talk Elon Musk's SpaceX will go public, Musk himself has suggested the company will remain private, as the company's long-term goals conflict with the short-term demands of public markets. This doesn't help investors today, hoping to cash in on the next Musk-led initial public offering (IPO).

Nevertheless, there may come a time when investors can back an array of space ventures, be it suborbital space planes, commercial launch services, spacecraft manufacturers, interplanetary travel or asteroid mining. But for now, the gravity of earnings, viable addressable markets and sustainable returns on capital is keeping investors earthbound.