Space: The Next Investment Frontier
Comment of the Day

October 04 2017

Commentary by Eoin Treacy

Space: The Next Investment Frontier

Thanks to a subscriber for this report from Goldman Sachs which is dated April 4th but is no less relevant today. Here is a section:

The commercial space economy has stood nearly still for decades. More satellites have gone up and growth has been solid, but the fundamental commercial landscape has remained relatively stagnant. We are witnessing an inflection point in the significance of the space economy, where it becomes central in providing Internet access and basic services to more than half the world’s population, compounding growth. The coming decade will be one of pruning, where only the strongest and most innovative survive the wave of new technology and business models, but that is necessary to propel the mainstay manufacturing and services industries forward. 

The commercial satellite services industry is entering an arms race to acquire the most capacity as pricing collapses in end markets. A single satellite is now being built with more Internet bandwidth than everything launched into orbit, ever. A constellation of small satellites will likely grow the amount of bandwidth on orbit by a factor of at least 10X, at a rapidly falling cost. At the same time, pricing in the launch industry is plummeting. On a cost per kg to LEO basis, prices will soon have fallen by about 90% over the last decade. Decreased launch cost lowers the barrier to entry and helps incumbents that may take advantage of lower capex to flood the market with additional capacity. 

We do not expect all existing players to survive the turbulence that is unfolding, but we also expect new companies to rise to the challenge to take the place of those that fail. The near term will present challenges, but in the back half of the next decade we see supply and demand balancing once prices have fallen sufficiently to fit the budgets of the rural populations of developing countries. Given our view on elasticity in the space economy, though with some stickiness, we expect lower prices to spur demand for launch, spacecraft, and satellite services.

Eoin Treacy's view

Here is a link to the full report.

A few years ago the 21st century was heralded as China’s century but advances in technological innovation suggest that provided standards of governance continue to improve the region most likely to benefit will be Africa. The introduction of microgrids for power, satellites for internet connectivity and the potential elimination of malaria will allow the focus of infrastructure development to focus on roads, schools and healthcare which should contribute to continued urbanisation and improving crop yields. Since Africa will account for the bulk of global population growth in the first half of this century the stakes couldn’t be higher for achieving a better standard of living for literally billions of people.

Satellites and the space economy however are likely to have far reaching effects for the entire global population making communication seamless regardless of location. That also increases the potential for services delivered online not least blockchain, banking, shopping and social media to gain deeper market penetration.

These trends post particular threats to established communications networks. Companies like Alphabet and Facebook have plans to pepper the sky with micro-satellites which will provide internet connectivity to the globe. Why would I pay a mobile company for internet access if I can get it for free via satellite? That suggests the established providers will need to boost speeds significantly and invest further in the provision of 5G to compete.  

The geopolitical ramifications are profound from an access to information perspective. This is particularly true for countries like China which restricts access to information and Russia which attempts to influence the interpretation of information.

I’ve created a space section in the Eoin’s Favourites section of the Chart Library so subscribers can easily access the list of companies mentioned in the above report. 

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