Bank of America expects the space industry to triple to a $1.4 trillion market within a decade

Published Sun, Oct 4 20206:26 AM EDT

Michael Sheetz @in/michaeljsheetz @thesheetztweetz

(This story is for CNBC PRO subscribers only.) Bank of America expects the growing space economy will more than triple in size in the next decade, with the firm this week forecasting space will grow to become a $1.4 trillion market. "While the COVID-19 pandemic has led to delays in some public and private programs ... the outbreak has not appeared detrimental to overall investment. This may largely be due to the fact that most spending in space is business-to-business/government (B2B/G), which generally recovers faster than business-to-consumer (B2C) spending," Bank of America analyst Ron Epstein wrote in a research note to investors. The space economy has continued to grow, in large part to a record period of private investment and new investors opportunities in companies involved in spaceflight, satellites, and more. While Bank of America tracks just 14 publicly-traded stocks with exposure to space, Epstein said there are "more to come." Using a compound annual growth rate of 10.6%, the average from the last two years, Bank of America forecast would see the industry's revenue grow 230% – from about $424 billion in 2019 to about $1.4 trillion in 2030. That would put space near the current size of the global tourism economy, which Bank of America noted is a $1.5 trillion industry. Bank of America defines the space economy "as the full range of activities and the use of resources that create and provide value and benefits to human beings in the course of exploring, understanding, managing and utilizing space." That includes both government agencies awarding contracts and corporate sales, with products and services in the realm of space research, infrastructure, and applications. But Epstein emphasized that, with the influx of private companies in the past decade, "the government monopoly on space is over" as the "new space race has created new markets." "The majority of contracts offered by NASA are awarded to private and public companies with substantial space exposure. This new commercial space age diverges from the federally orchestrated space programs of the 20th century," Epstein said. In the past, NASA would own and operate its spacecraft and any associated systems – awarding contracts to aerospace and defense companies to build hardware to the agency's specifications. But that approach to contracting has begun to shift, with the recent timely and cost saving approach of the Commercial Crew program being one example of how NASA has saved money by having companies compete with each other and build their own hardware. The success of SpaceX's first astronaut mission this year "widened the gap between SpaceX and Boeing ," Epstein said, with the former developing and successfully launching a crewed capsule earlier and for a lower price. "In our view, this a clear demonstration of the benefits of a privately run operation with a culture of innovation and engineering excellence vs. an old-school defense contractor," Epstein said. NASA has recently shifted its method of awarding contracts to allow for more competition, as exemplified by recent lunar spacecraft contract awards . In turn, that shift has led to traditional aerospace and defense contractors giving up some share of the agency's funds to competing bids from private companies like Elon Musk's SpaceX and Jeff Bezos' Blue Origin. "Of NASA's 15 largest contractors in 2019, six were private corporations," Epstein said. NASA's 10 largest contractors Cal Tech - 25% Boeing - 15% Lockheed Martin - 11% Northrop Grumman - 9% Jacobs Engineering - 8% SpaceX - 7% KBR - 5% Science Applications International - 4% Aerojet Rocketdyne - 3% ASRC Aerospace - 3% Source: Bank of America Lower rocket prices key Bank of America specifically highlighted SpaceX's pioneering the practice of reusing orbital class rocket boosters, which lift the heaviest and largest payloads to orbit. The company has made landing its Falcon boosters – represents about 60% of the cost of a new rocket – largely routine and has reused the boosters as many as six times . "The reusability of first stage launch rockets has also been a driver for cost savings across much of commercial space sector," Epstein said. "If the company's estimates are accurate, SpaceX will be able to save as much as $20 million per Falcon 9 launch by recovering the first stage boosters and fairings. If a rocket completes 10 flights over its lifetime, the company will be able to save over $196 million given current price levels." Reusing rockets has allowed SpaceX to lower its prices and launch more often, driving the U.S. to recapture the majority share of the global launch market. Epstein also noted that it's pushed SpaceX's competitors to innovate further, with all of the major rocket builders either producing "or are currently developing reusable" rockets. In-space manufacturing Epstein called out "recent advancements in the development of in-space manufacturing" as another growth driver for the next decade. He highlighted that "microgravity is a friendly environment for manufacturing," with weightlessness allowing companies to make materials in higher quality than under Earth's gravity. "More companies have been exploring in-space manufacturing processes," Epstein said. Bank of America cited a recent report saying that there are 46 companies looking to manufacture in space, with a broad variety of technologies: "Additive manufacturing, food production, organic tissue growth, medicine and raw material processing." Limited space IPOs Lastly, while space tourism is a nascent market , Bank of America said the progress made by Virgin Galactic , SpaceX, Blue Origin and others shows the "budding" potential of the sector. More broadly, Virgin Galactic represents one of the few publicly-traded companies that purely derive revenue from its space business. Epstein said there is "potential for more space companies to go public," but it well remain limited due to the yet still high risk and cost related to space. "The risks involved in escaping the Earth's atmosphere and inconsistent cash flows have prevented space companies from tapping the public equity markets," Epstein added. But Bank of America expects there will be other companies coming to the public markets, with Musk's consideration of spinning off SpaceX's Starlink internet business as top among possible IPO opportunities. "Considering these factors, Starlink could be successful in the public market if SpaceX were to follow through a segment spinoff," Epstein said. – CNBC's Michael Bloom contributed to this report. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

SpaceX lands a Falcon 9 rocket booster after launching its Starlink mission

(This story is for CNBC PRO subscribers only.)

Bank of America expects the growing space economy will more than triple in size in the next decade, with the firm this week forecasting space will grow to become a $1.4 trillion market.

"While the COVID-19 pandemic has led to delays in some public and private programs ... the outbreak has not appeared detrimental to overall investment. This may largely be due to the fact that most spending in space is business-to-business/government (B2B/G), which generally recovers faster than business-to-consumer (B2C) spending," Bank of America analyst Ron Epstein wrote in a research note to investors.

The space economy has continued to grow, in large part to a record period of private investment and new investors opportunities in companies involved in spaceflight, satellites, and more. While Bank of America tracks just 14 publicly-traded stocks with exposure to space, Epstein said there are "more to come."

Using a compound annual growth rate of 10.6%, the average from the last two years, Bank of America forecast would see the industry's revenue grow 230% – from about $424 billion in 2019 to about $1.4 trillion in 2030. That would put space near the current size of the global tourism economy, which Bank of America noted is a $1.5 trillion industry.