Episode summary
Backbone or Reach, the Two Halves Of Space Most People Ignore
Summary
Dylan Grice argues that space investing is in a new phase that is very different from the government-led first space age. He says the first era, from 1957 to 1991, was driven by Cold War competition, with NASA once at 4.5% of GDP and launch costs around $65,000 per kilogram in today’s dollars. In the current era, he says NASA is below 0.5% of GDP, launch costs have fallen to about $1,500 per kilogram, and private companies now dominate financing.
His central framework is to split the space economy into two halves: the backbone and the reach. The backbone includes launch, rockets, satellites, ground stations, and satellite communications. The reach is every business that benefits from satellites, including ride hailing, last-mile food delivery, precision agriculture, fleet management, and smartwatches. Grice warns that investors who do not separate those two layers can make expensive mistakes, especially because many backbone companies are still unprofitable.
He pushes back on the hype around direct-to-device satellite services, especially AST SpaceMobile. Grice says the market is being sold as a $200 billion opportunity, but the technology is still weak and mainly suitable for text and simple use cases. He cites McKinsey’s estimate of a $2 billion market and says the story still resembles dial-up internet more than a mature telecom platform.
Key takeaways
- Dylan Grice says the first space age was government-funded, while the second is being financed mainly by private companies as launch costs collapsed to about $1,500 per kilogram.
- He argues investors need to separate the space economy into the backbone and the reach to avoid confusing infrastructure businesses with end-market beneficiaries.
- Grice says many backbone names, including SpaceX, ASTS, Redwire, Planet, Blacksky, and Rocket Lab, are still losing money.
- He says the direct-to-device satellite market is widely overstated at $200 billion and cites McKinsey’s $2 billion estimate instead.
- Grice warns that AST SpaceMobile’s technology is not yet ready for high-speed data and is still closer to dial-up than modern broadband.
Notable quotes
“You got to kind of divide the space economy into two halves. The backbone and the reach”
“And you know, the first space age was really marked by, well, financed by governments”
“Back then, it cost $65,000 in today's dollars, $65,000 a kilogram to launch something into low Earth orbit”
“I think to myself, these people aren't thinking clearly about this because, you know, DTC satellite, satellites connecting directly to you and me, ordinary smartphones, okay”
“The technology is kind of reminiscent of AOL back in the '90s. It's like dial-up technology”
How the episode opens
Good morning. This is Dylan Jovineal behind the markets. Happy Thursday.
Today is Thursday, August 27th. And you know, we've been working around the clock, burning the candle at both ends, basically, on this new research service called Frontier Investor that we're pushing out. And you know, we're really looking to kind of look at frontier technologies a little bit more of a skeptical and better eye, a more disciplined eye than a lot of our competitors out there.
I've been really digging into frontier areas like space or data centers, etc., etc. certain technologies that really have an advantage. And I've really gone down a rabbit hole on space.
One of the things I'd like to share with you are five very interesting facts about space that you might not know that really came to the forefront as I was doing this research. First of all, do you know that we've had the first space age and now we are now entering, for sure, the second space age. And you know, the first space age was really marked by, well, financed by governments.
So, you think this happened from 1957 to 1991. And this is basically the Soviet Union US geopolitical competition, Cold War competition in space. And it was so expensive, only governments could afford to even carry that bill.
Back then, it cost $65,000 in today's dollars, $65,000 a kilogram to launch something into low Earth orbit. And NASA's peak budget because of that was 4.5% of GDP. Well, fast forward to today, the second space age.
Okay, we're in the second space age, which we'll say is 1991 to present. Now, most of the financing is not done NASA. NASA has a their budget is only 0.5, less than 1/2 of 1% of GDP.
But now, because of all that government spending in the first space age, the cost to launch something into low Earth orbit today is $1,500 a kilogram to launch something into lower Earth orbit, which is amazing.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- space investing
- direct-to-device satellites
- satcom technology
- space economy backbone vs reach
- valuation vs earnings
Companies and tickers mentioned
- ASTS
- AST SpaceMobile
- McKinsey
Watch the episode
Watch “Backbone or Reach, the Two Halves Of Space Most People Ignore” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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