Kerrisdale Capital is a short sale of shares of Astra Space Inc (NASDAQ: ASTR).
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Astra Space Inc (ASTR): on the way to Dis-Astra
We are short of shares of Astra Space, a $ 2.0 billion space launch company formed at the height of the SPAC bubble of 2021 – with no revenue, no track record of reliability, and no established market for its sub-vehicle. sized. A stock of stories that is yet another example of dubious companies made public through PSPCs, Astra faces enormous obstacles in its quest to develop a viable business model.
Astra is poorly positioned in a market crowded with small launchers. Its main competitors will soon launch rockets of over 1,000 kg payload, while Astra has yet to overcome the development hurdles necessary to successfully launch even a single satellite into one of the Emerging broadband mega-constellations. Shortly after Astra announced its merger with SPAC, the company increased its payload capacity target (which is not a trivial matter in rocket programs) and signed a “secret” deal with a competitor for access to some of the competitor’s most powerful engine IPs – two clear signs that Astra is struggling to keep pace with market leaders. In addition, Astra short-sightedly relies on cheap, out-of-the-box commercial parts – a strategy that prevents it from exploiting the economic advantages enjoyed by its more sophisticated competitors by developing reusable rockets that, in the long run. over time, reduce expenses. As a result, Astra remains surprisingly vulnerable to the relentless price deflation that characterizes today’s launch market.
Astra’s talk to investors boils down to selling the pipe dream of an unprecedented number of cheap rocket launches. Astra’s forecast calls for 300 launches per year by 2025, a whopping 10 times more than SpaceX achieved in 2021. Management is marketing this exceptionally ambitious target (which we see as pure fantasy) in an attempt to spread its costs of expensive manufacturing in the bay area on enough rockets in order to make a profit. A reality check is in order: To date, Astra has managed only one successful orbital test flight. While Astra’s five-year projection of successful almost daily rocket launches made with non-aerospace-grade parts doesn’t seem unlikely enough, it ignores an even bigger problem with the Astra projection – not an expert we have. surveyed, nor any independent market research we have reviewed. , offered every reason to believe that, across the industry, there will be enough market demand for Astra to support approximately daily launches by 2035, let alone 2025.
From an execution standpoint, Astra is already showing telltale signs of a company that will never deliver on its cosmic promises. The negative EBITDA forecast of $ (110) million for fiscal 21 is -35% lower than the forecast at the start of the year. The cash available after the merger – initially touted as sufficient to fully fund the business until the daily launch in 2025 – is now only sufficient to cover monthly launches in 2023, meaning Astra will almost certainly have to tap the markets. capital in the coming year. We are skeptical that public investors will stick to the current valuation to secure Astra’s tenuous business outlook, and the expiration of the 91 million share lock-up tomorrow could lead to short-term volatility. As Astra encounters inevitable setbacks, hemorrhaging cash in hopes of developing an undersized, lacking demand rocket, its valued stocks during the height of the PSPC boom are expected to collapse further.
Astra’s rocket launch projections are absurd. No market analysis supports Astra’s 300+ launches planned by 2025. Excluding SpaceX and China’s satellites from the industry-wide forecasts, there is insufficient demand for support even a fraction of Astra’s aggressive predictions. Large launchers are a more efficient and cost effective solution to deploying entire orbital planes versus piecemeal coverage through a series of small launches and will dominate the mega-constellation market (which are expected to largely represent the bulk of the market). all satellites deployed over the next decade). There will be only crumbs left for Astra and all the other smaller launchers – far less than what Astra needs to turn a profit.
Astra is lagging behind its competitors. Many industry executives we interviewed, who regularly provide launch services for small satellite manufacturers globally, agree that Astra’s rocket dimensions and payload capacity are in good shape. below the “sweet spot” of customer needs. Rocket Lab, Relativity, ABL, and Firefly all have plausible plans to produce over 1000kg of rockets that will hit the market in the near term; on the other hand, Astra aspires to produce a 500 kg rocket in two years. Astra’s attempt to catch up is a given. Shortly after its PSPC announcement, Astra publicly disclosed (without any credible technological explanation) an increase in the targeted capacity of its rockets; shortly thereafter, and certainly to Astra’s embarrassment, the public learned that Astra had entered into a deal allowing them limited access to the study of one of its competitor’s IP rocket engines in exchange for $ 30 million. of dollars.
Expect many more failures as Astra ramps up its launch efforts. Astra is playing a risky game. It must increase production and prove the reliability of a cheap construction rocket while maintaining access to public markets to finance the consumption of cash. We believe Astra’s reliability target for its rockets is 80% (which in itself doesn’t really inspire confidence). According to an informed source, however, at its current stage of development, Astra’s rocket failure rate could reach 1 in 2. If Astra were to encounter even one high-profile failure, reputation and Astra’s development plans would be severely damaged. seems inevitable.
Six months in public life and Astra has already missed expectations. Like many other PSPCs from the 2021 vintage, Astra has already seriously missed its financial forecast and will likely continue to do so. 2021 EBITDA will be -35% lower than PSPC’s initial forecast, and even with the benefit of delayed investments, Astra is burning cash at a rate of $ 50 million to $ 60 million per quarter. Even just 5 months after closing a deal that placed nearly $ 500 million in cash on Astra’s balance sheet, the company has already returned “being fully funded until 2025” and instead indicated that it would not have enough cash to complete in 2023.
Astra’s strategic direction lacks differentiation and raises concerns. The recent mergers and acquisitions and the announcement of a broadband constellation seem set to run SpaceX’s playbook – but without any of SpaceX’s resources and without first establishing baseline reliability for the launch. Apollo Fusion technology is too slow to be an attractive orbital transfer vehicle in LEO, and the transport of small satellites to GEO and beyond is an emerging niche market. If the goal is to use Apollo Fusion for Astra’s own constellation, as envisioned by the company’s recent V-Band application, investors should question the goal of an expensive mega-constellation that has years behind Starlink, Project Kuiper, OneWeb and Telesat.
The Space SPAC boom has exploded. Of the 8 new SPAC space mergers that were finalized in the past 6 months, 7 are trading below the IPO price of SPAC, with an average decline (excluding Astra) of -38%. Astra’s market capitalization is still over $ 2 billion despite a less proven business model than many of its space PSPC counterparts. On December 30, 91.2 million shares are released, double the current free float, posing further downside risk in a ruthless band for speculative stocks before income.
Read the full report here by Kerrisdale Capital Management