Astra Space: Failed Launches Not Yet Growth’s Death Knell

After delivering its first commercial payload into earth’s orbit in 2021, Astra Space (NASDAQ:ASTR) is preparing to do a series of launches with NASA in 2022. The company acquired a launch license on June 10, 2022, for the TROPICS mission that was expected from Cape Canaveral. However, reports surfaced that Astra was unable to deliver two hurricane-tracking satellites into the proper orbit. On a personal level, I am a fan favorite of space infrastructural companies despite critics arguing that space exploration gives no direct benefits to investors. Many investors are still holding on to stocks such as Redwire (RDW) which is down more than 50% over the last 6 months. Analysts believe that the space industry should reach $1 trillion in annual revenue by 2040, with costs of launch dropping 95% by then.

Thesis

In this article, I will explain why I am placing a hold rating on ASTRA stock. Astra Space is developing its launch services including the expansion of its low earth orbit operations to achieve its space services platform model. However, the company has been developing its launch capabilities since 2017 and in my view, this long time challenges future growth aspects. Further, Astra is yet to reach profitability but I expect the space services section to generate revenue in two ways. First is the launch and delivery of customer payloads to their intended orbits. The second way is by providing communication and constellation services through its space crafts.

Finances yet to find footing

Despite a limited history of operations, Astra’s accumulated deficit as of March 31, 2022, stood at $1.494 billion largely beset by negative cash flows and operational losses. The company’s cash position by the end of Q1 2022 stood at $161.5 million with marketable securities at $93.7 million. With its total cash at $255.2 million, it shows a slight improvement as compared to the FY 2021 when it announced $325 million in cash. This position is somewhat better than the first quarter since it already has more than half the cash it had accumulated in the entire year of 2021 with 3 quarters still to go in the year.

The company had no outstanding debt as of the year ending on December 31, 2021, in comparison to the FY 2020 when its debt stood at $71.1 million with a total of $59.8 million in the form of convertible notes. In its 10-Q the company expressed optimism that it had adequate liquidity to last it until the Q1 2023 or 12 months from March 31, 2023. However, the company used up $149 million in the TTM analysis of the cash used in operations and an additional $173.2 million in its capital expenditures. The total amount of cash used up in both operations and investments in the 12 months leading to March 31, 2022, was $322.2 million. With its current cash position at $255.2 million, it means that Astra has only 9 months left before it depletes its cash reserves and looks for additional capital.

Another way to look at it is that the cost of revenues for the 3 months ended on March 31, 2022, stood at $11 million, and its operating loss at an upside of $70.8 million. This cost of revenues included a launch services cost of $5.5 million for LV0008 and LV0009 and a write-down of $5.5 million of inventory relative to LV0010 through LV0014. This negative financial backdrop led to a net loss of $50.1 million somewhat exceeding the guidance range of $47.5 million.

Expected Launches

Arguably, Astra expects the calendar year 2022 to be a transformative era buoyed by an expanding product roadmap and scaled production. The main question in every investor’s mind is if the rocket launch technology is stable and reliable and if the company is minimizing failure risk. Astra’s CEO has reiterated his company’s stand to accelerate the number of launches through 2022. Despite not breaking even, Astra is in the process of selling over 50 launches. The company is in a phase where they not only have to increase the production rate of launches but also launch ports to minimize costs and overall expenditures.

In retrospect, there are few suborbital spacecraft clients would choose from apart from Astra Space. Blue Origin’s (BORGN) New Shepard and Virgin Galactic’s (SPCE) SpaceShip Two present formidable cases for consideration.

Back to NASA’s deal, Astra through its Rocket 3.3 was expected to launch the first two of six small “Time-Resolved Observations of Precipitation structure and storm Intensity with a Constellation of Smallsats” (TROPICS). This spacecraft was scheduled to study the formation and development of tropical cyclones almost every hour- about four to six times more than is possible with current satellites. The second stage of this low-cost booster malfunctioned meaning that Astra was unable to deliver the payloads to orbit. It was the 7 th launch of Astra’s small or low-cost booster and the 5 th failure reported by the company. Astra had planned three launches (of 6 small CubeSats) for NASA, two-at-a-time into 3 orbital planes.

Investors should note that the loss of the first two TROPICS satellites will not give the final blow to Astra’s mission. Details from NASA indicate that only four of the 6 satellites or two of the 3 launches from Astra need to work to meet the mission’s success criteria. NASA is getting a better deal with Astra than with other competitors such as SpaceX. The amount it would be charged for a single launch, it is paying for a series of launches, in this case, 3. In my view, Astra is working to fit into NASA’s economics while fielding a new capacity mission.

Apart from greater accessibility to space, Astra’s mission presents a low-cost alternative for scientists to send NASA science to space. On average, the Rocket 3 series has been noted to rake in around $2 million in revenue. A look at the unit economics shows that 25% of the gross margin received was entitled to materials.

Astra was awarded the NASA contract back in 2021 with the TROPICS mission contract valued at $7.95 million. At the end of 2021, Astra announced that it had signed customer contracts for contracted revenue for its launch services. This represented approximately 50 launches expected to occur through 2025.

The launch system 2.0 includes a new rocket 4.0 which is an improved version of the Rocket 3.3. According to Astra’s CEO Chris Kemp, the company is making factory investments including an infrastructural upgrade that will see production tilted to a weekly rate instead of the current monthly rate. The higher launch rate associated with the launch system 2.0 will help to satisfy spatial demand and allow the company to correct problems associated with the failed launch of Rocket 3.3. Astra’s roadmap also includes launches for LV10, 11, and 12 which are all expected in 2022.

Risks

Astra projects that the second quarter of 2022 will likely see a further decline in its adjusted EBITDA to between $58 and $64 million. We are also likely to see an increase in the basic share outstanding to the range of 267 million and 270 million in readiness for the issuance of new shares by December 2022. This increase is likely to present further dilution of the stock. Astra increased its total shares outstanding by 170.75% from March 2021 (at 95.4 million) to September 2021 (258.3 million).

Bottom Line

Astra’s mission presents a low-cost alternative for scientists to send NASA science to space as well as deliver payloads to orbit. The company is yet to break even with investors staring at further disillusionment after it failed to deliver the first two of 6 NASA payloads to orbit as of June 12, 202. Still, the company is working to deliver on its contract and advance on its launch system 2.0 and the Rocker 4.0 which present quicker and better alternatives. Astra’s roadmap also includes more launches such as for LV10, 11, and 12 which are all expected in 2022. We also expect the company to raise more money before Q1 2023. For these reasons, we suggest a hold rating for the stock.