This small startup with space has a massive revenue opportunity

The US Space Force is building a Proliferated Warfighter Space Architecture (PWSA) missile defense system comprising hundreds of satellites layered in both “tracking” and “transport” orbits around the globe.

There’s just one problem: There aren’t enough companies making thrusters to power all the satellites the Space Force needs. And as Payload Space reported last week, this is “putting pressure on the small supply chain.” Companies making the necessary Hall-effect thrusters (“HETs” — ion thrusters that use an electric field to accelerate the thruster and produce thrust) include America’s Busek and Astra (both now private according to data from S&P Global Market Intelligence), as well as Russia’s Fakel LLC (which isn’t a great choice these days when you’re buying for the US military).

But there’s good news here, too — and possibly an investment opportunity for space investors.

Reconnect to save

In July, space infrastructure specialist Rewiring (RDW 1.88%) announced a plan to dive into the market for advanced booster technology with the specific goal of providing “reliable, high-volume production to support DoD’s small satellite supply chain.”

Redwire said it would do so in partnership with privately held Phase Four. Based on an existing design provided by NASA, the partners will design a simplified version more suitable for mass production, which they call the “Valkyrie Thruster.”

If they succeed, the demand should be there to meet them. According to Redwire’s chief technology officer, Al Tadros, there is currently a demand for about 100 boosters per month, and demand could explode tenfold as more constellations of small satellites are launched into orbit. To meet this demand, Redwire aims to begin production in 2025 and be able to produce 300 thrusters in its first year — giving the company a 25 percent market share in thrusters.

What the HET Thruster Market Means for Redwire

Now, how much would that be worth to Redwire?

It’s actually not an easy question to answer, because in a small and specialized market like this, currently dominated by private (and foreign) countries, HET thruster prices are hard to come by. A 2023 survey by MIT, however, noted that the costs of building propulsion into a satellite averaged 8% of the cost of the satellite itself.

Furthermore, we know that the Space Force pays up to $50 million for each “tracking layer” missile detection satellite it buys, while “transport layer” satellites average closer to $20 million dollars each. Very Therefore, roughly assuming that a small Space Force satellite costs $35 million, and the boosters are 8% of that cost, we can begin to estimate the revenue opportunity for Redwire at $2.8 million per satellite.

And given that PWSA expects to count at least 500 satellites in total (and those satellites need to be replaced every few years), that leads to an eventual $1.2 billion market opportunity.

Assuming Redwire manages to capture 25% of that market, that amounts to $300 million for Redwire — or about the same amount of money the company currently brings in annual revenue for all his activities.

What it means for investors

Of course, this figure assumes that the HET thruster market is growing as expected. Investors should also be aware that this is not an annual income number; Space Force PWSA satellites are built for a five-year lifespan, so you’ll need to divide by five for an accurate estimate of annual revenue.

And since Redwire partners with Phase Four and doesn’t own it outright, it makes sense to assume that at least some of that revenue stream will go to Phase Four, and not Rewire.

Even with all these caveats in mind, this looks like an attractive market for Redwire to enter. Valued at just 1.3 times sales, currently unprofitable but generating positive operating cash flow and expected by most analysts to turn free cash flow positive as soon as next year, Redwire is a worthwhile space stock followed.