November 1, 2017 04:01 AM GMT November 1st, 2017 Adam Jonas, CFA [email protected] +1 212 761-1726 Space: Armintas Sinkevicius, CFA, CPA [email protected] +1 212 761-1726 Investment Implications Simon Flannery [email protected] +1 212 761-6432 of the Final Frontier Benjamin Swinburne, CFA [email protected] +1 212 761-7527 Space: Investment Implications of the Final Frontier (12 Oct 2017) Patrick Wellington+ [email protected] +4420 7425-8605 Terence Tsui+ [email protected] +4420 7425-3095 Rajeev Lalwani, CFA [email protected] +1 212 761-8518 James E Faucette [email protected] +1 212 296-5771 Brian Nowak, CFA [email protected] +1 212 761-3365 Ravi Shanker [email protected] +1 212 761-6350 Kai Pan [email protected] +1 212 761-8711 Eva T Zlotnicka [email protected] +1 212 761-4075 Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report. + = Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications 1 with a subject company, public appearances and trading securities held by a research analyst account. Contributors 2 The Morgan Stanley Space Team Armintas Sinkevicius Autos & Shared Mobility Simon Flannery Telecom Services Ben Swinburne Cable & Adam Jonas Satellite, Autos & Media Shared Mobility James Faucette Communications Eva Zlotnicka Systems & Global Sustainability Applications Morgan Stanley Space Team Patrick Wellington Media & Internet Ravi Shanker Freight Transportation Terence Tsui Telecom Services Kai Pan Property & Casualty Brian Nowak Insurance Internet Rajeev Lalwani Aerospace & Defense 3 Source: Shutterstock, Morgan Stanley Research. Why Space? 4 A Confluence of Factors is Driving a New Space Race Private Launch Investors Costs National Satellite Security Technology Demand for Bandwidth 5 Source: Shutterstock, Morgan Stanley Research. The Reusable Rockets as an ‘Elevator’ to Low Earth Orbit… New York City Before the Elevator New York City After the Elevator 6 Source: Library of Congress, Shutterstock. SpaceX Sits at the Epicenter of the Disruption 7 Source: Shutterstock, Company Data, Morgan Stanley Research, Federal Aviation Administration, Equidate. United Launch Alliance includes Atlas V @ $158M and Delta IV @ $282M. Source: Satellite Industry Association, Morgan Stanley, Thomson Reuters. Morgan Stanley, Thomson Association, Source: Industry Satellite Global Space Economy: ~$350b → $1.1t+, CaseBull of~$1.75t →$1.1t+, ~$350b Space Economy: Global Global Space Economy ($t) $2.0t $1.75 $1.5t $1.10 $1.0t $0.62 $0.5t $0.35 $0.0t 2015 2016 2032e 2035e 2038e 2017e 2018e 2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e 2029e 2030e 2031e 2033e 2034e 2036e 2037e 2039e 2040e Bull Case Global Space Economy Bear Case 8 Most of the Value is Linked to Internet Bandwidth $1.1t Internet Aerospace & Defense $410b IT Hardware $180b $180b Telecom Services Media $130b Other $110b Global Space Communications $50b Systems Economy $40b Insurance $1b 9 Source: Shutterstock, Satellite Industry Association, Morgan Stanley Research. A Diversified Approach to Space: The Morgan Stanley “Space 20” Communications Systems Aerospace & & Applications Defense Software Internet Satellite Multi Multi Industry Semiconductors IT Hardware Property & Casualty Telecom Insurance Services 10 Source: Company Data, Morgan Stanley Research, Shutterstock. Global Space Economy 11 Base Case for Global Space Economy Growing at ~5.0% CAGR Global Space Economy ($MM) Consumer TV 1,250,000 Consumer Radio Consumer Broadband 1,000,000 Fixed Satellite Services 750,000 Mobile Satellite Services Earth Observation Services 500,000 Ground Equipment 250,000 Satellite Manufacturing 0 Satellite Launch Non Satellite Industry 2015 2025e 2030e 2035e 2040e 2020e Second Order Impacts 12 Source: Satellite Industry Association, Morgan Stanley, Thomson Reuters. Today’s Global Space Industry is Dominated by Consumer TV $44b, 13% Ground Equipment $113b, 33% Consumer TV Government $84b, 25% $98b, 29% Other 13 Source: Satellite Industry Association, Morgan Stanley. 2040 Global Space Economy Driven by Consumer Broadband Internet $109b, 10% $412b, 37% Ground Equipment $85b, 8% $103b, 9% Government Consumer TV Consumer $181b, 17% Broadband $214b, 19% Other 14 Source: Satellite Industry Association, Morgan Stanley, Thomson Reuters. Estimate ~10 Launches / Week at ~$20M / Satellite by 2040 Satellite Launches v. Cost to Launch 600 $80 450 $60 300 ~8% CAGR $40 150 $20 0 $0 2015 2020e 2025e 2030e 2035e 2040e Satellite Launches $ / Launch 15 Source: Satellite Industry Association, Federal Aviation Association, Space Flight Now, Morgan Stanley Research. The Demand for Bandwidth 16 Demand for Data Growing at Exponential Rate v. Cost of Access to Space Is Falling by Orders of Magnitude ↑ Improvements in Technology Global Population ↑ Processing Power Autonomous Cars Cost of ↓ Satellite Launch Cost Internet of Things Demand Access ↓ Satellite Manufacturing Cost Artificial Intelligence for Data ↓ Time to Market Virtual Reality Video 17 Source: Shutterstock, Morgan Stanley Research. Global Mobile Data Traffic in 2040 Will Be ~200x v. 2016 Global Mobile Data Traffic (PB / Month) 1,500,000 1,200,000 900,000 ~25% CAGR 600,000 300,000 0 2010 2015 2040e 2020e 2025e 2030e 2035e Mobile Data Traffic Mobile Data for Autonomous Cars 18 Source: Morgan Stanley Research, Cisco Visual Networking Index. Global IP Traffic in 2040 Will Be ~60x v. 2016 Global IP Traffic (PB / Month) 6,000,000 5,000,000 4,000,000 ~20% CAGR 3,000,000 2,000,000 1,000,000 0 2010 2015 2040e 2020e 2025e 2030e 2035e Global IP Traffic Data for Autonomous Cars 19 Source: Morgan Stanley Research, Cisco Visual Networking Index. Internet of Things Are a Key Driver of Future Data Demand Demand for Data in the World (PB / Month) 256,023,668 7,241 96,054 2016 Global Mobile Data 2016 Global IP Traffic Global Data for Autonomous Cars 20 Source: Morgan Stanley Research, Cisco Visual Networking Index. Capacity for Autonomous Cars @ ~30t Miles / Year in the World in 2040 (Morgan Stanley Estimate) x 4 TB of Data / 90 Minutes (Intel and Idealab on Google’s Self Driving Car) @ 25 mph. Improvements in Technology Lowering the Cost to Access Space Cost Curve for Improvements in Satellite Technology ViaSat 1 in 2011 @ $1.5M / PB / Month ViaSat 2 in 2017 @ 50% Reusable Rockets* @ 14% Mass Production* ViaSat 3 in 2020 @ 6% @ 17% 0 6 9 … Technology Years Advancement? 21 Source: Company Data, Morgan Stanley Research. By 2040, the Cost of Wireless Data Will be <1% v. Today US Demand for Mobile Data v. $ for Data 8,000,000 $0.50 $0.40 6,000,000 $0.30 $ perMB 4,000,000 $0.20 Petabytes / Year 2,000,000 $0.10 0 $0.00 2010 2015 2020e 2025e 2030e 2035e 2040e Wireless Data Usage (PB) $ per MB 22 Source: Morgan Stanley Research, CTIA. New Satellites Faster v. Legacy Wireline and Legacy Satellites Advertised Network Speeds (Mbps) 100 100 100 50 30 14 12 8 Cable 5G ViaSat 3 OneWeb ViaSat 2 4G ViaSat 1 DSL 23 Source: Company Data, Morgan Stanley Research, FCC Measuring Broadband in America, OpenSignal, International Telecommunication Union. New Satellites Have Lower Latency v. Legacy Satellites Network Latency (ms) 600 42 50 50 1 15 25 5G Cable Space X DSL 4G OneWeb ViaSat 1 24 Source: Company Data, Morgan Stanley Research, FCC Measuring Broadband in America, Cable Labs. Source: Company Data, Morgan Stanley Research, The World Bank, United Nation, International Telecommunication Union. Telecommunication International Morgan Nation, Stanley Data, Bank, United Source: The Company World Research, Expanding the TAM with Additional Bandwidth: Geographies New Bandwidth: Additional the TAM with Expanding Incremental Revenue Opportunity for Broadband ($b) $500 $403 $383 $400 $362 $342 $323 $303 $283 $300 $264 $245 $226 $206 $187 $200 $169 $150 $132 $114 $96 $78 $100 $60 $43 $26 $8 $0 2024e 2025e 2035e 2019e 2020e 2021e 2022e 2023e 2026e 2027e 2028e 2029e 2030e 2031e 2032e 2033e 2034e 2036e 2037e 2038e 2039e 2040e United States Africa Latin America Europe China India Rest of World Total Revenue 25 Global Broadband Penetration Goes From ~50% to ~75% % Broadband Penetration 88% 90% 80% 80% 76% 77% 77%74% 65% 60% 61% 53% 54% 48% 30% 22% 2017 2040e United States Africa Latin America Europe China India Rest of World Global 26 Source: Company Data, Morgan Stanley Research, International Telecommunication Union. Expanding the TAM with Additional Bandwidth: New Products & Services Planes Maritime Trains & Trucks Automobiles 27 Source: Shutterstock. Potential Disruption for Space Freight Transportation 28 Source: Company Data, Morgan Stanley Research. The Key Players 29 The Key Players Consumer Consumer Consumer Fixed Satellite Mobile Satellite Low Earth Orbit Television Radio Broadband Services Services Satellite Networks Satellite Satellite Earth Megatech Manufacturing Launching Observation United States France United States France United States Germany United States China JSC Information Satellite Launch Proton Satellite Systems Vehicle United States Russia Russia India Soyuz United States France Russia Source: Company Data, Morgan Stanley Research. AT&T and Intelsat covered by Simon Flannery. DISH and Sirius XM covered by Ben Swinburne. Sky, Eutelsat, and SES covered by Patrick Wellington. Inmarsat covered by Terence Tsui. Boeing and Lockheed Martin covered by 30 Rajeev Lalwani. Amazon, Facebook, and Google covered by Brian Nowak. Getting to Know OneWeb and SpaceX 720 Low Earth Orbit Satellites @ Ka + Ku Band (Approved by the FCC) @ 150kg @ 1,200km 7,518 Low Earth Orbit Satellites @ V Band • Investors 4,425 Low Earth Orbit Satellites @ Ka + Ku Band @ 850 lbs.