While Google (GOOG) said imaging was the main reason it ponied up $500 million in cash for satellite start-up SkyBox Imaging this week, the deal also plays into the technology giant’s vision of enabling global high-speed Internet service via satellite. GOOG’s bold satellite moves illustrate a rapidly growing market opportunity that also bodes well for the right satellite companies.
First some quick facts: SkyBox builds low-cost imaging satellites that can capture enhanced pictures and maps; it has also developed software that can analyze massive amounts of imaging data. But for the world’s largest Internet search company, it’s hard to justify spending $500 million just to deliver clearer maps.
GOOG was already chasing satellite Internet — earlier this month it announced plans to spend at least $1 billion on 180 low-earth-orbiting (LEO) satellites to bring high-speed Internet services to areas of the world that don’t have wired or cellular connectivity to the Internet.
That said, the hottest opportunity for investors lies not with GOOG, but with publicly traded satellite companies that have deep expertise and assets in place. Some of these companies have been waiting decades for the “killer app” that would pay off big, and high-speed satellite Internet is it. That’s why the commercial communications satellite market will grow to $58 billion by 2022, according to a report from market research firm Forecast International.
Given the fast-growing opportunity for high-speed Internet via satellite, here are three satellite companies that are poised to take off now:
Satellite Companies: Intelsat (I)
Intelsat (I) is a seasoned competitor among satellite companies: It has been delivering a broad spectrum of fixed and mobile broadband solutions for 50 years. Intelsat has a fleet of more than 50 satellites in fixed geosynchronous orbit, as well as a terrestrial infrastructure that includes eight owned teleports, fiber connectivity and points of presence in almost 40 cities.
This week, Intelsat announced a strategic agreement with SpeedCast, a global satellite communications and maritime service provider:
“Under the multi-year agreement, Intelsat will provide SpeedCast access to Intelsat’s global C-band and Ku-band satellite capacity as well as to its terrestrially managed network, IntelsatOneSM. The agreement will also provide SpeedCast access to Intelsat’s global broadband mobility network, which is comprised of 13 customized Ku-band mobility beams on ten satellites spread around the geostationary belt.”
SpeedCast will use Intelsat’s satellites and terrestrial network to deliver enhanced broadband and mobility solutions to the Maritime, Oil & Gas and Enterprise markets with expanded coverage and greater flexibility.
Intelsat stock is down about 4% from its April 2013 IPO, which raised $347.8 million and enabled Intelsat to get rid of a lot of debt. The stock has a forward P/E of 8 — comparatively low for satellite companies. Its vast satellite fleet, which covers nearly 99% of the globe, will be a growth engine for the company in the second half of the year and beyond.
Satellite Companies: Iridium Communications (IRDM)
Iridium Communications (IRDM), which was born from the mobile satellite craze in the 1990s and backed by Motorola (MSI), crashed and burned its first time out — filing for bankruptcy in 1999. Although it cost north of $5 billion to launch a network of 66 low earth orbiting satellites, investors actually were able to buy all its assets for the miserly sum of $25 million.
A leaner, more agile Iridium Communications rose from the ashes and now is well positioned to cash in on the global satellite Internet opportunity. IRDM is clearly positioning itself for consumer and business connectivity via satellite, as well as staking a claim in the Internet of Things. Last month, IRDM penned an agreement with SkyBitz to support its cloud-based SkyBitz as a Service (SBS) offering. Iridium will provide satellite connectivity for SkyBitz’s machine-to-machine (M2M) communications such as remote asset tracking and information management. IRDM also is working with the U.S. Army on the Enhanced Mobile Satellite System (EMSS) position location-based tracking device.
IRDM stock has gained 27% year-to-date, but still looks undervalued with a price-to-earnings-growth (PEG) ratio of 0.75 and a forward P/E of 9.8. IRDM’s most impressive stats might well be a gross profit margin of more than 70% and a manageable debt load.
Satellite Companies: ViaSat (VSAT)
ViaSat (VSAT) builds broadband satellite and other wireless networking systems for consumers, governments, enterprises, and the military. VSAT views the high-speed satellite-delivered Internet to be a key priority, as shown by its Exede high-speed Internet service, which enables customers in rural areas to access the Internet at download speeds of 12 Megabits per second (Mbps).
Building on that service, VSAT launched Exede Business last month, which boasts download speeds of up to 15 Mbps and 24/7 U.S. customer support. ViaSat also offers communication system design and a number of complementary products and technologies.
This week, VSAT announced the acquisition of privately held NetNearU, which developed a network management system that can extend the reach of Exede and deliver better satellite Internet performance. ViaSat also is taking advantage of the Internet of Things buzz, launching a global L-band satellite service aimed at the M2M market.
VSAT stock has been roughed up lately — down about 21% over the past three months. That said, the company has a solid business strategy and impressive revenue growth. VSAT has a PEG ratio of 0.81, which indicates it could be undervalued. I expect this stock to get a boost from broader satellite broadband and M2M trends in the second half of the year. Now would be a good time to buy VSAT stock on the dip.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.