Viasat (NASDAQ:VSAT) is a satellite technology company that primarily provides bandwidth and Internet services. These high-speed services are aimed at consumers, businesses and airlines. The company behind the stock VSAT also provides connectivity systems to trading networks. Its third segment is government related in which VSAT produces secure government communication systems.
Viasat satellites are defined as geostationary, or GEO. This means they orbit about 22,000 miles above the earth. As a result, they provide a very large area of coverage compared to low Earth orbit, or LEO, satellites, which operate just 300 to 600 miles above Earth.
The trade-off is higher latency, which means the distance a satellite sends its signal can affect the broadband speeds achieved all the way to the end user on earth. More on that later.
VSAT stock and satellites
The company currently has three satellites, each in geostationary orbit, and plans to launch three more.
Here is an overview of its current fleet:
- WildBlue-1 was launched in 2007, an older satellite that Viasat purchased in 2009. This satellite offers limited coverage at lower than optimum download speeds.
- Viasat-1 was launched in 2011 and was considered technologically advanced at the time. The total capacity has increased considerably compared to that of the WildBlue satellite.
- Viasat-2 was launched in 2017 and is today a key operational asset for the company. Viasat-2 has almost twice the bandwidth of its predecessor and covers a large part of the population of the Western Hemisphere.
Viasat-3 is the company’s next generation of satellites and consists of three units. In theory, this gives Viasat almost complete global coverage by adding most of Europe and the Asia-Pacific region.
Next-generation satellites will have eight times the capacity of the existing fleet when launched in the first quarter of 2022.
An engine of growth
In-flight connectivity (IFC) is a rapidly growing revenue stream for Viasat. At the end of 2020, the company had 1,500 commercial aircraft as customers for its on-board internet service for passengers.
The market share is estimated at around 30%.
There are approximately 26,000 commercial aircraft in the world today and is should grow to 35,000 over the next 10 years.
Merrill Lynch is positive about this segment and recently said:
“IFC’s rebound clearly benefiting ViaSat given ViaSat’s strong share saw a sharp increase in the number of aircraft with ViaSat IFC enabled during the period, with around 1,400 of the 1,550 installed fleets active during the period. period, an increase of 84% year-over-year, and a sequential increase of 9%. We expect this to continue to show sequential improvement through 2022, with new facility growth also growing. The Delta Air Lines contract ramp will be a key contributor for FY22. “
LEO vs GEO
The argument that satellite orbit is the best and who will win the satellite broadband game has been debated in the investment community and internet discussion forums for many years.
LEO may have advantages in terms of latency and smaller satellite launches. But is it a good business model?
A LEO system, such as SpaceX’s Starlink, could potentially require from 30,000 to 42,000 satellites for worldwide coverage. This is the same global coverage that Viasat can achieve with six satellite units. The expected useful life of a LEO unit is low, just two or three years. In comparison, a larger, more efficient GEO satellite can last 15 years.
Plus, with the abundance of low-earth orbiting satellites from Starlink and others, space pollution is becoming a reality. Collisions represent a real risk for LEO satellites. VSAT is the environmentally friendly solution due to the low number of satellites required and their high altitude positioning.
Performance of VSAT shares
Viasat recorded strong growth in the quarter ended June 30, 2021, with revenue up 25% and EBITDA up 52%.
The Commercial Networks segment grew revenue 36% year-on-year, benefiting from the strong pandemic recovery in the airline in-flight connectivity market.
Meanwhile, the company provided a mid-term outlook of 20% average revenue growth from 2021 to 2023, and adjusted EBITDA for teens over the same period.
The company will be in investment mode for the next two to three years with capital expenditures of around $ 1 billion for 2022 and 2023. This creates high levels of depreciation and masks current GAAP earnings per share and potential. future profit.
But for patient investors, when capital spending declines and free cash flow increases in several years, VSAT stocks could be a multi-bagger. The next high margin, high ROC recurring income model will deliver a massive increase in profits that will be strongly reflected in the stock at some point.
As of the publication date, Tom Kerr does not hold a position in any of the stocks mentioned in the article. The views expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
Tom Kerr has worked in the financial services industry for over 25 years. He is currently a Senior Portfolio Manager at Rocky Peak Capital Management. Previously, he was Director of Investments and Director of Research of SGL Investment Advisors, and held several positions in other investment-related organizations. Mr. Kerr also contributed to the writing of La Rue.com, RagingBull.com and InvestorPlace.com. He is a CFA charter holder and earned a BBA in finance from Texas Tech University.
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