[Via Satellite 03-03-0214] DigitalGlobe<\/b>\u2019s stock received a serious punishment after the company missed its guidance for revenue during its forth quarter earnings. After reporting $169 million in revenue \u2014 a miss of roughly 10 percent \u2014 the stock reacted viscerally, dropping 27 percent in a matter of hours. But while the company\u2019s earnings failed to meet expectations, the reaction to DigitalGlobe on the stock market appears to be more grounded in emotion rather than being indicative of the company\u2019s current and future performance.<\/p>\n
\u201cWhile the stock was clearly due for a fall on this news, we believe the sell-off was well overdone,\u201d Chris Quilty, senior vice president of Raymond James <\/b>said in a research report. \u201cMagnified by the fact that many investors bought the stock last fall following the company\u2019s Investor Day, believing that near-term results were in the bag and the commercial growth story was well underway.\u201d<\/p>\n
Commercially, DigitalGlobe remains stable but it expected significant growth in this part of its business, which it failed to reach. The company struggled to close international deals in emerging markets, which precluded DigitalGlobe\u2019s ability to meet revenue expectations. Nonetheless, the company\u2019s stability as an Earth observation company hinges more on the government market than commercial, as more than half of its revenue comes from a contract with the U.S.<\/b> National Geospatial Intelligence Agency<\/b> (NGA)<\/b>. This furthers the belief that the stock market\u2019s behavior was more a reaction than an effective gauge. Edward Jurkevics, an analyst at Chesapeake Analytics Corp<\/b>., suspects that the reaction was an intentional way to display anger at the company\u2019s incorrect guidance.<\/p>\n
\u201cTheir earnings per share were up and everything else was good,\u201d said Jurkevics. \u201cThere was no other reason for this to happen other than that act. There was maybe a group of 10 to 20 of slight malcontent, but they represent hedge funds and other vehicles, or they are analysts, and they flexed their muscles a bit.\u201d<\/p>\n
During the earnings call, DigitalGlobe announced the acquisition of Spatial Energy<\/b>, a company that sells imagery and analytics to the oil and gas industry. Though likely to be a small revenue contributor \u2014 as the company brings in only $5 to10 million per year \u2014 DigitalGlobe is pursuing acquisitions as a way to increase its share of the commercial market. With the merger of GeoEye<\/b> nearly complete, future M&A activity is very much expected.<\/p>\n
\u201cI think this is something the company is going to be doing more of,\u201d said Chardan Capital Markets<\/b> analyst James McIlree. \u201c[DigitalGlobe] will be looking for these vertical applications that it can incorporate into its business so it can be an imagery provider but, more importantly, take that imagery and provide analytics or knowledge or some sort of actionable intelligence to the customer base \u2026 they have mentioned a number of verticals that intrigue them: oil and gas is one, mining is another, and so is insurance.\u201d<\/p>\n
The delay of the World View 3 satellite has also had a negative impact on earnings projections, as the date for launch has been pushed back to August, and the spacecraft is not expected to be operational until Nov. 15. According to Quilty, the delay will countermand roughly $25 million in 2014 revenue recognition, but once operational will prompt a \u201csignificant increase in revenue\u201d for 2015 and 2016. The satellite\u2019s ability to revisit locations in under a day and cover up to 680,000 square kilometers per day in 31-cm panchromatic resolution, 1.24-meter multispectral resolution and 3.7-meter short-wave infrared resolution make it a powerful addition to DigitalGlobe\u2019s constellation.<\/p>\n
\u201cWhen they launch World View 3 they are going to have a lot more capacity on the high-end, and they can take some of their low-end capacity and be more either price competitive or selective,\u201d said McIlree. \u201cOr they can try to take that capacity and offer something that some of the other guys don\u2019t.\u201d<\/p>\n
DigitalGlobe\u2019s high-end products go mainly to the government. Last year, the company petitioned NOAA<\/b> to allow the commercial sale of 30-cm resolution imagery. Today it is not able to sell anything more detailed than-50 cm. DigitalGlobe has a lot of strength in this market thanks to the NGA\u2019s dependency on its imaging data. An easing of restrictions would allow DigitalGlobe to grow in this direction, which may be easier than growing the low-resolution end of its business. New constellations from Planet Labs<\/b> and Skybox Imaging<\/b> pose a small but significant threat on this level.<\/p>\n
Jurkevics suspects that these new players could pose additional threat to DigitalGlobe\u2019s international commercial business \u2014 the area where it struggled the most this year. Pointing out that Skybox has signed contracts with companies in Japan and the UAE, the tradeoffs that come from operating small satellites may take away from DigitalGlobe\u2019s sales, especially if they want to increase prices.<\/p>\n
\u201cThey are going to want all their ground station partners [to take] plus ups on their contracts for their new satellite,\u201d said Jurkevics. \u201cThe first place this will show up is the softening in relative power they have with foreign ground station customers.\u201d<\/p>\n
According to McIlree, how DigitalGlobe responds to this part of the market will have a veritable impact on its financial results, but warns not to give it too much sway.<\/p>\n
\u201cObviously it can have an impact on their financial results and their stock price. They said that that part of the market is only 5 to 6 percent of their revenue base, but it can have a big result,\u201d he said. \u201c[However] it\u2019s bread and butter business is not in that end of the market. I don\u2019t want to minimize the threat that they face at the low end, nor do I want to minimize the financial impact it can have, but that\u2019s the tail not the dog.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
[Via Satellite 03-03-0214] DigitalGlobe\u2019s stock received a serious punishment after the company missed its guidance for revenue during its forth quarter earnings. After reporting $169 million in revenue \u2014 a miss of roughly 10 percent \u2014 the stock reacted viscerally, dropping 27 percent in a matter of hours. But while the company\u2019s earnings failed to […]<\/p>\n","protected":false},"author":1,"featured_media":78301,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[2],"tags":[],"class_list":["post-78298","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"acf":[],"_links":{"self":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/78298"}],"collection":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/comments?post=78298"}],"version-history":[{"count":0,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/posts\/78298\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media\/78301"}],"wp:attachment":[{"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/media?parent=78298"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/categories?post=78298"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/starpath.global\/blog\/wp-json\/wp\/v2\/tags?post=78298"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}