BlackSky Stock: Low-Latency Geospatial Intelligence
If you can figure out what motivates someone, you’re in a much better position at the negotiation table. In the case of special purpose acquisition companies (SPACs), you have three stakeholders at the table – the sponsor who gets paid millions if any deal gets done (sponsors have seen average returns of +958%), the company going public which will receive 100s of millions of capital with little effort, and the retail investor who becomes everyone’s bitch. The motivation for the sponsor and startup is always to get the deal done. For them, little matters after that.
“SPAC Rout Erases $75 Billion in Startup Value,” was the title of a WSJ article yesterday which was published a year and a month after we wrote about How SPACs Reward Everyone Except Retail Investors. In the WSJ article, a few sorrowful characters are introduced, investors who thought SPACs were the road to getting rich quick. They’re not, and it’s likely to get a whole lot worse.
The reason we continue to write about SPACs is because some are decent companies, Ginkgo Bioworks and Planet being a few we’re planning to invest in once the dust settles. Today, we’re going to write about a space SPAC called BlackSky.
About BlackSky Stock
Founded in 2013, Seattle’s own BlackSky used to belong to a firm called Spaceflight Industries, but has since ventured out on its own. According to the company’s website, they’ve taken in around $250 million in funding over the years. Their latest round came in the form of a $50 million loan from Intelsat, a company that’s currently trying to restructure its way out of bankruptcy. That was back in late 2019 when BlackSky’s CEO said the money was meant to, “help BlackSky meet its goal of deploying a 16-satellite constellation by 2021.” Here’s what they said in November 2019:
Four 1-meter resolution imaging satellites are in service today and 20 more are in production.Credit: SpaceNews
According to the February 2021 SPAC deck, they currently have “5 satellites on orbit / 16 in production. Two years after that $50 million raise, and they’ve added just one more satellite to their constellation and decreased their production queue by four units. We’re not sure what to make of that, but forecasts that don’t come to fruition are a huge red flag, especially when that’s pretty much all SPACs do – paint pretty pictures of what their business will look like in the future.
While imagery brought in $3 million last year for BlackSky, this year that number is expected to reach $18 million (more on this shortly). Like every SPAC we look at, the year they debut is the year everything comes together.
The above is from BlackSky’s February 2021 SPAC deck with a footnote that says the actuals “are still being audited,” while the below is from a deck they filed with the SEC just days ago.
Looks like they finished the auditing process and lost a few million in the process. You’ll also notice their $18 million in 2021 revenues from imaging has fallen to $11 million, while the overall revenues number has dropped by $6 million. It’s the sort of malarkey we’d expect from a SPAC offering whose glossy deck talks a lot about the total addressable market opportunity (TAM) opportunity without once touching on how BlackSky stacks up against the 500-lb gorilla – Planet.
The real-time element seems to be BlackSky’s unique advantage. For example, Planet talks about “high-resolution images and insight delivered less than three hours from capture.” BlackSky claims a 1.5-hour latency from capture to delivery. There are certainly use cases where delivery imagery 1.5 hours quicker would be useful, war being one of them.
All of BlackSky’s 2020 revenues came from 14 “defense and intelligence” customers, though we’re told that’s changing as their number of customers jumps to 50 this year, about half being commercial. Companies that are subject to U.S. government budgets qualify as riskier than those that don’t. They’re also far less transparent about what they get up to. About 40% of BlackSky’s employees have security clearance, and they’ve gotten in bed with Palantir as an investor, so it’s clear they’ll be continuing down the defense contractor path. Whether or not they can diversify outside government contracts remains to be seen.
At this point, we’d start delving into things like customer concentration risk (five customers accounted for 74% of 2020 revenues), run rates and business model (the majority of their customer contracts are government contracts which can be terminated for any reason), things of that sort, but there’s not much point in continuing. BlackSky is not a company we’ll be investing in, mainly because we’d rather stick with the leader in geospatial intelligence – Planet.
BlackSky vs. Planet vs. Spire Global
If you’re going to invest in any emerging technology theme, you want to find the leader as soon as possible. Oftentimes, a leader may not yet have emerged, or multiple leaders will be vying for first place. In the case of geospatial intelligence, the clear leader is Planet. Here’s a visual comparing three publicly traded geospatial intelligence stocks by revenues and satellites in orbit.
How difficult would it be for Planet to offer what BlackSky offers? What technology does BlackSky have that allows them to process imagery faster? Once a satellite captures an image, getting it to earth and doing any post-processing shouldn’t take that much longer. We’re not convinced that what BlackSky does is superior to what Planet does. Just remember, Planet’s data set is 10X larger than all their competitors combined. Data rules, and that’s the sort of competitive advantage we’re looking for.
When it comes to valuations, here’s how these three companies come out using our simple valuation ratio (we’re using the latest actual revenue numbers).
2,700 / 113 = 24
- Spire Global
1,750 / 28.5 = 61
1,477 / 22 = 67
We won’t touch any stock with a simple valuation ratio over 40 because we’re just paying way too much for future growth potential. In the case of both BlackSky and Spire Global, both companies are very richly valued. (Note that Spire jumped 30% today for no discernable reason, so that helps explain the rich valuation.) BlackSky’s latest 2021 revenue target is $40 million. Investors need to hold their feet to the fire and make sure they hit those aggressive targets given how richly valued the transaction is.
The SPAC BlackSky plans to merge with is called Osprey Technology Acquisition Corp. (SFTW). If you YOLO your savings away into any SPAC with a pulse, then you’ll probably want to wait for the merger to get approved first. Until that happens, you won’t be holding shares of BlackSky. A meeting is said to be taking place this week to approve the merger, after which the newly combined company is expected to be listed on the NYSE under the new ticker BKSY.
A number of readers asked that we cover BlackSky implying it was something worth looking at. From where we’re sitting, it’s not. We’ve now covered three publicly traded geospatial intelligence stocks, and one has emerged as a clear leader. When you find a leader, that’s where you place your chips. Rooting for the underdog is fun during boxing matches, but it’s not somewhere risk-averse investors like to put their chips.
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