The Coming Satellite Image Boom

One of the fun parts about looking for profitable stocks is that you come across industries that you never knew existed. For example, there are two publicly traded companies— GeoEye (GEOY) and DigitalGlobe (DGI)—that operate in the field of providing satellite images for customers. Think Google Earth.
This is an appealing business because it has many applications from oil & gas to disaster rescue and government intelligence. What strikes me is that this could be a great business model because the entry costs are high (getting a satellite up there) and the variables costs are low (click!).
Last April, the Denver Business Journal reported that business might soon get much better for this sector:

A new government intelligence strategy to buy more commercial space-surveillance images could drive growth and satellite development for two Colorado employers that dominate the industry in the United States.
U.S. military and spy agencies will buy more imagery from commercial vendors to use as unclassified intelligence they can publicly disseminate or share with allies. The federal government also will scale back earlier plans to build its own satellites for such purposes, making commercial vendors more important to its long-term intelligence strategy.
That’s according to Dennis Blair, director of the Office of the Director of National Intelligence, whose office oversees all of the nation’s 16 intelligence-gathering agencies, such as the CIA, and who advises the president.
Longmont-based DigitalGlobe Inc. and Dulles, Va.-based GeoEye Inc., which employs 130 people in Thornton, are the only domestic companies that gather and sell high-resolution images taken by orbiting satellites.
Government contracts are already the companies’ largest revenue generator, but Blair’s directive is seen as an unprecedented commitment.
“The federal government appears to have decided to stop dating the industry and marry it,” said Jeff Evanson, a commercial satellite industry analyst with Minneapolis-based Dougherty & Company LLC.

Here we are a year later and things are going well. GEOY recently reported Q4 earnings of 55 cents a share compared with a loss of 20 cents a share a year before. Revenue jumped 80% to $73.2 million. The company also said it got $215 million in financing from Cerberus Capital Management LP which it will use to get its new satellite off the ground.
I’m curious if the best way to play this is to invest in both stocks.

Posted by on March 23rd, 2010 at 11:02 am


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