Eyes in the sky (11/9/22)

Good morning, Payload readers. Programming note: We’re off this Friday for Veterans Day. Shout out to all of you who have served in the United States Armed Forces.

In today's newsletter:📈 DB, $PL, & $BKSY🧠 Cognitive contracts 💸 The term sheet

Was this email forwarded to you? Sign up here.

DB’s Eyes in the Sky

Deutsche Bank has initiated coverage on Planet ($PL) with a $7 price target and BlackSky ($BKSY) with a $3 target, issuing buy ratings on both companies, according to a note seen by Payload.

Why EO? Space technology is a difficult and capital-intensive endeavor, which raises red flags for risk-averse investors (and especially when frothy markets are no more). But DB believes that Planet and BlackSky have a track record of generating revenue and avoiding pitfalls that have historically plagued the sector.

DB pulled numbers from Euroconsult and Allied Research to assess EO’s current TAM, or total addressable market, at ~$6B. The bank expects that to grow to $10B by 2025.

• Over the coming decades, DB expects the TAM to grow by up to 6x, topping out somewhere between $19B and $40B.

• This growth estimate is driven mainly by increased commercial adoption in the energy, agriculture, and defense sectors, as AI and analytics for EO data get more sophisticated.

THE platform: Planet’s global, daily coverage through its in-house constellation, its ability to cheaply and quickly iterate on its satellite design, and the depth of its offerings from raw data to packaged analytics caught DB analysts’ eyes.

“Planet in our view represents an EO platform with multiple solutions to cater to [the] widest range of customers especially on the commercial side, underpinned by [a] best-in-class management team,” the analysts wrote. “Its highly recurring revenue profile should eventually command a valuation premium in our view, similar to leading software companies.”

The company’s key value-add in the sector is its wide coverage, mapping more than 300M sq km and generating ~30 TB of data per day.

• The resolution of that data is lower than some competitors who focus on tasking their satellites, including Maxar, but Planet’s constant mapping fills a different need, DB wrote.

• DB noted that Satellogic is also planning to deploy a constellation that can scan the globe in higher resolution, but casted doubt on its ability to compete with Planet in the long run. “We suspect this may be a redundant effort as scanning a large area of the globe at such high resolution does not yield tremendous incremental value,” the analysts wrote.

Planet SPAC’d last December, commanding a post-merger enterprise value of $2.8B. At the time of this writing, $PL’s market cap has fallen by nearly half and sits at ~$1.46B. In FY24, DB expects its revenue to reach $275M, implying 44% growth YoY.

The defense specialist: BlackSky’s value comes mainly from its ability to sell into the defense and intelligence sector. DB flagged two main justifications when explaining its rating:

1. Spectra AI, BlackSky’s in-house software that generates analytics from a wide range of data sources

2. A track record of winning lucrative government contracts (which BlackSky touted this week in its earnings report)

BlackSky’s valuation has dropped dramatically since its Sept. ‘21 de-SPAC. The transaction valued the firm at ~$1.5B; its market cap now sits at ~$202M. DB is less bullish about BlackSky than Planet as it “has not been as consistent of an operator, running behind its original deal forecasts, but we think management has turned a corner following the NRO contract award.”

Still, the analysts anticipate dramatic growth in $BKSY revenue. The bank predicts $66M in revenue this year (vs. $38M last year).

Light at the end of the tunnel? It’s been a rough year for space companies that took a chance on the public markets. But as some of the CEOs are fond of telling us, not all space SPACs are created equal. And as DB’s analysts wrote, a bottom may be in sight. The bank highlights that a few companies are trading at cash value or below. Others, like Planet and BlackSky, have seen shares soar skyward after large contract awards.

“Considering the infancy of the industry, investors are certainly prudent to question how many endeavors will fail (déjà vu dot-com bubble) but these two Earth Observation companies actually have real + lucrative contracts to build a highly scalable software business around,” DB wrote.

Cognitive Space Wins Two DoD Contracts

Cognitive Space inked a pair of contracts with the Pentagon on Tuesday to automate and improve how quickly information can be shared in space.

A first

The SBIR Phase I contract with the Space Development Agency is the company’s “first engagement” with the Space Force office focused on quick development cycles and proliferated constellations, Cognitive Space founder and CEO Guy de Carufel said.

The Houston startup uses AI to quickly communicate with satellites. The USSF contract tasks Cognitive Space with developing algorithms and hardware to make sure SDA can quickly share information in orbit on missions, including missile detection and early warning data.

“SDA has been mostly focused on deploying experimental satellites to test payloads and laser communications…but more at the hardware level,” de Carufel said in an interview. “They have a long term vision to automate a lot of these systems [and] they see us as a way to get ahead of that.”

Cognitive Space is handling the machine-learning piece of the $275,000-contract, while its partner, Southwest Research Institute, will take the hardware lead.

A follow-on

Cognitive Space also received a $1.2M contract from the Air Force Research Lab to continue to develop its Cognitive Interference Tasking product, which will allow the military to autonomously task satellites and improve space situational awareness. This contract builds on a $1.5M award the company won in 2020 to begin developing the technology for the AFRL’s hybrid space architecture.

What’s next?

De Carufel said the non-dilutive DOD grants are further developing technology that’s directly applicable to the company’s commercial offerings as well.

“This effort with the Air Force is allowing us to see how we can help the market as whole connect different devices and different sensor types to really give you a full view from different dimensions of what’s going on,” he said.

Sponsored

CesiumAstro's Answer To Your Space Comms Needs

CesiumAstro builds high-throughput, software-defined phased array communications payloads for airborne and space platforms—including satellites, missiles, UAVs, and more.

Their full-stack, multi-mission hardware and software products enable a full range of commercial, government, and defense applications.

Ideal for satellite and airborne systems when a rugged, reliable, and low-profile solution calls, active phased arrays provide a compelling alternative to mechanically gimbaled or fixed-beam options.

Their natural resilience to jamming, lower probability of intercept, and having no moving parts enable a wide range of unique missions and operations.

In Other News

• Cygnus kept on chugging along to the ISS with one of two arrays deployed, and thankfully, had enough power to reach the station. The cargo freighter was caught by a robotic arm and docked with the ISS early this morning.

• Viasat ($VSAT) reported $744.8M in Q3 revenue (+6% YoY), and is targeting Q1 2023 for the ViaSat-3 Americas satellite launch.

• Redwire ($RDW) booked $37.2M in Q3 revenue (+14% YoY) and a $10.4M net loss (vs. $24.3M last year).

• Astra ($ASTR) is laying off 16% of its workforce, the launcher announced alongside Q3 earnings on Wednesday. The company reported $2.7M in Q3 revenue, with a $199.1M net loss, and Astra has $150.5M in cash/equivalents on hand.

• NASA is now targeting Nov. 16 for the Artemis I launch. At this point, we’re just hoping SLS doesn’t get knocked over. 🤞

• Telesat ($TSAT) chief Dan Goldberg said on a Tuesday call with analysts that the company is making headway on financing deals for its LEO broadband constellation.

The View from Florida