VSAT and Inmarsat: Did We Just Snatch Defeat from the Jaws of Victory?

When your largest position, Viasat Inc. (Ticker: VSAT), enters into a transformational merger involving regulatory complexity, interesting technology, enough equity issuance to require a shareholder vote, and a conceptual doubling down against what might be called the “Elon Musk-generated low-earth-orbit satellites (LEO) space craze,” it elicits a lot of internal navel-gazing. Search through Covestreetcapital.com/Thoughts to satisfy your endless enthusiasm for the subject matter at hand or click here for some background on our thinking.

Here is what your first thought isn’t: a massive and quasi-intellectual defense of what you were thinking the day before you didn’t see this coming. There is where our Decision Process (DP) Spreadsheet gets trotted out. Here were our self-identified 3 key variables:

  1. Can the VSAT-3 constellation be launched and compete effectively vs LEO/terrestrial?
  2. Following the VSAT-3 EMEA launch, will there truly be a capex inflection point where there is real free cash-flow and it’s growing rapidly?
  3. Will the defense business continue to grow value in the double digits?

We also establish a “Short” position in an attempt to reverse engineer a failure:

  1. Musk and other LEOs can take share with negative economics even if they are not financially successful.
  2. Very difficult to “see” ROI in satellite build given overlapping capex programs.
  3. Satellite event risk.
  4. International distribution unclear and complicated by recent airline issues and lack of vertical expertise.
  5. Cash-flow inflection point unclear especially on uncertain future capex spend.