Google's Aerospace Acquisitions - Endless Possibilities

Jun.18.14 | About: Alphabet Inc. (GOOG)


Google is reportedly mulling over buying a minority stake in Virgin Galactic.

The acquisition will be a part of Google’s larger move in the aerospace industry.

Google Maps can become much bigger than anyone has imagined, impacting the decision making of individuals and businesses.

Last year, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) launched "Project Loon" through which the company used air balloons to provide internet access to billions living in remote or rural areas. One of its balloons, the Ibis-167, has been around the world in just 22 days. Google is now working on other balloons that can float for more than 100 days.

Google has now made three major acquisitions in the aerospace industry, expanding its operations from balloons to solar-drones and satellites.

Shopping Spree

Google is reportedly acquiring a stake in Richard Branson's commercial spaceflight company Virgin Galactic. The latter, which could start its commercial operations as early as this year, is valued at around $2 billion. Google could acquire a 1.5% stake in the company through a $30 million investment.

Google will be eyeing the company's LauncherOne which can kickstart Google's space program by launching its micro satellites in the low-earth orbit. The search engine giant is expected to spend between $1 billion and $3 billion on developing 180 small satellites.

LauncherOne is virgin Galactic's launch vehicle designed to handle smaller payloads of up to 225 kilograms. That should be enough to support Skybox Imaging's satellites. Earlier in February, the company revealed that its new Earth observation satellites weighed around 120 kilograms.

About a week ago, Google acquired Skybox Imaging, which develops micro satellites that can take high definition photos and videos, for $500 million. Skybox Imaging also has impressive data processing abilities. The company can mine one terabyte of data on a daily basis as it collects imagery from its constellation of satellites.

Earlier in April, Google bought the solar powered drone maker Titan Aerospace. Titan develops drones that can fly at high altitudes, nonstop, for up to five years before any sort of maintenance is required.

Although Google has not disclosed the details of its investment in Titan Aerospace, according to a report by TechCrunch, Facebook (NASDAQ:FB) was also mulling the acquisition of the drone maker for $60 million. When Titan decided to go with Google, Facebook acquired Ascenta, another solar-powered unmanned aerial vehicle maker, for $20 million.

What's in it for Google?

Through these acquisitions, Google will be able to provide internet services to farfetched regions of the world, which can have a positive impact on Google's advertising revenues.

In the less developed part of the world, which lacks communication infrastructure such as telephone lines and communication towers, providing internet services through satellites and drones can be a cheaper option.

Moreover, Titan has said that its drones can provide high-speed internet services of up to one gigabit per second. That is even faster than the broadband speeds that are usually offered in developed countries.

The acquisitions will bolster Google's Maps offerings, which can go on to become an integral part of our daily lives in the coming years. Skybox Imaging's satellites, as well as drones, can start capturing and distributing images at ultra-high-resolutions.

In the future, Google will be able to display these high-quality images on Google Maps and provide imagery services to businesses. Google will benefit from the U.S. government's decision to lift restrictions on companies from selling high-resolution satellite images to commercial customers.

Within the next four years, Google will have 24 satellites orbiting in outer space, thanks to its Skybox Imaging acquisition and supported by relatively smaller investments in Titan Aerospace and Virgin Galactic. The company will start capturing imagery of the entire globe, including real-time videos, thrice in a day.

So, for instance, if you are planning on going to a Wal-Mart (NYSE:WMT) store, you might want to check Google Maps first for availability of parking space.

Similarly, analysts can use the same information (parking space at Wal-Mart) to calculate Wal-Mart's quarterly revenue and income estimates. Skybox's co-founder Dan Berkenstock has been analyzing the density of trucks outside Foxconn facilities to predict the next Apple's (NASDAQ:AAPL) iPhone launch.

In short, the high-quality satellite imagery can be used for a variety of purposes, from improving home security, to the provision of disaster relief services, to analyzing geological formations for natural resources. The possibilities are endless.

Bottom Line

The three recent acquisitions have propelled Google's growth in the aerospace sector. Just a year ago, the company launched its air balloons to provide high-speed internet to the remote corners of the world and now it is planning on sending satellites into space.

In the coming years, through drones and satellites, Google can significantly enhance its Maps offerings that can become an essential part of our daily lives. Moreover, the company can also capitalize on the U.S. government's decision by lifting restrictions on the sale of sharp images by offering high quality satellite imagery services to business customers. This can potentially open a new revenue stream for Google.

Disclosure: This article was written by Sarfaraz A. Khan, with valuable contribution from Ali I., research assistant at Half Bridge Business Review. Neither Sarfaraz A. Khan, nor Ali I., have any positions in the stock(s) mentioned in this article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.