Seeking Alpha
Long only, value, special situations, long-term horizon
Profile| Send Message|
( followers)  

Summary

  • ViaSat is a mid-cap broadband satellite provider that offers reasonably fast data speeds to rural customers and commercial transporters, such as airlines.
  • Data network providers have been consolidating, making ViaSat a possible acquisition target and/or partner.
  • ViaSat has significant institutional ownership and a sizable short position, indicating the equity may be volatile upon any forthcoming news.

ViaSat (NASDAQ:VSAT) appears to be a misunderstood player in the communications business. The satellite operator is ranked as having Internet data speeds that rival and usually surpass its terrestrial competition. The company also has a major shareholder in Seth Klarman's Baupost, which has acquired ViaSat stock over several years.

In 2011, ViaSat upgraded to its ViaSat-1 satellite, which increased its speed by about 8-fold. Last month, The FCC's 2014 Measuring Broadband America report found that ViaSat's rural broadband service did the best job of any tested provider at delivering speeds that were as good as or better than advertised.

Recently, AT&T (NYSE:T) made a bid for DirecTV (NASDAQ:DTV), which is the nation's largest satellite provider of content to domestic retail consumers. While AT&T will be acquiring a large satellite network if this deal goes through, it is also acquiring DirecTV's substantial and loyal existing subscribers, as well as its desirable NFL Sunday Ticket content.

Nonetheless, it is likely that DirecTV's satellite system could be beneficial for supplementing and expanding coverage. Satellite systems will allow large networks to cover broad rural areas and emerging markets where terrestrial infrastructure will be slow and expensive to develop. ViaSat sells its service to both DirecTV and Dish Network (NASDAQ:DISH), in order to expand their geography and quality of product, and the contracting of satellite coverage may become more commonplace by the large broadband providers.

Google (NASDAQ:GOOG) (NASDAQ:GOOGL) has been working on fiber projects, and it is reasonable to expect it will spend at least a few billion on satellites to provide Internet access. Google recently purchased Titan Aerospace, a maker of drones that stream Internet service and which might also complement a satellite service. These technologies could quickly provide rural domestic and emerging markets with needed coverage that is superior to what is available, though not as good as where next generation fiber optic speeds are expected to soon get.

ViaSat recently won patent litigation against Loral Space & Communication (NASDAQ:LORL), which Loral announced it would appeal. This victory may indicate that ViaSat holds defensible rights to some technology that will be needed for satellite system upgrading. If this is the case, then ViaSat's patents may be more valuable than the company's current network. This really depends upon the results of Loral's appeal and what systems upgrading satellite networks may select.

ViaSat has a major shareholder in Seth Klarman's Baupost, which last reported owning slightly less than one-quarter of the company. Baupost is a highly respected value-oriented investment company that has a history of outperforming the market. Baupost first acquired ViaSat in 2008, when most equities were at a deep discount, but the fund substantially increased its stake in 2012, and has marginally increased the position in recent quarters. Baupost is not alone, as VSAT routinely has 85-95% institutional ownership.

Nonetheless, the company does have a substantial short position betting against it, which is leveraged by the company's relatively low float compared to total outstanding shares. The company's last reported earnings were below expectations. A large part of why VSAT's performance has lagged is because of its increased spending on research and development, as well as the Loral litigation expenses.

What ViaSat may have going for it is a wide and growing moat. The company's target customers are rural residents and commercial transporters, which are both difficult clients to effectively service and not the primary focus of the larger broadband competitors. Their patent portfolio may substantially improve that moat. Moreover, because competing technology will be slower to reach these target customers and expensive to develop, existing providers like VSAT may have an above average ability to maintain customers and rates in a business that is becoming increasingly competitive and consolidated. These factors should bode well for ViaSat.

Source: ViaSat's Network And Technology Make It A Likely Communications Partner

Additional disclosure: Family members own T and VSAT.