BlackSky technology(NYSE: BKSY) They missed analyst forecasts for both revenue and profit earlier this month, but investors didn’t seem to mind. Shares of the commercial spy satellite operator actually closed above $8 last week, rising about 9% from their pre-earnings price.
Considering that this space stock missed analysts’ sales forecasts by more than 18% (revenue was $22.5 million instead of the $27.5 million forecast) and also missed profits (a loss of $0.66 per share instead of from just $0.65), investor enthusiasm for the stock is a bit surprising. Maybe more then a little, given that the stock has been relatively unpopular among space investors since its reverse stock split in September.
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Normally, the “reverse split plus missed profits equals rising stock price” calculation doesn’t seem to add up. So why is BlackSky stock on the rise these days?
Let’s take a closer look at the third quarter numbers and see if we can find out.
According to management, revenue is up 22% so far this year at BlackSky. But the third quarter in particular appears to have been a weak sales quarter in a strong sales year. Quarterly revenue was just 6% above Q3 2023 levels. (And ultimately, BlackSky went from a profit in Q3 2023 to a loss in Q3 2024.)
But don’t worry, says management. While BlackSky may have only billed $22.5 million in revenue in the third quarter, it has signed multiple “multi-year contract bookings” and these are worth a total of “up to $780 million” in future revenue.
Two of these contracts deserve special mention. For “up to” $290 million over five years, BlackSky will “monitor global economic and environmental activities and military capabilities,” including “objects of interest such as aircraft, ships, vehicles, and shipping containers,” for the National Geospatial Intelligence Agency. (NGA). BlackSky also received an indefinite-delivery, indefinite-quantity (IDIQ) contract to support NASA Earth observation research missions through November 2028, worth “up to” $476 million.
Add them together and these two contracts account for $766 million of the $780 million in work. BlackSky seems to be saying it won this quarter. For a company that generated just $107 million in revenue last year, that would qualify as true hypergrowth: a parabolic increase in sales. Even spread out over five years, $766 million equates to an additional $153 million in annual revenue – a growth of more than 140%.
But don’t forget to read the fine print.
While BlackSky’s descriptions of contract wins sound promising, the company was a bit vague on the details, and on one detail in particular. Specifically, if you look at the contract awards themselves, rather than just the press releases BlackSky issued about them, or the even more concise summaries in the earnings release, it appears that both contracts were awarded to several winners, of which BlackSky was just one.
In other words, BlackSky didn’t gain hundreds of millions of dollars in revenue, just the right to it bid against others because of work.
For example, the $290 million NGA prize will be divided among ten separate winners, including heavyweights such as Airbus, Booz Allen Hamiltonand Maxar Intelligence.
Similarly, NASA’s massive $476 million “Commercial SmallSat Data Acquisition Program On-Ramp Multiple Award contract” names seven other winners in addition to BlackSky. To win a share of the loot, BlackSky must defeat heavyweights like MDA Geospatial, Planet LabsAnd Teledyne.
Now there is every reason to hope that BlackSky can successfully bid for and receive some of the work under both prices. Notably, the company noted that it has won at least one NGA award (valued at $60 million) in the past. But investors expecting BlackSky to receive all $766 million of the money on offer are in for a rude surprise.
I fear that BlackSky getting all the money on offer is probably a pipe dream. Since only one of the ten companies bidding for the NGA contract, and one of the eight bidding for the NASA contract, BlackSky’s actual profits will almost certainly be a small fraction of the total – and could be nothing at all .
And as for BlackSky actually turning a profit, even the most optimistic analysts don’t see that happening until 2027 at the earliest.
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Rich Smith holds positions in Planet Labs Pbc. The Motley Fool recommends Booz Allen Hamilton and Teledyne Technologies. The Motley Fool has a disclosure policy.
This little-known space company predicts parabolic hypergrowth and was originally published by The Motley Fool
