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ViaSat Suffers a $700 Million Space Disaster

Motley Fool - Sat Jul 29, 6:07AM CDT

Two weeks ago, share prices of communications satellite operator Viasat(NASDAQ: VSAT) got destroyed. The drop came on news of a broken satellite that, upon reaching orbit, turned out to be unable to deploy an antenna essential to its operation. Shares of the space company lost 28.5% on the first trading day after the news broke. They've recovered a couple of percentage points since, closing Friday trading around $29.50 a share.

The question for investors today is, do they deserve to come back even higher? And could it be that Viasat's space disaster has turned its stock into a bargain?

What we know

Built by Boeing (NYSE: BA) with help from Northrop Grumman(NYSE: NOC), but owned by Viasat, the Viasat-3 communications satellite rocketed into the heavens atop a SpaceX Falcon Heavy rocket on April 30. It took more than two months for the satellite to reach its final intended orbit, however, and begin deploying its gear to start operations -- and that's when trouble hit.

In a statement on July 12, Viasat advised that "an unexpected event occurred during reflector deployment that may materially impact the performance of the ViaSat-3 Americas satellite." The "reflector" in question is only one part of the entire satellite, specifically a large wire-mesh disc deployed by a boom after the satellite is in orbit and used to receive signals from Earth. But beyond this, we don't know a whole lot about exactly what went wrong. The company has provided no further details since the original statement -- more than a week after the problem manifested.

In fact, we can probably guess more about what happened to Viasat-3 from what Viasat didn't say than what it did.

What we can guess

Specifically, in its July 12 announcement, Viasat quickly segued from revealing the anomaly to explaining it away:

  • "We're working closely with the reflector's manufacturer to try to resolve the issue." (Viasat didn't name Northrop as the manufacturer -- though several media sources did).
  • "There is ... no impact to coverage or capacity of the respective Viasat and Inmarsat constellations currently in service." (Translation: Pre-Viasat-3 operations are unaffected -- but the new satellite isn't adding anything to Viasat's capabilities right now.)
  • "Contingency plans are currently being refined to minimize the economic effect to the company." (Which emphasizes the seriousness of this failure.)
  • "Potential options include redeploying satellites from Viasat's extensive fleet to optimize global coverage, and/or reallocating a subsequent ViaSat-3 class satellite to provide additional Americas bandwidth."

None of which would be necessary if there was much hope Viasat-3 could be brought online. All of which suggests that this deployment malfunction may render Viasat-3 effectively inoperable, and a total loss for Viasat.

What it means for Viasat

So how big of a problem is this for Viasat stock? Back in May, just after the satellite launched, the San Diego Tribune estimated the "all-in costs" for building and launching Viasat-3 at $700 million. In exchange for this up-front investment, Viasat was hoping that Viasat-3 would generate a dependable stream of revenue for it over at least the next 15 years (its designed life span).

Now Viasat has lost both the investment, and the revenue stream -- all in one single, horrible, no good, very bad day.

And yet, the loss suffered by Viasat stock from this anomaly has already topped $1.8 billion, as the company's market cap sank from $5.4 billion (before the disaster) to $3.6 billion (as of Friday's close). On its face, that seems an overreaction. All the more so when you consider that Viasat's actual loss could be as little as $280 million.

Like most satellite operators, you see, Viasat took out insurance on its satellite against the risk of a failure such as this one. According to, this policy could well cover up to $420 million of Viasat's loss -- meaning that the stock market loss Viasat has incurred could be as much as five times the actual financial injury to the company.

The upshot for investors

So is it safe to buy Viasat stock now?

Perhaps. And yet, even if investors overreacted to this month's bad news, that doesn't necessarily mean they were wrong to sell Viasat. True, at least one investment bank (Barclays, on Friday) has raised its price target on Viasat, possibly spying the same mismatch between damages and market cap loss described above. On the other hand, Viasat did file a pair of SEC notifications on Monday, indicating that insiders holding some 48 million Viasat shares -- about 39% of all Viasat shares outstanding -- may be trying to sell their shares "from time to time" over the next few months.

Maybe the two events aren't connected. But then again, maybe they are.

As for me, while I am personally intrigued by the mismatch, I can't ignore the fact that Viasat is a company that has burned cash for 14 straight years (according to data compiled by S&P Global Market Intelligence), and that appears on a course to continue losing money for the foreseeable future. The loss of Viasat-3, even if not fatal to the company, certainly won't make the situation any better.

If the company's history of burning cash wasn't enough to scare you away before, maybe now that Viasat's space disaster has happened, it's time to take a second look and consider whether now might be a good time to get out of Viasat stock.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc. The Motley Fool has a disclosure policy.

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