“It’s only when the tide goes out that you find out who swam naked.” -Warren Buffett
Today we take an in-depth look at small cap concerns for the first time BlackSky Technology Inc. (NYSE: BKSY). BlackSky went public late last summer through a merger with Osprey Technology Acquisition. Like so many of these SPAC debuts in 2021, stocks find themselves deep in IPO territory. However, the company is seeing impressive revenue growth in its fast-growing market niche. An analysis follows below.
BlackSky Technology Inc. is based just outside of Washington DC. The stock trades for just under two dollars per share and sports an approximate market capitalization of $240 million. BlackSky provides geospatial intelligence, imagery and related data analysis products and services, and mission systems. These include the development, integration and operation of satellite and terrestrial systems for customers’ commercial and government applications. The company provides this information and data through its Spectra AI SaaS platform which is powered by its proprietary network of space and ground sensors.
BlackSky’s constellation of on-demand satellites (a total of 14 right now after launching two satellites on April 2) can image a location multiple times throughout the day. Palantir Technologies (PLTR) owns a stake in BlackSky. BlackSky also has a multi-year software subscription agreement with Palantir to access the Palantir Foundry enterprise platform, and the company offers a solution that combines Palantir Foundry with its Spectra AI to expand the delivery of deep analytics and high resolution images to its customers.
1st quarter results:
On May 11, the company released the first quarter results. BlackSky posted a net loss on a GAAP basis of 17 cents per share. Revenue rose 90% from the same period a year ago to just under $14 million, which far exceeded expectations. Of this amount, revenue from imaging and software analytics services amounted to $9.8 million. This was primarily due to increased demand from new and existing government contracts. This segment now represents approximately 70% of total revenue and has increased by 63% compared to the same period a year ago. Gross margin fell to 21.2% from 24.5% in 1Q2021. Management attributed this primarily to ‘higher engineering and systems integration expenses largely attributable to one-time design costs and material procurement costs”.
Management maintained its full-year revenue forecast of $58 million to $62 million. That would represent 76% revenue growth over fiscal 2021 in the middle of that range. Cap-Ex is expected to be between $52 million and $56 million, down from last year as management believes it has sufficient capacity to meet customer demand. On June 15, management reaffirmed advice and also announced a new chief financial officer.
At the end of May, the National Recognition Office announcement its largest commercial imaging contract effort worth billions of dollars over time. BlackSky was one of three companies chosen with Planet Labs (PL) and Maxar Technology (MAXR). The global contract came into effect at the end of May this year with a five-year base and several one-year options with further growth until 2032.
Analysts’ comments and results:
On May 12, Benchmark lowered its price target on BKSY to $6 from $8 previously while maintaining its buy rating on the stock. This is the only analyst firm comment I can find on BlackSky so far in 2022. Just under 10% of the open float in this stock is currently sold short. After posting a net loss of $20 million in the quarter, the company had just over $138 million in cash and marketable securities as of March 31 this year, compared to just over $70 million. dollars of long-term debt. An insider bought $32,000 worth of stock in late February. This is the only insider activity in the stock so far in 2022.
The only analyst firm that has provided projection around BlackSky, the company is losing 81 cents per share this year as revenue nearly doubled to $67.5 million in fiscal 2022. Net loss is expected to drop to 47 cents per share in fiscal 2023, with revenue growing nearly 90% to $127 million.
BlackSky is in an interesting and growing niche of the market. The current conflict in Ukraine has underscored the vital importance of real-time ground intelligence for military, commercial, humanitarian and other applications. The market has crushed nearly every small-cap growth name profitlessly in recent months, regardless of their growth prospects. It remains a headwind.
This stock seems reasonably priced based on the price of future sales, especially when net cash on the balance sheet is taken into consideration. I recently profile Planet Labs and took a ‘watch the article‘ holding in this similar concern. I plan to do the same with BlackSky Technology. We expect to revisit BlackSky in 2023 as sales continue to gain momentum and hopefully net losses come down significantly.
“It’s a way to take people’s wealth away from them without having to overtly raise taxes. Inflation is the most universal tax of all.” -Thomas Sowell