DigitalGlobe Can’t Catch a Break; Stock Continues to See Downward Pressure
DigitalGlobe (DGI) can't seem to catch a break. It's stock price is under enormous pressure and just when you think it will bounce back, it gets slammed by more, seemingly, bad news. Today, it's stock price is down approximately 3% after dropping nearly 10% last week on news that Google will buy Skybox. Today's plummet may be a late reaction to last week's news. However, this latest pullback comes after the precipitous fall in February because the company missed Wall Street expectations and continued to fall through mid-April. While news broke on June 11 that the U.S. Commerce Department will allow DigitalGlobe to acquire .25 meter spatial resolution imagery to compete with international earth observation satellite companies other Wall Street analysts see competitive pressure from new satellite company startups supplying lower spatial resolution imagery that may serve clients just as well but with more repeat coverage.
TheStreet's Sarfaraz Khan notes that 80% of DigitalGlobe's revenue is from government customers and the company is only one of many sources Google uses for satellite imagery. The Skybox acquisition by Google is still somewhat risky since there is only one SkySat-1 in orbit of a planned 15 satellite constellation. Google may still relay heavily on DigitalGlobe should Skybox not be able to continue building its constellation.
So, why the market jitters? It's a combination, or perhaps confluence, of events in a short period of time (see also our recent podcasts on the earth observation market: 1, 2). Skybox and other startup companies are all vying to launch earth observation satellites with the expresses desire to target a particular segment of the market such as agriculture, forestry, oil and gas exploration, etc. In addition, there is the prospect of the pending release of FAA guidelines on integrating unmanned aerial vehicles into the National Airspace System within the next few years that could undermine some portion of the imagery market for more immediate, high resolution imagery and other sensor data.
But the other aspect is that DigitalGlobe wants to deliver information services rather than just pixels. And that, too, is the objective of many of the startups as well. All realize that pretty pictures won't move the market. It's the information within the pixels that has value. That's the battleground.