Unknown Space Enterprise Predicts Exponential Expansion through Parabolic Hypergrowth
BKSY (BlackSky Technology) witnessed a negative 2.82% dip earlier this month, falling short of both sales and earnings forecasts. Yet, investors seemed unfazed, with the stock closing above $8, recording a 9% increase from its pre-earnings price.
Given that BKSY underperformed analyst sales expectations by over 18% (reporting sales of $22.5 million rather than the projected $27.5 million), and also fell short on earnings (losing $0.66 per share instead of $0.65), this investor response seems somewhat unusual. Some might even say it's overly optimistic, especially considering BKSY's diminished popularity among space investors following a reverse stock split in September.
The traditional logic of "reverse split followed by earnings miss resulting in a rising stock price" doesn't add up in this case. Therefore, the current rise in BKSY's stock price is a puzzling phenomenon.
BKSY's Financial Overview
Let's delve deeper into the Q3 numbers to decipher the mystery.
The management highlighted a 22% increase in sales for BKSY so far this year. However, Q3 seems to have been a weak sales quarter in an otherwise strong sales year for the company. Quarterly sales amounted to only 6% more than Q3 2023 levels. Moreover, BKSY incurred a loss in Q3 2024, contrasting with a profit in Q3 2023.
Nonetheless, BKSY's management is upbeat. Despite reporting revenue of only $22.5 million in Q3, the company has secured multiple "multi-year contract bookings" worth up to $780 million in total future revenue.
Two of these contracts deserve special mention. For "up to" $290 million over five years, BKSY will be responsible for monitoring global economic, environmental, and military activities, including tracking objects such as aircraft, ships, vehicles, and shipping containers for the National Geospatial Intelligence Agency (NGA). Additionally, BKSY has received an indefinite delivery, indefinite quantity (IDIQ) contract to support NASA Earth observation research missions through November 2028, which carries a potential value of "up to" $476 million.
Add those two contracts up, and they account for $766 million of the work BKSY seems to have secured in the quarter. For a company that generated a mere $107 million in revenue over the past year, this would equate to extraordinary growth - a dramatic spike in sales. Even spread over five years, $766 million translates to an additional $153 million in annual sales, representing over 140% growth.
Disclaimers and Caveats
However, it's essential to scrutinize the fine print.
Although BKSY's descriptions of its contract wins are promising, the company was somewhat vague regarding the details, particularly one significant detail. Specifically, both of these contracts were awarded to multiple winners, with BKSY being just one of those winners.
In simpler terms, BKSY didn't secure hundreds of millions in revenue but rather the right to bid against others for the work. For example, the $290 million NGA award will be shared among 10 separate winners, including prominent players such as Airbus, Booz Allen Hamilton, and Maxar Intelligence.
Similarly, NASA's $476 million "Commercial SmallSat Data Acquisition Program On-Ramp Multiple Award contract" also lists seven other winners besides BKSY, including heavyweights like MDA Geospatial, Planet Labs, and Teledyne. To secure a share of the money, BKSY will need to outperform competitors such as these.
Potential for Growth, but not as Rapid as Previously Thought
There's no doubt that BKSY has a good chance of clinching a portion of the work under both these contracts. Notably, the company has previously secured an NGA award worth $60 million. Nevertheless, investors hoping for BKSY to claim all $766 million in potential revenue may be in for a disappointing revelation.
Obtaining the entire amount is likely unrealistic, as BKSY is just one of ten companies vying for the NGA contract and one of eight competing for the NASA contract. Given that only a fraction of the total revenue is awarded to each participant, BKSY's earnings from these contracts will likely be significantly lower - perhaps even nonexistent.
Furthermore, even the most optimistic analysts predict that BKSY will not turn a profit until at least 2027.
Despite BKSY's failure to meet sales and earnings expectations in Q3 2024, some investors chose to invest in the company, potentially seeing potential in its future financial prospects. This decision was likely influenced by the company's securing of multiple multi-year contracts worth up to $780 million, including a $290 million contract with the National Geospatial Intelligence Agency and an indefinite delivery, indefinite quantity contract with NASA worth up to $476 million.
In light of these contracts, the financial outlook for BKSY appears promising, with the potential for significant revenue growth. However, it's important to note that BKSY is not the sole recipient of these contracts and will need to compete with other companies to secure a portion of the total revenue.
