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DigitalGlobe Faces Diversification Headwinds

Stocks in this article: DGI

NEW YORK (The Deal) -- Shares of DigitalGlobe (DGI) lost about one-quarter of their value Wednesday after the satellite imaging firm reported weaker than expected fourth-quarter results and softer guidance despite buying out one of its chief rivals in 2012.

Longmont, Colo.-based DigitalGlobe on Wednesday beat fourth-quarter expectations when reporting net income of $15.1 million but missed on sales of $169.7 million, and said it expects 2014 sales of between $630 million and $660 million compared to expectations for $710 million. The company, which is perhaps best known as the provider of imagery used by Google Inc. in its maps service and related products, saw its shares fall more than $10 following the release to $30.25 in Wednesday afternoon trading.

The results come a little more than a year after DigitalGlobe acquired rival GeoEye for $900 million. That deal, which followed an initial attempt by GeoEye to buy the larger DigitalGlobe, was rationalized in part on fears that sales of imagery to U.S. government entities would slow in the years to come and could not support two competing domestic entities.

Those fears to some extent have materialized, and DigitalGlobe has also run into issues in its efforts to diversify. CEO Jeffrey Tarr told analysts and investors Wednesday that government sales came in as expected, but results were hurt by lost or postponed sales to emerging market customers that have been impacted by the strong U.S. dollar and economic issues in their home markets.

DigitalGlobe is also coming under pressure from new rivals to its low-end, lower-resolution business. Tarr said that 2014 guidance was brought down because emerging markets could still be a headwind, "but we are confident demand for our services is still there."

The company is also seeking new avenues for diversification, saying Wednesday it would acquire oil and gas imagery vendor Spatial Energy Inc. of Boulder, Colo., for an undisclosed sum. Spatial, which was founded in 2005 by one-time DigitalGlobe employees, is a reseller of imagery from DigitalGlobe and other sources that counts 12 of the top 20 energy companies as customers.

DigitalGlobe said the integration of GeoEye is proceeding as planned, with the company extracting about $100 million in annual operating costs and an additional $30 million in annual financing expense post-deal.

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