DigitalGlobe's IPO Hits Tech Radar
Updated from April 18
Investors looking for a viable IPO candidate maybe surprised to find that one of them --
DigitalGlobe
-- has long been watching them.
Longmont, Colo.-based DigitalGlobe filed this weekto go public on the
New York Stock Exchange
under theticker DGI. The company's satellites orbit the Earth,snapping high-resolution pictures that are used bygovernments and companies alike.
And demand for those pictures is rising: despite increasing competition, DigitalGlobe's rising revenue and profit has investors circling the company's name as a potentially hot IPO to watch for down the road.
DigitalGlobe has only two satellites, but itclaims it uses the most sophisticated technology andoffers the highest resolutions of any commercial market satellites. Together, they can take detailed snapshots of a million square kilometers every day --an area larger than France and Germany combined.
The company draws its revenue from both government andprivate vendors, and both sources delivered strong growthlast year. Revenue from defense and intelligencecustomers rose 47% to $103.4 million in 2007, while commercial revenue gained 33% to $48 million.
Its biggest single customer is the DefenseDepartment's
NationalGeospatial-Intelligence Agency (its motto: " Knowthe Earth ... Show the Way"), which collects satelliteimagery and distributes it to other U.S. agencies forprimarily national security reasons.
Other U.S. agencies use the images for non-defensepurposes, such as disaster response. DigitalGlobe isincreasingly reaching out to civil agencies abroad. Asthe prospectus notes, "International civil agenciesrepresent one of the fastest growing opportunities forus, especially in rapidly growing markets in Asia,Russia, the Middle East and South America."
DigitalGlobe's images are prominently featured in
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Maps and
Microsoft's
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Visual Earth and they're starting to find their way onto mobile navigationdevices as well as video games.
But other industries are customers as well:Agricultural firms use satellite images to monitorcrops, energy firms for exploration, telecoms andutilities for infrastructure planning and monitoring,and insurance companies for monitoring claims.
The company's commercial revenue as a percentage of totalrevenue has dropped to 32% from 38% over the pastthree years, in part because the launch of a newsatellite last September and also a restructuring of acontract with the U.S. government that extends to2014.
It's not clear whether government revenue willcontinue to grow at 2007's rate, so DigitalGlobe mayneed to rely on the commercial market for growth.
Operating costs, meanwhile, didn't rise quite asfast. Selling and administrative costs rose 31% to $49million in 2007, and cost of revenue rose by 34% to $22million. Depreciation and amortization, primarily forsatellites and other equipment, were even larger: $47million last year, flat with 2006 and equal to nearlya third of total revenue.
As a result, DigitalGlobe's operating margin grewto 22.2% in 2007 from 6.4% in 2006.
While DigitalGlobe is boosting profit in agrowing industry, it's also facing a lot ofcompetition, notably from Virginia-based
GeoEye
(GEOY)
and France's SpotImage. GeoEye's stock is down 22% this year, althoughit's still showing a 44% gain over the past 12 months.
As DigitalGlobe points out in its prospectus, thesecompetitors aren't sitting sill. "GeoEye has announcedplans to launch a multi-spectral satellite in thesummer of 2008 with a black and white resolution of 41centimeters. SPOT Image has announced plans to launchtwo additional high resolution satellites, one in 2010and the other in 2011."
That's why DigitalGlobe is planning to launch a thirdsatellite next summer. It will offer a higherresolution than its current satellites, and have thecapacity to collect as much imagery in a day as bothof them combined. In 2010, the first satellite thatDigitalGlobe launched -- the QuickBird in 2001 -- isexpected to reach the end of its operational life.
New satellites cost money, and that's a key reasonwhy DigitalGlobe is heading for an IPO now. Thecompany is running through cash. It had $23million on hand at the end of 2007, down from $103million a year earlier.
But with lead underwriters like Morgan Stanley andLehman Brothers and an income statement that showsrevenue growing and operating profit growing evenfaster, DigitalGlobe is likely to see a successfullaunch into the public markets.