Even Without Google, DigitalGlobe Will Continue to Grow

NEW YORK (TheStreet) -- Google (GOOG) will be able to generate the images for Google Maps itself, thanks to the acquisition it announced this week. That should be bad news for DigitalGlobe (DGI) which supplies pictures for Google Maps, right? Wrong.

Google is not one of DigitalGlobe's major customers. The company gets more than 80% of its revenue from government agencies.

For the current year, DigitalGlobe has forecast revenue growth of between 3% and 8% from 2013. The company is aiming for Ebitda (earnings before interest, taxes, depreciation and amortization) margins of at least 50% in the fourth quarter, up from 39.4% in the first quarter.

The U.S. government has permitted DigitalGlobe to sell its sharpest satellite images to all of its customers. Meanwhile, the company is gearing up to launch a new imagery satellite within two months. Those two developments will easily offset any possible decline in Google revenue.

On Tuesday, when Google announced it has agreed to acquire Skybox Imaging for $500 million, DigitalGlobe's shares dropped by 4%. The company's shares still haven't fully recovered, trading at $30.25, up 16 cents, late Friday morning.

Skybox Imaging provides high-resolution satellite images and videos. Through the acquisition, Google aims to bolster its Google Earth and Maps offerings, such as the Google Earth Enterprise, and to provide high-speed Internet and disaster relief services.

The search engine giant gets the images for Google Maps from more than a thousand different sources, including DigitalGlobe. The Skybox acquisition will reduce Google's reliance on DigitalGlobe. On the flip side, DigitalGlobe might end up losing a high-profile customer.

DigitalGlobe is a 20-year old company valued at $2.28 billion. It was a much smaller company until January 2013, when it completed an $1.4 billion acquisition of GeoEye, another company that provides satellite images.

With its high-quality images, DigitalGlobe serves high-end customers such as government agencies and commercial companies in the energy, telecommunications, forestry, mining, agricultural, utility and financial-services industries.

Last year, DigitalGlobe generated 58.4% of its revenue from the U.S. government, primarily the defense and intelligence agencies, and 41.6% from overseas governments and commercial customers, including Google, Apple (AAPL) Microsoft (MSFT) and Nokia (NOK) . Domestic and foreign government agencies were responsible for more than 87% of the company's revenue in 2013.

According to analysts' estimates, DigitalGlobe gets just 3% of its revenue from Google. Even if Google completely abandons DigitalGlobe, it will not have any meaningful impact on DigitalGlobe's revenue and income.

DigitalGlobe is eyeing serious growth in the coming years. The company was banned by the U.S. government from selling its highest-quality images to anyone except the government. But with a green signal from the Commerce Department, the company will start selling its images to all of its customers.

That can open doors to $400 million of additional revenue, potentially a game changer for DigitalGlobe, considering the company reported revenue of $612.7 million in 2013.

The Commerce Department's decision came at a good time for DigitalGlobe as the company is on track to launch its sixth satellite, Worldview 3, before mid-August. The company can start selling the images from this new satellite to its non-U.S. government customers from mid-February, 2015. That should boost the company's revenue next year.

Without the restrictions, DigitalGlobe will be able to compete effectively with plane and drone operators that have been capturing and selling sharper images.

Moreover, with the new satellite focusing on the high-end market, DigitalGlobe can use its older satellites to serve commercial organizations with lower-quality imagery needs.

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At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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