Recently, ViaSat, Inc. (NASDAQ:VSAT)’s stock price traded at almost twice its value of a year ago. The hike in the share price reflects the company’s growth strategy announcements. The fourth quarter 2013 result boosted investors’ hopes with satellite services growth. The revenue of ViaSat’s satellite services increased 24%, year-over-year, to $277 million in fiscal year 2013. This rise was also due to the growth of ViaSat-1, a communication satellite. I believe the increased portfolio of the communication satellite will be a breakthrough revenue generating opportunity for the company. With these solid figures, what are ViaSat, Inc. (NASDAQ:VSAT)’s plans for long term growth?
Expansion plan
ViaSat launched ViaSat-1, a communications satellite, two years ago. It launched the satellite to serve the rising household broadband demand, globally. ViaSat-1 has a capacity of more than 140 Gigabits per second, which was greater than the combined capacities of all the satellites covering North America at the time of launch.
In the third quarter of 2013, satellite services revenue grew 29%, year-over-year, to $71.8 million due to a hike in subscribers. The total number of ViaSat, Inc. (NASDAQ:VSAT) subscribers increased 24%, year-over-year, to 466,700, and around 50% were subscribers of ViaSat-1. With the success of ViaSat-1, the company became one of the leading providers of high speed broadband services in the U.S.
Advancing with the growth of ViaSat-1, the company will launch ViaSat-2 by the middle of 2016. ViaSat-2 will support Exede with a broader coverage area and capacity than currently provided by ViaSat-1. Exede offers download speed up to 12 Megabits per second and costs around $50 per month. ViaSat contracted The Boeing Company (NYSE:BA) to build the satellite for ViaSat-2 and cost ViaSat, Inc. (NASDAQ:VSAT) around $358 million. In addition to building the satellite, Boeing agreed to market and sell the satellite system for ViaSat-2.
Boeing faced strong competition in bidding for the contract. Lockheed and The Boeing Company (NYSE:BA) were the favorites, but The Boeing Company (NYSE:BA) won the deal due to its combination of price, technology, and willingness to help ViaSat in aftermarket activities. The Boeing’s Defense, Space, & Security unit will make ViaSat-2, which will increase its operational earnings, benefiting Boeing.
ViaSat-2 will have capacity of 350 Gigabits per second, more than twice the capacity of ViaSat-1, offering seven times more coverage. ViaSat-2 will serve 2.5 million subscribers for costs of $600 million compared to 1 million subscribers served by ViaSat-1 for $500 million. Due to growth from ViaSat-2, the company expects segmental revenue from satellite services to increase to $536 million from the earlier projection of $480 million in 2016.
Exceeding with Exede
DIRECTV (NASDAQ:DTV) and ViaSat, Inc. (NASDAQ:VSAT) teamed up at the end of last year to provide high-speed internet to consumers. The standalone Exede service provides Internet plans in the range of $39.99, $69.99 and $119.99 per month, with monthly data usage of 10 GB, 15 GB and 25 GB respectively. However, the partnership will offer Exede services with a $10 discount per month for the first twelve months of service.
The low cost feature led to the expansion of Exede in rural areas of the U.S. Therefore, in the fourth quarter of 2013, ViaSat reported 98,000 installations of Exede broadband services as compared to 77,500 in the third quarter. The total number of Exede subscribers increased to 88,000 in the fourth from 62,000 in the previous quarter. Exede will continue to gain traction due to its lower cost and better efficiency.
Moreover, ViaSat is also receiving orders for Exede from the U.S. military for Blue Force Tracking and Joint Tactical radio systems. The U.S. military uses these radio systems in field operations. Due to the increasing number of orders, the gross subscriber addition for Exede is expected to increase 26.5% year-over-year to reach 374,033 subscribers in fiscal year 2014.
Increasing inflight services
ViaSat is set to launch in-flight Wi-Fi services with JetBlue Airways Corporation (NASDAQ:JBLU) within the next few months. JetBlue Airways Corporation (NASDAQ:JBLU) entered the deal with ViaSat to enhance its passenger’s experience during their air journey with faster in-flight Wi-Fi services. The enhanced in-flight facilities will attract more passengers to JetBlue Airways Corporation (NASDAQ:JBLU). Additionally, this will be highly successful for ViaSat, as it will provide 7.1% market share in revenue passenger miles to ViaSat. This market share should increase quickly as it will begin providing in-flight Wi-Fi services to United Continental Holdings soon after JetBlue Airways Corporation (NASDAQ:JBLU). This service will be available on all the aircraft of JetBlue Airways Corporation (NASDAQ:JBLU) by the end of 2015. In the beginning, the company will provide this service free of cost and eventually at lower prices.
Currently, Gogo provides in-flight Wi-Fi on the majority of domestic flights. However, Gogo provides relatively slower bandwidth speed than ViaSat’s inflight Wi-Fi facility. Gogo provides speed of 66 kilobits per second, compared to the five megabits per second speed provided by ViaSat. ViaSat will take a few years to cover the entire U.S. fleet, under its Wi-Fi services. Approximately 640 million passengers in the U.S. take domestic flights annually. Therefore, the U.S. domestic flight market will provide approximately $1 billion annual revenue opportunity for ViaSat in the next fiscal year.
Bottom Line
Considering above growth drivers ViaSat has potential to continue its bull run. After registering growth from ViaSat-1, the company is set to launch ViaSat-2. It has teamed up with Boeing to make ViaSat-2 a successful satellite. Moreover, in the near future, the company will provide inflight Wi-Fi services to JetBlue Airways Corporation (NASDAQ:JBLU), and it will then provide inflight Wi-Fi services to United Continental Holdings.
ViaSat, Inc. (NASDAQ:VSAT) is also confident about Exede with increased subscribership. With all this excellent growth potential, the company will prove to be a useful bet for investors. Hence, I recommend a buy.
The article Bet on This Communication Equipment Company for Rewarding Returns originally appeared on Fool.com and is written by Shweta Dubey.
Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Shweta is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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