ViaSat, Inc. (VSAT): Why Does Hedge Fund Manager Seth Klarman Own This Stock?

ViaSat, Inc. (NASDAQ:VSAT). is a communications infrastructure, equipment, and services company that was added to Baupost Group’s holdings, indicated by their last 13-D filing. Baupost took an 11 million share position in ViaSat, approximately 25% of the shares outstanding. Traditionally Baupost is a value-oriented firm. The investment is somewhat striking, since ViaSat lost money over the past twelve months and forecasts are for it to do so again in FY13. Consensus estimates forecast earnings of $0.89 per share in FY14, and a P/E on FY14 earnings of over 50. The range of estimate for FY14 is very wide, with a low estimate of $0.07 and a high estimate of $2.14. The growth outlook and long-term earnings potential must be pretty strong and have a relatively high probability of materializing to attract Baupost.

ViaSat, Inc. (NASDAQ:VSAT) provides high-speed fixed and mobile broadband services, network services via satellite, and wireless. It operates in three segments; satellite services, commercial networks and government services. The focus of investors is on the company’s Exede broadband satellite service (with speed of 12Mbps). In October 2011, the company launched its spot-beam satellite, ViaSat-1, with its commercial operations beginning in January 2012. ViaSat-1 carries the Exede service. It is sold directly and by wholesale distributors like DISH, and recently DirecTV (NASDAQ:DTV) . ViaSat, Inc. (NASDAQ:VSAT) also plans to offer additional broadband services that should generate more revenue streams and increase earnings. For example, ViaSat will offer in-flight broadband in mid-2013 with JetBlue, and as well as live event broadcasts.

The government services segment appeared stable in the recent quarter and actually has a strong backlog. Bookings have been solid over the past year behind its C4ISR business, with mobile broadband being the big driver. C4ISR stands for Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance. Despite doing well in the face of DoD cuts, a reduction in government spending could still impact this portion of the business.

Echostar Corporation (NASDAQ:SATS) Threat

The biggest challenge to ViaSat, Inc. (NASDAQ:VSAT)’s Ka band, high speed satellite broadband comes from Hughes’ (Private) Echostar service. Hughes recently began selling the internet service through Echostar’s Ka band satellite. Both DirecTV (NASDAQ:DTV) and DISH distribute ViaSat’s services, and DISH is its largest wholesale distributor. Echostar/Hughes has a relationship with DISH, which has already migrated some of its business from ViaSat to Echostar. Wholesale sales account for about a third of new subscribers, most of which are sold by DISH. Echostar Corporation (NASDAQ:SATS) threatens future revenue growth at ViaSat if it continues to gain traction at DISH. Positively, ViaSat has a new relationship with DirecTV that started half way through the most recent quarter, and can at a minimum partially offset some of the share loss to Echostar.

In the most recent quarter, additions from DirecTV (NASDAQ:DTV) helped offset some of the losses to Echostar Corporation (NASDAQ:SATS). ViaSat, Inc. (NASDAQ:VSAT) had 38,000 net new subscribers, an increase of 56% versus the prior quarter. The strong quarter of net new subscribers may indicate that Exede can continue to grow despite new competition from Echostar. As noted before, DirecTV only offered the service beginning midway through the quarter, so gains from this relationship may be greater than expected.