DigitalGlobe reported third-quarter net income of $9.2 million on October 29. Though this was a year-on-year improvement as compared to reporting a loss in the same period a year earlier, its revenue earnings of $173.3 million in the period fell short of Wall Street forecasts.
Further, while revenue share from US government increased 26.4% to $111.0 million owing to fresh NGA contracts, what was noticeable was that diversified commercial revenue declined 6.7% to $62.3 million principally due to revenue from location based services.
Digital Globe shares plunged over 25% to 14.93 on Friday October 31 closing, their lowest levels since 2012. DG shares have been hammered since the beginning of the year. Recently, JP Morgan downgraded the stock to neutral from overweight, saying its future growth prospects were "increasingly at risk," and Benchmark Co cut its target for the company's stock to $20. The reports came the same day that the company announced it had signed a new year-long contract to continue providing unclassified, shareable, high-resolution imagery to the US National Geospatial-Intelligence Agency.
The space imaging giant is battling the impact of new entrants into the EO market and the fatigue is beginning to show. On October 15, the satellite imagery giant cut 40 jobs, or about 2% of its workforce. Although it immediately reacted saying the move was necessary “to balance costs and growth strategy”, what is important to note is that only seven months back in February it had fired 155 employees as part of what it then said was an overall strategy shift.
While DG has repeatedly brushed aside the all negative reports saying they were overplayed and showcased million-dollar deals from the US government, especially the NGA and Department of Defence, as signs of good financial health, its efforts in capturing the commercial satellite imagery market has fallen flat, as the Q3 results show.
As I had noted in my previous blog, DigitalGlobe’s Q2 reports in July had also warned of "somewhat moderated" top-line growth in the second half of the year. CEO Jeffrey Tarr had accepted that the only segment to experience a year-over-year decline in sales during the second quarter was LBS. He had then blamed this on the decision to avoid selling the company’s highest quality 30cm imagery to some top LBS players at rock-bottom prices.
As to how long DG will continue to ignore the commercial imagery market, which is getting more and more overcrowded with newer entrants, and continue to bank on big government contracts alone would be interesting to watch.