Don't show again10 Thoughts On GeoEye
As a GeoEye (NASDAQ: GEOY) shareholder and investor, I am disappointed but not surprised by the delay of GeoEye-1’s latest imagery and certification via the National Geospatial-Intelligence Agency (NGA).
One thing is certain, if these images aren’t approved, and approved soon, this year’s investment thesis for shares of GeoEye goes down the toilet in a hurry.
Here are 10 thoughts on GeoEye as of right now.
New to the GeoEye story?
GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.
This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.
Want more?
- Read my latest buy recommendation here.
- OR: listen to my EXCLUSIVE interview with GeoEye’s management team here.
- OR: Read my latest update on the company’s Q3/2008 earnings release and conference call here.
10 Thoughts On GeoEye
1) How far away are we from NGA certification?
It seems that lately, every single press release issued by GeoEye contains the following line: “The satellite is currently in its final stages of check-out and calibration.”
That was actually quoted from a recent press release concerning a wonderful new poster being offered by GeoEye of the presidential inauguration taken from space, for only $29.99!
Woohoo!
How bout some updates on the “final stages of check-out…”?
This is probably the 10th press release that has had that line or a similar line stating that something is immenent…for the last 3 months.
So the real question becomes: how far away are we REALLY, from NGA certification? Are we talking weeks, or months?
If it’s the latter, GeoEye better issue an honest and forthright press release ASAP.
2) Why has the imagery certification taken this long?
That’s the million dollar question.
It seems that GeoEye did not foresee the problems with the software inside the satellite not being congruent with what they and the NGA are looking for in terms of results and imagery.
As we speak, a high priced programmer is rewriting the code from scratch for the satellite for this imagery or particular set of instructions or processes that makes them germane to the NGA.
Obviously GeoEye-1 has been taking beautiful images for months now, as evidenced by the widespread treatment and press coverage that GeoEye received as a result of their presidential snapshots, but the question remains, why is the imagery certification taking this long?
Shouldn’t GeoEye put out some type of press release that is less cryptic than what they have already issued?
3) What impact has this had on GeoEye’s business?
It’s probably not a good impact that’s for sure.
We’ll find out soon enough as GeoEye will be releasing Q4/2008 and full year 2008 earnings sometime in the next few weeks.
I would not expect the whole of 2008 or the 4th quarter to be pretty at all, but we did see vast improvements in margins in Q3/2008, so I at least look for that to continue but on a lower revenue base.
Not getting the intended revenue stream from GeoEye-1 that we have all been counting on from no later than January of this year, is going to seriously affect GeoEye’s revenues, margins, and our investment thesis.
I would look for a major impact to GeoEye’s top and bottom line for the first quarter of 2009 as well even if the imagery was approved tomorrow.
4) What about those deals that GeoEye announced recently with resale partners?
In October, GeoEye announced a deal with Italy’s Telespazio appointing the company as GeoEye’s Commercial Regional Affiliate for the region of Europe and North Africa.
Then in January, GeoEye announced a similar deal with the Centre for Remote Imaging, Sensing and Processing (CRISP) at the National University of Singapore to deliver imagery in the Southeast Asian region.
This was an extension of a previous relationship that GeoEye had in place with CRISP to resell IKONOS imagery.
So do these deals mean that GeoEye thinks it’s a matter of if not when the NGA certifies GeoEye-1’s imagery?
It’s tough to say because in their announcements, GeoEye made no mention of contingencies, and if the deals were predicated on whether or not GeoEye-1 was fully operational and the imagery certified by the NGA.
The deals definitely make sense for both GeoEye and their partners, and make the certification of that imagery look favorable, but again, make no mention of what happens if the imagery is not certified by the NGA.
5) So what happens if GeoEye-1’s imagery is NOT certified by the NGA?
Well, it’s my guess that we’re already seeing what happens if the imagery is not certified, as obviously, the imagery has not yet been certified, and as a result, GeoEye has not been able to sell any imagery to anyone, or at least hasn’t announced that they have.
What remains to be seen, and what I hope to get more clarity on, is whether or not GeoEye can sell imagery to other partners such as Telespazio and Google (NASDAQ: GOOG) even if the imagery has not been certified yet or ever, by the NGA.
If the imagery is not certified, you can rest assured that GeoEye would do whatever was in their power to make sure it eventually was certified, and failing that, squeeze every last bit of revenue that they possibly could from GeoEye-1 with the imagery that it was producing, sans approval from the NGA.
Continue reading for my other 5 thoughts…
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(5) comments to “10 Thoughts On GeoEye”
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January 29th, 2009 at 6:47 am
Thanks for keeping the pressure on mgmt.
I’m sure you’ve listed to the Jan 14th interview with the CEO, but you haven’t mentioned it. He does update his time frame and talks at that time about a couple weeks for the software fix and a couple weeks for the cert. I would love to believe him but I can’t. See below for the link to their website and the interview.
http://geoeye.mediaroom.com/index.php?s=97
January 29th, 2009 at 6:50 pm
Michael,
Actually, I didn’t listen to that interview, so thanks for passing that along my way.
It was a great interview, and if I gathered anything from what the CEO was saying it is that the engineers are still tinkering with the accuracy of the imagery, not so much the imagery itself, and that he is prodding them to release the images to the NGA, while they are hesitant and trying to get it right.
I’m not sure what this means exactly.
Also, according to the interview, he said that they would release the images in “a couple of weeks” which would be right about now, and that he then expected the NGA to approve it and for them to deliver imagery within “1 to 2 months” from that point, which again puts us at about the end of Q1…
He also stated that Google and other partners want to start using GeoEye-1’s imagery, but it appeared that they haven’t yet done so, most likely because they want to wait to get the go ahead from the NGA first.
Again, thanks for passing that along, it adds a little more clarity to the issue.
Chris
January 30th, 2009 at 6:05 am
I bought march 25/30 calls back in early december that are now worth 25% of what I paid..best case. I think I have no choice but to hold on at this point and hope that management can deliver for once.
What would you do with these? I’m very bullish and I believe the value of this company should be over $32+/share all day long once we get news of the cert.
January 30th, 2009 at 10:49 am
Sorry but one other thing I’m considering when evaluating my calls is how the market will react to GEOEYE announcing they’ve fixed the software issue. My understanding is that the images will be as good if not better than the NGA is expecting when they send in the imagery. If Geoeye announces on or before the conf call that the software issue is fixed, my guess is investors will feel a lot better about investing in GEOY.
January 31st, 2009 at 1:48 am
Micheal,
As for your options, you ALWAYS have a choice!
The key to being a good trader (not investor!) is knowing when to take your losses and conserve capital, and not let them turn into bigger losses.
Make no mistake that GeoEye is risky, and the options method is the riskiest of all to play them.
If you feel that your investment might go to $0 because of the time, then sell and get something rather than nothing.
Again, as for the images, it is not the quality of the imagery that is in question, but rather the accuracy in terms of location that they are working on per the interview.
Obviously if the NGA approves those images we are golden, but so much time has passed, who knows what’s going to happen at this point.
Again, I would not be surprised to see the approval pushed back towards the back half of Q1.
Chris