Investors who bought after BlackSky’s earnings miss may have failed to read the fine print.
BlackSky Technology (BKSY 3.37%) missed analyst forecasts for both sales and earnings earlier this month, but investors didn’t seem to mind very much. Shares of the commercial spy satellite operator actually closed out last week above $8, gaining about 9% from their pre-earnings price.
Considering that this space stock missed analyst sales forecasts by more than 18% (sales were $22.5 million rather than the $27.5 million forecast), and missed on earnings, too (losing $0.66 per share instead of just $0.65), investors’ enthusiasm for the stock is a little surprising. Maybe more than a little, considering the stock has been relatively unpopular among space investors since conducting a reverse stock split in September.
Ordinarily, the math of “reverse split plus earnings miss equals rising stock price” wouldn’t seem to add up. So why is BlackSky stock on the rise these days?
BlackSky by the numbers
Let’s take a closer look at the third-quarter numbers and see if we can find out.
Year to date, management pointed out, sales are up 22% at BlackSky. But Q3 in particular seems to have been a weak sales quarter in a strong sales year. Quarterly sales came in just 6% above Q3 2023 levels. (And on the bottom line, BlackSky flipped from a Q3 2023 profit to a Q3 2024 loss.)
But not to worry, says management. While BlackSky may have billed only $22.5 million in revenue in Q3, it signed multiple “multi-year contract bookings” and they’re worth “up to $780 million” in total, in future revenue.
Two of these contracts bear special mention. For “up to” $290 million spread over five years, BlackSky will “monitor global economic and environmental activity and military capability,” including “objects of interest such as aircraft, ships, vehicles, and shipping containers,” for the National Geospatial Intelligence Agency (NGA). BlackSky also received an indefinite delivery, indefinite quantity (IDIQ) contract to support NASA Earth observation research missions through November 2028, and this one is worth “up to” $476 million.
Add them up, and these two contracts account for $766 million of the $780 million in work BlackSky seems to be saying it won in the quarter. For a company that collected just $107 million in revenue over the past year, that would qualify as real hypergrowth — a parabolic uptick in sales. Even spread out over five years, $766 million works out to an extra $153 million in annual sales — more than 140% growth.
Caveats and provisos
But don’t forget to read the fine print.
While BlackSky’s descriptions of its contract wins sound promising, the company was a bit vague on the details, and about one detail in particular. Specifically: If you examine the contract awards themselves, rather than just the press releases that BlackSky put out about them, or the even more terse summaries in the earnings release, it turns out that both of these contracts were awarded to multiple winners, of which BlackSky was only one.
Put another way, BlackSky didn’t win hundreds of millions of dollars in revenue — but merely the right to bid against others for the work.
For example, the $290 million NGA award will be divided up among 10 separate winners, including heavyweights such as Airbus, Booz Allen Hamilton, and Maxar Intelligence.
Similarly, NASA’s gigantic $476 million “Commercial SmallSat Data Acquisition Program On-Ramp Multiple Award contract” names seven other winners in addition to BlackSky. To win a share of the loot, BlackSky must beat out heavyweights such as MDA Geospatial, Planet Labs, and Teledyne.
BlackSky will grow, but a lot slower than “hyper”
Now, there’s every reason to hope BlackSky will be able to successfully bid for and receive a share of the work under both these awards. In particular, the company noted that it’s already won at least one NGA award in the past (worth $60 million). But investors expecting BlackSky to get all $766 million of the monies on offer are in for a rude surprise.
BlackSky getting all the money on offer, I fear, is probably a pipe dream. As only one among 10 companies bidding on the NGA contract, and one of eight bidding on the NASA contract, BlackSky’s actual winnings will almost certainly end up a small fraction of the total — and could be nothing at all.
And as for BlackSky turning an actual profit, even the most optimistic analysts don’t see that happening before 2027 at the earliest.
