Faced with a “fiscal cliff” that threatens to cut off its main source of revenue -its many lucrative defense contracts with the U.S. government,- ViaSat Inc. is placing its bets on its growing satellite Internet services.
If U.S. lawmakers are unable to agree on a method to make up for the budget deficit, they will implement a series of automatic tax hikes and cuts in government spending in 2013. The "fiscal cliff" will save the government some $600 billion, and a good amount of that will come out of contracts with companies like ViaSat.
It’s an uphill battle for the satellite communications provider. Defense contracts with the U.S. government currently take up 45% of Viasat’s revenue. Worse, company shares have yet to recover from the drubbing they received when ViaSat first launched its Exede Internet-by-satellite service back in January.
Eight months ago, the value of ViaSat’s stock hovered near $50. The company currently trades around $35 a share.
According to Timothy Quillin, an analyst for Stephens, Inc., investors have expressed their disappointment in the slow pace of subscriber growth in ViaSat’s satellite services segment, especially its Exede service.
Still, ViaSat remains positive that it made the right choice in rolling out Exede. According to the Company, it had added 20,000 new subscribers during the first quarter of 2012, and 40 percent of them had switched to the high-speed Exede satellite Internet service.
ViaSat further revealed that its satellite services segment received 31% more orders during the same quarter. Chief Executive Mark Dankberg said that one particular contract during the first quarter was almost equal to the normal order flow.
Mr. Dankberg co-founded ViaSat in 1986. According to him, the home Internet service will continue to contribute more and more revenue during the next few years.
He also announced that ViaSat will trim down its government sales from 45% down to 35% within five years in order to better diversify company revenue. Mr. Dankberg also took care to clarify that the Company’s government segment will not grow smaller. “It will be that it doesn't grow as fast as other parts of our business grow," he explained.
Investors are concerned that ViaSat is taking too much time in its migration. Non-government sales of satellite equipment and services currently take up a quarter of the Company’s sales. This includes all revenue from its Exede Internet-by-satellite service.
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