Market mirror on the wall...

What the market decides your value is, is your value; choose, or it will be chosen.

…who is the profitest of them all?

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I have no special information regarding any publicly traded companies. Though I do know a number of the key individuals, I do not have access to any special information. Everything referenced below can be determined from public filings and press releases. And, of course, the liberal application of domain knowledge and magical thinking. Do not assume this to be advice of any sort; if you do, your financial advisor will laugh at you, and I might too.

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Hey Team,

You will find this post is more ‘focused’ than others have been. Today, I am referencing specific companies as examples of more conceptual ideas. If I ever separate out free from paid content, I will put these more opinionated pieces into the paid content.

Photo by Ruvim Noga on Unsplash

As an organization grows and evolves, its central market value can change. This value can also change with respect to how the market views that organization. The point here is that a company can evolve, but the market’s opinion of that company also changes. It is always worth paying attention to your organization's persona, and it is worth getting an idea of what people say behind your organization’s back.

Presently, we are in the midst of an extremely complicated quarter for Earth Observation. If we take stock prices as an indication, we can see that even though there is a land war in Europe* the remote sensing community is struggling to make ends meet. One could pontificate on the why of this situation, but clearly, since the glut of capital poured into various Space SPACs and venture rounds last year, EO is yet to find its commercial product/market fit.

I still have a strong expectation that this market will be found; indeed, companies like Sparkgeo are amongst those on the cutting edge of this market development. The final gap is that of turning pixels into products. Products that people or companies will buy.

All that said, the premise of this note is not to dig into the commercial EO market but to consider how the market sees your organization and how that knowledge can be used to create opportunity. For example, let's think about two of the most prominent EO SPACs of last year. BlackSky & Satellogic. Both of these companies have great technology.

I think we can agree that BlackSky has strongly dialled-into analytics based on their own constellation. This focus on analytics has won them a billion-dollar (yeah, with a B) portion of the National Reconnaissance Office's (NRO) vaunted Electro-Optical Commercial Layer contract. This lucrative opportunity is a tremendous boon for the company. If they can service this contract, they can survive any ill-economic winds. Unfortunately, with a complicated cash position building the necessary constellation seems to have become difficult.

Meanwhile, Satellogic has managed to build a uniquely efficient constellation. Their unit cost economics are lower than anything in the market, and from seemingly nowhere, it has a constellation of almost thirty (30!) satellites. However, being a very international company, US government defence contracts are not a credible source of revenue in the short term. As stated before, the commercial EO market has stuttered, leaving Satellogic in a tough revenue position. We can see then why Satellogic has focused more on satellite production operations than selling pixels as an immediate source of revenue, which seems sensible, albeit "not the plan."

So in this time of change and complexity, what are the key opportunities for these two companies? What does the market remember and observe about these two entities? Consolidation seems like an obvious option. BlackSky has an enormous opportunity they are having difficulty realizing, while Satellogic has the unit economics and a stronger cash position to make this a reality. So surely Satellogic should acquire BlackSky for the NRO contract? Interestingly, any transaction would need to go the other way, or BlackSky's contract would likely evaporate.

One could argue that Planet could make this happen or consider picking up BlackSky for the NRO contract. But, given Planet already holds a major portion of this agreement, this would only leave two organizations in the NRO contract. The duopoly would be reminiscent of the Geo-Eye days, and it gets dangerously close to a monopoly, especially when EO companies seem to be a little fragile. Three is definitely a magic number here.

So, the chain of events would need to be for BlackSky to be capitalized by some kind of "fund" and for it to then acquire and domesticate (from a US perspective) Satellogic for its unit economics and immediate imaging capacity.

This is obviously only a thought experiment. The point I really want to illustrate here is understanding and navigating how a market views your organization's capabilities or its central value. In reality, some of persona a leader or team get to control, yet some they don't. But in our case, we can see that although BlackSky has monstrous analytic capabilities, its market value has morphed into having access to a lucrative contract at a time when pixel sales are hard. Meanwhile, Satellogic’s market value is its unit economics. I would argue that BlackSky's market value has changed from its original intent, yet Satellogic has always referred to its unit economics as the differentiator. It is also worth pointing out that I doubt BlackSky would consider their NRO contract as being their best attribute.

Again, it's worth noting that both these companies have enormous capabilities in a wide variety of other areas, but in the end, the market sees a single differentiator. So, when you ask the Market Mirror, what would it say about your organization? What is your organization's persona and its market value? Do you know it? If you don't, what do you expect it to be, and is that what you want it to be?

*This sounds extremely disingenuous, but defence is a key market for EO, and more pictures are sold when our politics are unstable. This distasteful truth of the Earth Observation industry is that wars are usually good for business.