Viasat Q3 Report: IFC Business Takes Flight

In-flight connectivity. Photo: ViaSat.

In flight connectivity. Photo: Viasat

Viasat, fresh from an impressive deal with European airline Neossaw significant Q3 revenue increases across the board. Overall, its revenues for the quarter ended Dec. 31 reached $554.7 million, a 45 percent increase compared to the same stage last year. It also showed a strong performance in key areas like its satellite services business, which reached close to $178 million in the quarter — a 23 percent increase compared to the same stage last year.

Viasat is also making strong strides in its In Flight Connectivity (IFC) business. At the end of the quarter, the company had 1,123 commercial aircraft flying with its Wi-Fi equipment, double compared to the previous year. Key deals with the likes of Aeromexico and United have accelerated this growth. Its government business for the three months to the end of December reached $250.1 million, a near 40 percent increase compared to the same stage last year.

Giles Thorne, a satellite equity analyst at Jefferies wrote a research note on Viasat’s results, and not surprisingly, he felt positively about the state of Viasat. He said, “It’s hard to be certain given the limited consensus, but we’d imagine the 3Q19 results were tracking comfortably c.10 percent ahead of expectations on both revenue/Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA). It was another quarter of all revenue lines accelerating growth, most notably Commercial Networks (plus 123.8 percent year-over-year from +103.5 percent / plus 109.8 percent in 2Q19 / 1Q19, higher year installs of aviation equipment, though management admit that 3Q19 was a ‘bulge’ quarter) and Satellite Services (plus 22.9 percent year-over-year, from plus 10.4 percent / plus 0.9 percent).”

Mobility has also been key, as Viasat made positive inroads with its Wi-Fi business. In the same week of its results, Viasat announced that Neos,the Italian leisure airline, will use Viasat’s IFC service on its fleet of Boeing 787 Dreamliner aircraft. Neos will have access to Viasat’s current satellite communications systems in North America to the Caribbean and tip of northern South America; over the Atlantic Ocean; in Europe, through its jointly-owned satellite; as well as the ViaSat-3 satellite constellation under development.

The IFC numbers were particularly impressive. “Management have signaled that the record 3Q19 install rate could repeat in 4Q19 but as the American Airlines retrofit program ends, the growth rate will moderate. Viasat has announced a welcome extension to existing relationships with United (34 additional A319s line-fits) and Aeromexico (option triggered to install a further 38 B737 MAXs),” noted Thorne.

However, while most numbers were significantly up across the board, residential broadband remains a somewhat challenging market for Viasat. “We still question the anaemic subscriber growth (there is none, at least not sequentially, essentially flat but up from 577k in 3Q18 — which probably means down quarter-over-quarter from plus 8k / plus 1k quarter-over-quarter in 2Q19 / 1Q19) given the ViaSat-2 enabled plans went live a year ago now and the market opportunity is large. This was the third full quarter of impact and still no pick-up in net adds —we understand that subscriber acquisition is too one-dimensional a Key Performance Indicator (KPI) — we need to focus on the economic value of the pool of subscribers, not its absolute size — but given the headroom in the spare capacity post the ViaSat-2 launch, we think some inflection would have been in evidence by now,” said Thorne.


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