Investors shared insight into how they are scrutinizing space investments right now, during a recent panel at World Space Business Week. Photo: Via Satellite

PARIS — The satellite industry continues to attract investors excited by the potential returns, but financiers are scrutinizing the business plans, growth rates, and exit plans for investments in the sector.

Investors are being more cautious toward space-based investments right now, Chirag Kapadia, executive director, UBS, said during an investor panel at World Space Business Week. The panel gave insight into how financiers are looking at the market right now. Investors are focused on whether or not companies have a plan and a roadmap to revenue, he said.

“In terms of private equity in this industry, it is never easy. Most investors will talk about tech differentiation and ask, do you have a path to revenue?” Kapadia said. “I do think there are a lot of companies looking for investors right now. However, investors are being very cautious and selective.”

While the discussion of orbits, and Low-Earth Orbit (LEO) and Geostationary Orbit (GEO) gets a lot of attention within the space industry, investors are more focused on end markets such as mobility, maritime, and aero. “We find that is what gets investors comfortable,” he said.

Michael Pierre, managing director of Global Technology, Media and Telecom Investment Banking for Bank of America, gave an upbeat assessment of the current market dynamics and believes there is “a ton of growth to come.” He agreed with Kapadia’s assessment of mobility, and highlighted in-flight connectivity (IFC) and direct-to-device (D2D) as areas of interest, putting an emphasis on execution.

“People want land-like connections everywhere. I think that brings a lot of opportunity,” Pierre said. “It is an execution story. Everyone knows this is a massive market. You need to show the path to profitability. I do think we are moving to a phase of backing winners. The market is standing behind winners.”

But the business models and applications for non-GEO are still being worked out, noted Akshay Patel, managing director of PJT Partners. He believes there is a lot of risk in terms of economics, questioning whether demand is infinite and whether data use will continue to trend upwards. He also questioned whether compound annual growth rates (CAGR) will be exciting enough for long-term investors.

“I think the broader point is that 14% CAGR over the next 10 years — it is growth, but not the most exciting growth. We are going to look and see whether 10 to 15%  will drive investors.”

Patel believes one of the issues flying under the radar right now for investors is having a defined exit strategy for investments in space assets.

“Winning contracts and growing revenues attracts investors. Those two things are validating some of the business plans,” he says. “We still need to see a lot of turnover in investors so we get the longer term investors in. Exits is really the big question. We have a lot of growth equity investors who would like to invest in the sector, but they don’t see the exit. That is the big issue today.”

Vaibhav Lohiya, managing director of Deutsche Bank Securities agreed that with the shift from GEO to LEO, there is some risk whether businesses will hit the growth targets they set out. “It feels a tall order to achieve. Between government and commercial satcoms, the government seems to be driving a decent amount of that growth,” he said.

Lohiya also believes the industry will see more M&A in satellite, but he doesn’t see a big space-based IPO on the horizon.

“We are at the start of the M&A phase. We will see more verticalization,” he said. “You need scale for companies to drive efficiency. When looking at the equity markets, it is hard to see an IPO in the near term. Large public IPOs in the space sector are unlikely right now.”

Mathieu Robilliard, equity research, Telecoms and Satellites for Barclays, echoed some of the same questions about applications and growth across the different orbits.

“Applications like consumer broadband are still early. We look more at use cases. Satellites have some unique attributes,” Robilliard said. “The question is who is going to take the growth. Will LEO capture most of the growth over the next five to 10 years, or will GEO/MEO gain their share?”