SES S.A. Satellite Communications Stocks Crash 30%
By Bill D'Zio
March 4, 2020
SES stock plunged after earnings release slashed payout.
SES has had some tough times. Coming down from a stock high of34 Euros in April of 2015, the stock has been on a steady decline despite changing both the CEO and CFO.

Downward trend

Similar to other satellite operators, SES’s stock price hit its high in around 2015. Since then, the industry has seen headwinds stemming from overcapacity and subsequent declines in capacity pricing.  SES has been one of the more aggressive satellite operators as it relates to cost-saving technologies, including electric thrusters for orbit-raising, SpaceX Falcon-9 rockets for lower-priced launches, and higher capacity high-throughput satellites (HTS), including its O3b constellation in medium earth orbit (MEO), itself a unique constellation of 20 satellites offering low-latency and high-throughput capacity.

The company has made leadership changes over the past several years to reflect its transition from a primarily video company to a network-focused company, having brought in Steve Collar as CEO 2 years ago from the company’s networks division. Recent years have seen other leadership shuffles, including a new CFO, with this having come in tandem with broader organizational restructuring. The changes have been met with mixed results where it counts, as revenues and financial performance more broadly have been flat to negative, roughly in line with the rest of the industry.

The SES Angle

SES is a communications satellite owner and operator providing video and data connectivity worldwide to broadcasters, content and internet service providers, mobile and fixed network operators, governments and institutions. It is the largest or second-largest satellite operator in the world, trading places with American (though Luxembourg-domiciled) Intelsat depending on USD/EUR exchange rates.

SES is one of the world’s largest satellite operators with over 70 satellites both geostationary orbit (GEO) and medium Earth orbit (MEO).    The company’s fleet is currently unique in providing communications from both GEO and MEO satellites, which has allowed SES a differentiated selling point for services such as cruise ships, high-bandwidth-requirement trunking, etc.

So What changed?

Over the past several years, SES has faced a decline in its core business, namely video.  The video market is shifting to online streaming services such as Netflix. SES is one of the more video-focused of all satellite operators, with more than 60% of its revenues historically coming from high-value orbital hotspots, mostly in Europe but also in the developing world. While capacity at these hotspots remains relatively higher-priced than plain vanilla satellite capacity, satellite direct-to-home (DTH) video broadcast is, by many accounts, an industry in slow but secular decline. To offset this, SES attempting to rapidly expand into mobility.  Currently mobility services providing connectivity services such as Wifi to airplanes and ships are growing quickly, but the business models have been less slow than expected to develop, and indeed, some of the few companies who’s shares have fared worse than satellite operators have been the in-flight connectivity service providers (see Gogo, Global Eagle Entertainment, etc.)

A perfect storm was thus brewing already when, earlier this week, SES announced a triple whammy of bad financial news. FY2019 saw revenue contraction of 1.3%, or 3.8% at constant exchange rates. The company also released a significant downgrade to 2020 revenue and EBITDA guidance. Finally, SES announced a dividend of EUR 40 cents per A Share, which represents only half of the dividend paid in 2018, and apparently, less than the market was expecting. Chief Executive Steve Collar explained, “Revenue was slightly below our expectations as we missed one important contract on the video side.”

Despite the negatives in the short-term, SES remains relatively well-positioned among the satellite industry players. The company’s debt levels are far smaller as a percentage of any meaningful metric than Intelsat or Telesat, and the combination of GEO/MEO, while potentially ripe to be disrupted by LEO constellations, is, objectively, not much worse positioned than any other major satellite operator as we move into this brave new LEO world.  SES also have a path forward for a payout with the C-band alliance, with SES claiming a significant percentage (more than 1/3 by many estimates) of the North American C-band market. SES along with rivals Intelsat, Eutelsat and Telesat plan to resell the C-band spectrum for the roll out of high-speed 5G mobile networks in the United States resulting in a anticipated windfall of cash, with SES and Intelsat expected to receive the lion’s share due to their controlling the lion’s share of available C-band spectrum.

Advanced television shared that SES CEO Steve Collar made a statement that while the company is waiting for the FCC’s final text of its Order in regard to C-band, he was confident that the core terms outlined by the FCC would stay in place, and that SES could totally meet its obligations.

SES CEO also shared his disappointment by the market’s March 2 reaction to the planned changes at SES. “The market’s reaction was pretty extreme for two reasons: We had not updated our guidance since 2018, and as far as the Dividend cut, we had articulated pretty clearly the reasons and how we were going into a big CapEx demand in 2021. The market has probably not totally understood our commitment to long-term dividends and a return to shareholders. But the news we rolled out was positive and exciting and certainly so in respect to C-band. Everything there has moved forward meaningfully, but perhaps our strategic transformation has got a little lost in the narrative.”

SES plans to take the money from the C-Band auction and reinvest into purchasing new, smaller more cost effective satellites.  This seems like a logical play for SES since there are several new mega satellite networks like the SpaceX Starlink.  SpaceX has already deployed more than 300 satellites for the system.  SpaceX is launching at an unseen rate is planning to launch a constellation of over  12,000 to provide broadband internet access globally in just a few years. This being the case, the LEO constellation business model remains highly, highly uncertain, and SES having an existing non-GEO constellation in O3b does put them at the front of the pack, at least for now, in the non-GEO communications satellite race.

Among prospective LEO competitors to SES and others, Starlink/SpaceX is by some margin the most advanced in terms of satellites in orbit, with  Amazon (AMZN) and Softbank-backed OneWeb in the varying stages of developing internet-beaming satellite constellations of their own. Through collaboration with Airbus, OneWeb is now manufacturing LEO satellites at a significant rate, and is preparing for its 2nd launch of ~30 satellites, with Amazon’s Kuiper at an earlier stage of development. This increased competition in the satellite market for data services may start to erode the market available for SES as it attempts to reinvent itself. However, it may also end up that the LEO constellations have dramatically underestimated the complexity of their goals, and subsequently, SES finds itself in the driver’s seat as its GEO/MEO combination redefines what satellite can offer to the fast-changing world of connectivity solutions.

About The Author
Bill D'Zio

Bill D'Zio

Co-Founder at WestEastSpace.com

Bill founded WestEastSpace.com after returning to China in 2019 to be supportive of his wife's career. Moving to China meant leaving the US rocket/launch industry behind, as USA and China don't see eye to eye on cooperation in space. Bill has an engineering degree and is an experienced leader of international cross-functional teams with experience in evaluating, optimizing and awarding sub-contracts for complex systems. Bill has worked with ASME Components, Instrumentation and Controls (I&C) for use in launch vehicles, satellites, aerospace nuclear, and industrial applications.

Bill provides consulting services for engineering, supply chain, and project management.

 

1 Comment

  1. Debadatta Mishra

    It is a good analysis on SES . Quite Informative and an eye opener for other space industries.

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This is why Elon Musk wanted to avoid Parachutes

Parachutes are plaguing space programs. SpaceX doesn’t like Parachutes. They are difficult to design, hard to package, and easy to damage. The larger the mass of the spacecraft, the more effort to slow down. Larger, more efficient, complex parachute systems are needed. Several failures have hit the industry over the last few years, including SpaceX Crew Dragon, ESA ExoMars, Boeing CST-100, and the NASA Orion to name a few.

ESA Grounds ExoMars

The ExoMars program is a joint effort between European Space Agency(ESA) and Roscosmos.  The mission  includes the Trace Gas Orbiter (TGO) launched in 2016. The TGO is already both delivering important scientific results of its own and relaying data from...

COVID19 Impact Part II – SpaceX , SLS and NASA

Part 2 of the Life in Space with COVID19 we will delve into Crew demo-2 where NASA and SpaceX are planning a launch within two months. There are a lot of pre-launch milestones and activities to cover to ensure a safe flight for the Astronauts. If anything goes wrong, there are lives at stake. Now NASA and SpaceX have to contend with another potential setback, COVID19 pandemic.  

Japan to launch last ISS resupply mission

Japan is one of three nations with the ability to launch resupply materials to the International Space Station. Japan’s 9th and final launch of the HTV is scheduled to take place on May 21, science minister Koichi Hagiuda said Tuesday.

Coronavirus Pandemic Impact on Space Programs Part I

With the launch window for NASA’s Mars Perseverance rover opening in a little less than four months, there are nearly daily pre-launch milestones to complete the rover pre flight activities at the Kennedy Space Center in Cape Canaveral, Florida. Tight schedules on complex missions usually do not mix well.  Now NASA has to contend with another challenge. COVID19.  

Final NASA Seats on Soyuz in 2020

NASA has been dependent on Russia for transport to and from the ISS. Over time the cost of seats on the Soyuz crew vehicle have risen.

437 days 18 hours Longest Duration in Space

Since 1995 there has been a record that has stood the test of time and space.  Valeri Vladimirovich Polyakov a Russian cosmonaut logged 437 days and 18 hours in space.

China Long March 7A fails

The Long March 7A rocket lifted off at 9:34 p.m. Beijing Time from the Wenchang Space Launch Center on the coast of south China’s Hainan Province.  A malfunction occurred some time after lift off which Xinhua reported Chinese space engineers will investigate the cause of the failure.

Falcon 9 Beware of The Ides of March err disregard.

On Sunday, March 15 the Ides of March, SpaceX stood down from its launch attempt of Starlink satellites.

Satellite 2020

As an American living in China for most of the past 8 years, there have been two reasons to come home every year: Christmas, and the SATELLITE Conference in Washington DC.

Pi Space

Pi π Day is March 14. How does Pi apply to Space?

Reflections of 2020 Satellite Elon Musk

I was very much looking forward to watching the Elon Musk keynote at SATELLITE 2020. What would it be like to watch Elon Musk speak? It was, in a word, mind-blowing. Incredible. Thought-provoking. Inspiring. Annoying. But, at the end, Elon Musk certainly did not disappoint. What were the takeaways?

3 Things About March 6 SpaceX Launch

A SpaceX Dragon cargo spacecraft is on its way to the International Space Station.  The spacecraft  launched at 11:50 p.m. EST Friday. The Dragon Cargo spacecraft will deliver about 4,500 pounds of cargo and science investigations, including a new science facility scheduled to be installed to the outside of the station during a spacewalk this spring.

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