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.
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.
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.

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