Viasat Inc (NASDAQ:VSAT) stock fell 0.92% (As on September 18, 11:32:02 AM UTC-4, Source: Google Finance) after JPMorgan downgraded the company to Neutral from Overweight with a price target of $15, down from $29, following last week’s news that United Airlines will shift 1,000-plus mainline aircraft from existing in-flight connectivity providers to Starlink. While United will only begin trialing Starlink service next year, JPMorgan assumes Viasat will lose its direct service aircraft as well as live TV and Thales aircraft where the company provides satellite capacity.
The downgrade is a direct response to last week’s announcement by United Airlines. The airline’s shift to Starlink for IFC services is expected to start with trials next year, leading to a projected loss for ViaSat. The impact on ViaSat’s business is estimated to be $60-80 million, which translates to approximately 1-2% of the company’s forecasted revenue for the fiscal year 2025. The forecast considers the potential loss of both direct service aircraft, estimated at 250, and additional planes that utilize ViaSat’s satellite capacity through LiveTV/Thales.
The full effect of this transition is anticipated to materialize in the calendar year 2027, coinciding with the expiration of long-term IFC contracts. Despite the setback with United Airlines, ViaSat has secured several IFC contracts recently, including agreements with LOT Polish Airlines, Korean Air, Royal Jordanian Airlines, and Icelandair. These wins suggest competitive resilience against Starlink, but the scale of United Airlines’ decision indicates a significant risk to ViaSat’s long-term market share within the IFC and broader mobility segments.
On the other hand, For Q1 FY2025 net loss2 of $33 million decreased compared to net loss of $77 million in Q1 FY2024 primarily due to improved operating performance, partially offset by higher interest expense and reduced tax benefit. Supplemental adjusted combined (“Combined”)3 revenue grew 6% YoY driven largely from growth in the Defense and Advanced Technologies segment reflecting the value of the technology portfolio. Combined Adjusted EBITDA increased by 16% YoY primarily from incremental revenue flow-through in Defense and Advanced Technologies and double-digit Adjusted EBITDA growth in both aviation and government satcom business lines within the Communication Services segment. Growth in those areas more than offset expected declines in fixed broadband service revenue and higher R&D investments in growth businesses. Strong secular growth in satellite mobility; the diversity of our businesses; and domainspecific platform integration, business models and value-added services; all contribute to a durable competitive posture and favorable operating leverage.