Profit from the growing trend in snooping
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Associate Editor
David Stevenson Oct 16, 2009
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Britain, we're frequently told, is the most spied-upon nation on earth, with the average city dweller captured on closed-circuit television (CCTV) cameras around 300 times a day. The accuracy of that statistic is debatable, but there's little doubt that we're being monitored more closely than ever before.
However, CCTV cameras are positively old-hat in terms of surveillance technology. Today's cutting-edge spies are orbiting the planet – and demand for their services means big profits for the companies who run them.
The first satellite to take snaps of Earth was the US Explorer 6, which went into orbit 50 years ago. While in practice the images were virtually useless, there have since been big steps towards developing a user-friendly product. In 1972 the US started Landsat, the largest and longest-running programme of compiling photos of the earth from space. The first real-time imagery was introduced five years later, with Landsat sending up its most recent satellite in 1999.
But the biggest advances have come in the 21st century. High-resolution pictures taken from space are widely available, with private firms offering access to satellite imagery databases. "Since around the late 1970s, the US military has used high-resolution spy satellites capable of reading newspaper headlines in Red Square," says Brian Chen in Wired Science. "But only in recent years has the technology become available to the public and businesses, while making dramatic strides in coverage and resolution. When Google Earth launched in 2004, its imagery was low-resolution and spotty. But by March 2006, a third of the world population could get a bird's-eye view of their own homes in high resolution."
As the firm perhaps most responsible for showing the public just how powerful satellite surveillance technology can be, Google got lots of media coverage last year for its Super Satellite images. But even though the satellite that provides these images sports a Google sticker, its key customer isn't Google. Rather, it's the US National Geospatial-Intelligence Agency (NGA), which analyses the output for national security. The NGA is paying half the development cost of the satellite (not cheap at a $500m total bill) and has committed to buying pictures from it.
"The US government has a voracious appetite for high-quality satellite imagery, to provide pictures of everything from Iranian nuclear projects to Afghan mountainsides," says Robert Cyran on Breakingviews. "And law makers seem to want ever more pictures." This demand "effectively underwrites new satellites". That's not to everyone's taste. "The government has regulations on just how closely Google et al can look (mostly because the government itself wants to be the only one that can see really... close up on us)," says MG Seigler in The Washington Post, "but still, this is starting to get mildly creepy."
But satellites aren't just about security surveillance and seeing what your neighbours are up to. Also in the frame are applications as diverse as mapping, ship and aircraft tracking, agriculture, energy and disaster response.
It's clearly a big growth market. In its recent report, Satellites To Be Built And Launched By 2018, World Market Survey, Euroconsult reckons almost 1,200 will go into orbit in the next nine years, about 50% more than in the previous decade. It see revenues generated growing at the same rate, reaching a total of $178bn over the next ten years. With demand showing no sign of slowing, we look at the pick of satellite owners below.
The best bet in the sector
GeoEye (Nasdaq: GEOY) made history almost ten years ago by launching IKONOS, the world's first commercial satellite. Its latest launch, GeoEye-1, is behind Google's Super Satellite images. This deal "sparked a surge in revenue, transforming the business model beyond our expectations", say Paul Coster and Mark Strouse at JP Morgan. "It's the opposite of a spy satellite", says Mark Brender of GeoEye. "Spies don't put info on the internet and sell imagery. We're an Earth-imaging satellite, and we can sell to customers around the world who need to map, measure and monitor things on the ground."
But while satellite operation is fast-growing, it isn't the safest business. A collision with space debris is a nominal concern. More crucially, "about two-thirds of revenues come from the government, who might try to force prices lower, or do more work in-house", says Robert Cyran on Breakingviews. But it takes years to design a satellite and launch it, so revenues and margins shouldn't come under pressure soon. With uses such as GPS increasing, growing demand for satellite capacity, and high barriers to entry, satellite owners such as GeoEye appear well placed. The stock trades on a forward p/e of 16.9. The JP Morgan team has a price target of $34.
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