Viasat Inc. (VSAT) stands at a fascinating crossroads, and savvy investors should be paying close attention. This global communications and defense technology company, with a market cap of roughly $3.44 billion, operates two distinct business segments: Communications Services and Defense and Advanced Technologies (DAT). While many have pigeonholed Viasat as a fading satellite broadband player overshadowed by Starlink and others, a deeper dive reveals a far more complex and promising story—one that could reshape how investors view this stock and similar tech-defense hybrids.
The Market’s Misunderstanding: A Tale of Two Businesses
Viasat’s Communications segment, which makes up 73% of revenue and 80% of EBITDA, includes fixed broadband, government contracts, maritime, and inflight communications (IFC). The broadband side is indeed struggling, with revenue down over 27% year-over-year, fueling fears that Starlink and other entrants will obsolete Viasat’s legacy services. However, this narrative misses the mark on the other Communications businesses, which are growing robustly: government contracts up 25%, IFC up 22%, and maritime up 11%. The IFC business, in particular, enjoys long-term contracts and high switching costs, with a backlog of 1,600 planes waiting for service—underscoring a significant untapped market as only about one-third of global airplanes currently have Wi-Fi.
Meanwhile, the DAT segment, comprising 27% of revenue and 20% of EBITDA, is a high-margin, high-growth hidden gem. With EBITDA margins around 28% and mid-to-high teen revenue growth, DAT focuses on cutting-edge defense technologies such as next-gen encryption, drones, tactical networking, and low Earth orbit systems. Its $1.22 billion revenue and $285 million EBITDA position it as a prime candidate for higher valuation multiples seen in peers like AeroVironment and Mercury Systems, which trade at 20x to 80x EBITDA, while Viasat trades at a mere 6x.
Activist Insight: Carronade Capital’s Bold Proposal
Enter Carronade Capital Management, an activist firm with deep expertise from Elliott Management alumni, holding 2.6% of Viasat. On July 31, they called for spinning off or IPO-ing the DAT business to unlock shareholder value. Their analysis suggests the DAT segment alone could be worth $6.3 billion to $16.2 billion at peer multiples—potentially exceeding the entire current enterprise value of Viasat ($8 billion). This spin-off could reframe the Communications segment as a smaller, more focused entity worth around $4.9 billion and add another $1 billion from a recent legal settlement.
Carronade’s valuation implies Viasat shares could soar between 76% and 304%, a compelling upside for investors willing to look beyond the legacy broadband narrative.
What Investors and Advisors Should Do Differently Now
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Reassess Viasat’s Investment Thesis: Don’t write off Viasat as a dying satellite company. The growth in government, IFC, and maritime communications combined with a booming defense tech segment suggests a company in transition, not decline.
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Watch for Corporate Action: Activist involvement often precedes significant strategic moves. Investors should monitor Viasat’s management statements and filings closely for signs of DAT spin-off plans or partial divestitures, which could unlock substantial value.
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Consider Sector Diversification: Viasat’s dual focus on communications and defense tech is a blueprint for future tech-defense hybrids. Investors might look for similar companies with hidden high-growth segments overshadowed by legacy businesses.
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Evaluate Long-Term Contracts and Switching Costs: The IFC market’s long-term contracts and high switching costs provide a durable competitive moat. This is a reminder for investors to weigh contract structures and customer stickiness heavily in their valuations.
What’s Next? Forecast and Strategic Implications
With the geopolitical landscape fueling increased defense spending and the aerospace sector’s steady growth, Viasat’s DAT segment is well-positioned to capitalize on demand for advanced technologies. The global military drone market, for example, is expected to grow at a CAGR of over 14% through 2030 (source: MarketsandMarkets). Viasat’s involvement in device-to-device (D2D) connectivity and low Earth orbit tech could also benefit from the expanding Internet of Things (IoT) ecosystem.
If Viasat executes a spin-off or IPO of DAT, expect a re-rating of both entities. The Communications business, freed from broadband drag, could attract investors focused on government and inflight growth. Meanwhile, DAT would likely garner premium valuations as a pure-play defense tech firm.
Unique Insight: Lessons from Other Spin-Offs
Looking at similar spin-offs, such as how Motorola Solutions separated from Motorola Mobility, shows that unlocking focused business units often leads to better capital allocation and shareholder returns. Investors in those spin-offs saw significant gains as market clarity improved. Viasat could be on a similar trajectory, but timing and execution will be critical.
Final Takeaway
Viasat is emblematic of a broader market inefficiency—where legacy perceptions obscure the true value of diversified tech companies. Carronade Capital’s activism shines a light on this opportunity, and investors who dig deeper and act early could reap outsized rewards. For advisors, this is a call to revisit assumptions about “legacy” tech firms and to incorporate nuanced segment analysis into client portfolios.
Keep an eye on Viasat—it’s not just a satellite story anymore; it’s a dynamic defense and communications growth play poised for transformation.
Source: Activist Carronade spots a hidden gem in Viasat’s business. How the firm may unlock value