Buying Opportunity Seen In ViaSat After Kerrisdale Short Report

Kerrisdale Capital issued a short report on ViaSat (VSAT) yesterday, setting a fair value for the stock at $35, saying the company offers “inferior technology” in its main business in the U.S. residential broadband market. However, B. Riley defended the company and stock in a note to investors this morning, advocating that the pullback in shares be used as a buying opportunity.

“FALLING BACK TO EARTH”: Kerrisdale said ViaSat’s residential broadband business is “destined to fail” as terrestrial competitors increase speed, capacity and coverage through technological advancements and ViaSat launches satellites that exhaust capacity in two year cycles. The firm does not expect ViaSat-2, the company’s latest satellite, to produce substantial subscriber growth and sees stranded capacity for ViaSat-3. Additionally, Kerrisdale said it expects satellite consumer home internet in the U.S. to become “nearly extinct” and ViaSat’s average revenue per user to decline as contributions from add-ons decrease under competitive pressure. The firm also said while the company waits for its next satellite to be operational, EchoStar’s (SATS) Jupiter 2 is already in the market. Kerrisdale said while the company may have the unmatched ability to deliver broadband to locations such as airplanes, there is only a small amount of revenue that can be generated in this area.

“BUYING OPPORTUNITY”: In an analyst note today, B. Riley analyst Mike Crawford said he views yesterday’s selloff in shares of ViaSat as a buying opportunity. He said the report came from a “shop that dislikes satellite and spectrum plays,” but ViaSat’s “valuable” Government Systems business and “flexible, high-capacity, low-cost global” communications network is a “killer combo.” Additionally, Crawford said Kerrisdale overlooks ViaSat’s primary value proposition as the company has an “unbeatable” capacity build out cost and an “unparalleled” ability to deliver bandwidth to hard to reach locations. He keeps a Buy rating on the shares with an $89 price target.