World's hottest space stock posts rally that dwarfs all rivals

Of all the wild rallies in space stocks this year, none has been greater than that of a little-known company that manufactures satellites in the outskirts of Uruguay's capital city.

Shares of Satellogic Inc., which counts former U.S. Treasury Secretary Steven Mnuchin as its board chairman and a major investor, are up more than 200% this year, even after plunging along with their peers during Friday's deep market slide. That return makes the shares by far the biggest beneficiary of the hype fueled by the listing of Elon Musk's SpaceX, expected later this week.

It's a stock that even bulls acknowledge carries plenty of risk. Satellogic has yet to turn a profit on an annual basis, and the explosion last month of a Blue Origin rocket underscored the perils and challenges inherent in an industry that's still coming of age. Moreover, the mania around space stocks may mean that much of the shares' future potential is already baked into the price.

"The risk of overextending and these sovereign deals not showing up - we think they will, but I think that's a risk if they don't," said Jeff Van Rhee, an analyst at Craig-Hallum Capital in Philadelphia who rates Satellogic a buy. "Everybody says space is hard, but it's worth repeating, this is very hard to do."

Emiliano Kargieman, co-founder and chief executive officer of the 16-year-old satellite maker and operator, appreciates all that but, as he sees it, the stock's momentum goes well beyond the fervor for SpaceX's market debut. The Argentine points to the fraught global backdrop, a clearer strategy of selling to governments and the improving finances of his firm, which builds its products in Montevideo and launches on SpaceX rockets.

"We're seeing more demand than we can react to," said Kargieman, 51. "We're building infrastructure that allows customers to see and monitor everything that's happening in their areas of interest every single day. That's a big jump for us, but I think it's also a big jump for the world."

Interest in Satellogic is growing, Kargieman says, from governments drawn to its ability to provide constant high-resolution imagery more cheaply than rival systems. Its manufacturing cost is around a third of of its rivals for comparable offerings, Van Rhee at Craig-Hallum estimates.

"Demand accelerates around moments of geopolitical instability like now in Iran," Kargieman said. "If you can't fly your planes over a neighboring country, the only way you can see what's happening is through space assets."Satellogic's shares have gained the most this year among nearly 170 wireless communication companies worldwide with a market value of at least $100 million, according to data compiled by Bloomberg. In the U.S., among more than 3,000 firms across all industries, the return ranks 16th.

With newer and cheaper commercially available systems, industry watchers say governments can increasingly access dozens of satellites capable of tracking hundreds of areas every 30 minutes, as Satellogic does, rather than a limited number of strategic locations.

Satellogic is finding it easier to capitalize on that demand after reorganizing to become a more attractive partner for U.S. and NATO-aligned governments. It moved its domicile to Delaware last year from the British Virgin Islands. And it has left behind the optics of Chinese influence created by Tencent Holdings' ownership stake before Satellogic's market debut in 2022. The internet giant has since exited its position.

"They are clearly picking a side and a customer set and market," said Kari Bingen, a senior fellow at the Center for Strategic and International Studies.

The company also brought in U.S. intelligence and defense veterans to help with sales, which is showing results. Satellogic generated positive operating cash flow for the first time last quarter, while revenue exceeded analysts' expectations thanks to a series of sovereign and defense-related agreements.

However, sovereign defense contracts can often take years to negotiate and finalize. Technology is also evolving and competition is fierce for the government and intelligence contracts that Satellogic hopes will drive its growth. It all means that the big runup in the shares this year leaves investors exposed if competition intensifies or if expected deals fall through, analysts say.

"Even though you're building smaller satellites and going much faster than traditional government cycles, it still takes a couple of years," said Bingen at the CSIS. "And the commercial market still is not fully matured in this area. It is still very nascent and a very expensive endeavor."Shares of Satellogic fell as much as 13% on Tuesday after the company disclosed in a filing Monday that Chief Financial Officer Rick Dunn will step down and a search for a successor is underway. More broadly, U.S. markets, as well as Satellogic's peers, also fell on Tuesday.

In May, Mnuchin's Liberty Strategic Capital sold half its stake, but it remains one of the biggest shareholders. Cantor Fitzgerald, which took Satellogic public through a blank-check company, is still a top shareholder. Liberty Strategic declined to comment, as did Cantor.

Meanwhile, MercadoLibre Inc. Chairman Marcos Galperin, a fellow Argentine who mentored Kargieman early on, remains among Satellogic's biggest individual investors, filings show.

Starting Satellogic "was a crazy idea for someone to do particularly coming from Argentina and something that was going to take a lot of time," said Galperin, Argentina's richest man. "But it ended up proving right, so I'm very happy to have supported Emiliano from the very beginning."

Satellogic's strength is that its satellites can capture imagery at resolutions below one meter, detailed enough to identify vehicles, aircraft and changes to infrastructure, says Kargieman, who's based in Barcelona.

The company already has 21 satellites in orbit. But a pivotal milestone is approaching: the planned launch starting in October of its Merlin constellation composed of eight additional satellites, which will be able to map the entire globe daily using lower-cost, AI-enabled equipment. The company expects the product will accelerate its path toward profitability after it's up and running by early 2027.

Shares of satellite competitors including Planet Labs and BlackSky Technology Inc. have rallied more than 50% this year, in part amid all the excitement around SpaceX. Both firms saw shares trading lower on Tuesday too.

It all marks a dramatic turnaround for Satellogic, whose shares cratered below $1 after its listing as investors questioned the path to profitability for satellite startups. To cut costs, Kargieman also reduced headcount by about 300 employees over the past few years, to around 150, according to him and company filings.

Manufacturing outside the U.S. remains central to its cost advantage. Satellogic says its satellites can be produced and deployed much more cheaply thanks partly to vertically integrated manufacturing and engineering operations in Latin America.

The company reflects Kargieman's roots in Argentina, where half the company's staff still works. Its top product, the Aleph Observer, is a reference to an iconic fictional short story by Argentine author Jorge Luis Borges, about a small object holding the entire world inside it.And Kargieman has a uniquely Argentine way to express his product's capabilities: powerful enough, he says, to spot the country's ubiquitous backyard parrilla barbecues."I'm sure you'd be able to see the smoke," he said.

(With assistance from Brad Stone, Shin Pei, Marie Monteleone and Sophie Butcher.)

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