Unveiling Viasat’s Hidden Value: Carronade’s Bold Strategy

Have you ever stumbled across a company that seems to be flying under the radar, yet holds untapped potential that could shake up the market? That’s exactly what’s happening with Viasat, a global communications and defense technology player that’s caught the eye of activist investor Carronade Capital. In my experience, when a firm like Carronade starts poking around, it’s usually a sign that something big is brewing. Let’s unpack how their bold strategy could transform Viasat’s future and why this might be a story worth watching.

The Hidden Potential in Viasat’s Dual Business Model

Viasat operates in two distinct arenas: Communications Services and Defense and Advanced Technologies (DAT). The former, which accounts for roughly 73% of revenue, includes offerings like fixed broadband, government contracts, maritime connectivity, and the fast-growing inflight connectivity (IFC) market. The DAT segment, while smaller at 27% of revenue, is a high-margin, high-growth business focusing on cutting-edge defense technologies. Think cyber defense, space systems, and next-gen encryption—stuff that sounds like it’s straight out of a sci-fi flick but is very much real and in demand.

Here’s the kicker: despite its diversified portfolio, Viasat’s stock has taken a beating, dropping 21% in the past year and a jaw-dropping 58% over five years. Why? The market seems to have pigeonholed Viasat as a fading satellite broadband provider, especially with high-profile competitors like Starlink stealing the spotlight. But is this perception fair, or is there more to the story? Carronade Capital thinks the latter, and they’re not staying quiet about it.

Carronade’s Game Plan: Unlocking DAT’s Value

Carronade Capital, a multi-strategy investment firm with a knack for spotting undervalued opportunities, has zeroed in on Viasat’s DAT segment as a hidden gem. In a recent letter to Viasat’s board, they proposed a radical but compelling idea: spin off or take the DAT business public through an IPO. Their reasoning? DAT’s high-growth potential and stellar margins are being overshadowed by the declining broadband arm of the Communications segment, dragging down the company’s overall valuation.

The market has misjudged Viasat, treating it as a legacy satellite player when its defense technology arm is a powerhouse waiting to shine.

– Investment analyst

DAT is no small fry. With 28% EBITDA margins and double-digit revenue growth, it’s a standout in the defense tech space. It’s involved in cutting-edge areas like device-to-device (D2D) connectivity, which could enable smartphones and IoT devices to connect globally without traditional networks. Compare that to peers like AeroVironment or Kratos, which trade at multiples of 20 to 80 times EBITDA, while Viasat languishes at just 6 times. That’s a valuation gap that screams opportunity.

• High margins: DAT’s 28% EBITDA margins outshine many competitors.
• Growth potential: Mid-teens revenue growth in defense tech markets.
• Undervaluation: Trading at a fraction of peer multiples.

By separating DAT, Carronade believes Viasat could unlock a valuation of $6.3 billion to $16.2 billion for this segment alone. That’s a massive leap from the company’s current enterprise value of around $8 billion. It’s not hard to see why they’re pushing for this move—it could be a game-changer.

The Communications Conundrum: Perception vs. Reality

Let’s talk about Viasat’s Communications segment, which has been both a blessing and a curse. On one hand, it’s the company’s bread and butter, generating 73% of revenue and 80% of EBITDA. On the other, its fixed broadband business is struggling, with revenue down 27% year-over-year. The market’s obsession with new players like Starlink has painted Viasat as a has-been, but that narrative misses the bigger picture.

Beyond broadband, the Communications segment includes three thriving sub-sectors:

1. Government contracts: Growing at a robust 25% annually.
2. Inflight connectivity (IFC): Up 22% with long-term contracts and high switching costs.
3. Maritime connectivity: Steady at 11% growth.

The IFC business, in particular, is a standout. Viasat serves over 4,120 planes, with a backlog of 1,600 more from existing clients. With only a third of global aircraft equipped with Wi-Fi, the growth potential here is massive. Plus, those long-term contracts (5-10 years) mean customers aren’t likely to jump ship anytime soon, no matter how flashy the competition gets.

Here’s where it gets interesting: Viasat is already pivoting away from its declining broadband business, focusing on these higher-margin, high-growth areas. This shift could reshape how the market views the company, moving it away from the “dying satellite provider” stigma. But is that enough to turn the tide, or does Carronade’s spin-off plan hold the real key?

Why the Market Got It Wrong

The market’s misunderstanding of Viasat boils down to a classic case of narrative over reality. Investors see Starlink’s hype and assume Viasat’s days are numbered. But as someone who’s followed undervalued companies for years, I’d argue this is a textbook example of a stock being punished for the wrong reasons. The broadband decline is real, but it’s only one piece of a much larger puzzle.

Misunderstood companies often present the best opportunities for savvy investors willing to dig deeper.

– Financial strategist

Viasat’s revenue has actually grown from $2.6 billion to $4.5 billion over two years, with EBITDA soaring from $344 million to $1.4 billion. Yet, its stock price tanked from $34 to $16 before Carronade stepped in. That kind of disconnect screams undervaluation, especially when you consider DAT’s potential and the strength of Viasat’s non-broadband businesses.

This table paints a clear picture: DAT is a smaller but rapidly growing piece of the pie, while Communications is a mixed bag with bright spots. Carronade’s argument is that separating these businesses could let each shine on its own merits, free from the broadband drag.

The Numbers Behind the Spin-Off

Carronade’s analysis is where things get really juicy. They estimate DAT could be worth $6.3 billion to $16.2 billion, based on peer multiples of 20 to 51 times EBITDA. Meanwhile, the Communications segment, valued conservatively at 4 times its $1.2 billion EBITDA, could add another $4.9 billion. Toss in $1 billion from a recent legal settlement, and you get a total valuation range of $48.93 to $112.49 per share—a potential 76% to 304% return from the current $25.62 share price.

Now, I’ll admit, those numbers sound almost too good to be true. But in the world of activist investing, bold moves like this often uncover value that the market has ignored. Carronade’s team, with roots at Elliott Management, knows how to spot these opportunities and push for change without burning bridges.

Valuation Breakdown:
  DAT Segment: $6.3B - $16.2B
  Communications Segment: $4.9B
  Legal Settlement: $1B
  Total Potential Value: $48.93 - $112.49 per share

This kind of math makes you wonder: how did the market miss this? The answer lies in the lack of attention small-cap stocks like Viasat often get, especially when overshadowed by splashy competitors.

Carronade’s Playbook: Persuasion Over Confrontation

Unlike some activist investors who come in guns blazing, Carronade takes a more measured approach. Their letter to Viasat’s board was firm but collaborative, suggesting they’re more about nudging than shoving. This makes sense, given that Viasat’s management has already hinted at exploring options for DAT, like a potential sale. Perhaps the most intriguing aspect is how aligned Carronade’s vision seems to be with Viasat’s own strategic pivot.

Carronade likely holds a 2.6% stake in Viasat, possibly through debt instruments, given their focus on undervalued credit opportunities. Their influence may be small, but their argument is loud. By shining a spotlight on DAT’s potential, they’re forcing the market to rethink Viasat’s value proposition.

A well-crafted argument can move mountains in the world of investing.

– Corporate strategist

Will Viasat’s board take the bait? Early signs suggest they’re open to the idea, which could mean a smoother path to unlocking value than a drawn-out proxy battle.

What’s Next for Viasat and Investors?

So, what does this all mean for Viasat and its shareholders? If Carronade’s plan comes to fruition, we could see a dramatic re-rating of Viasat’s stock as the market recognizes DAT’s true worth. Even without a spin-off, the increased attention from an activist like Carronade could push Viasat to sharpen its focus on high-growth areas, shedding the broadband baggage once and for all.

For investors, this is a classic case of a diamond in the rough. Small-cap stocks like Viasat often fly under the radar, but when an activist steps in with a compelling case, it’s like a wake-up call for the market. Whether you’re a value hunter or just curious about corporate turnarounds, Viasat’s story is one to watch.

• Upside potential: A spin-off could unlock massive value.
• Market shift: Refocusing on growth areas could boost sentiment.
• Activist nudge: Carronade’s involvement brings much-needed attention.

In my view, the real beauty of this situation is how it highlights the power of activist investing to uncover hidden value. Viasat may not be a household name, but with Carronade’s strategic push, it could soon be on every investor’s radar. What do you think—could this be the start of a major turnaround, or is the market’s skepticism warranted? Only time will tell, but one thing’s for sure: Viasat’s future just got a whole lot more interesting.