OneWeb/Eutelsat: sky-high terminal cost brings valuation down to earth

Progress by technology companies gets less public exposure than setbacks — particularly in the UK. So you might have missed OneWeb’s recent satellite launches. These should give the company, rescued from bankruptcy by the UK government in 2020, global coverage for its internet service later this year.

Satellite internet is one reason analysts are bullish on space industries, despite such flops as the bankruptcy of Richard Branson’s Virgin Orbit, a satellite launch business. The technology has the potential to connect a disadvantaged one-third of the world’s population.

OneWeb has a fight on its hands. The low-earth orbit (LEO) business is dominated by Starlink, a venture of Elon Musk’s SpaceX company. This has more than 3,500 satellites, compared with 618 for OneWeb. Amazon is hoping to catch up via Project Kuiper, which has yet to put its hardware aloft.

The need for scale is why OneWeb is combining with French satellite group Eutelsat and seeking a London listing later this year. The all-share tie will give 50 per cent stakes for their shareholders.

Eutelsat has lost half its value since the deal announcement, valuing itself and OneWeb at just €1.5bn ($1.6bn) each. The cost of ground terminals is a problem. Starlink is subsidising these. Amazon is targeting a price of just $400. The cost of OneWeb terminals is about $10,000, according to Chris Quilty of Quilty Analytics. That would price OneWeb out of the consumer market, limiting it to enterprise customers.

Starlink’s subscriber revenues excluding terminal sales were about $1bn last year, estimates Mo Islam of Payload. On bullish assumptions of revenue doubling every year, Starlink might be worth 12 times 2025 revenues. That would value the business at three-quarters of SpaceX’s valuation of $137bn.

OneWeb envisages revenues of €600mn by then. Eutelsat’s market worth implies OneWeb is on an implicit valuation of just under three times. That is in line with conventional satellite businesses, with no premium for internet services. This judgment is harsh but sadly fair, given the competition.