DigitalGlobe Moves to Become a Bigger Player in the Information Discovery Marketplace

By Joe Francica

DigitalGlobe (NYSE: DGI) held its investor day on November 20th at the Ritz Carlton Hotel in Denver, Colorado. Jeffrey Tarr, president and CEO, began his presentation by emphasizing that his company is diversified and immediately addressing the problem for investors that may believe the business is too tied to U.S. government contracts, such as with the National Geospatial-intelligence Agency (NGA). The chart below indicates the revenue distribution in 2013 and DigitalGlobe's target for 2014 from each of its market segments. While DigitalGlobe still obtains over 50% of its revenue from U.S. government agencies, Tarr believes that in the long run all segments represent a $2 Billion market for satellite and aerial imagery, its core business. Today, DigitalGlobe has approximately $635 Million in revenue. Tarr wants to grow that to $1 Billion in the near term.
Tarr's belief is that while there is growth in the core imagery business, DigitalGlobe can tap into a $10 Billion market for "Geospatial Information and Insight."
Where will DigitalGlobe's Growth Come From?
With the launch of WorldView-3 in 2014, DigitalGlobe sees that it can capture additional revenue in the "step up" in spatial and spectral resolution offered by this new satellite. As such, Tarr believes that "we can drive growth by optimizing pricing." Customers come in and out of the market for imagery by time of year and geography, he believes. And seeing this coming he said that "pricing is always a lever to get it right." Hence, the company hired a person just for the purpose of balancing price with products capabilities.
Tarr also believes that even government customers will leverage WorldView-3's advanced multispectral capabilities despite what looks like deep cuts to the U.S. military budget in the next fiscal year.
However, there are other markets where DigitalGlobe sees opportunity. Tarr sees particularly rapid growth in economic development in International civil markets.  These tend to be project-oriented sales opportunities that don't necessarily exhibit year over year growth but a growth area still.
In the area of international defense and intelligence, DigitalGlobe’s customers are located in some of the most dangerous parts of the world and have an "almost unlimited demand for intelligence," said Tarr. "For this reason we are capacity constrained in our business. So whenever we can ‘eek out’ more capacity from our constellation...we're able to drive growth," he said. 
The international civil market is an emerging market especially in the BRIC countries and anywhere there are large land masses. Tarr believes that in the applications of crop health and agribusiness as well as property management and real estate there will be growth.  These rapidly growing markets, while not a true recurring business model according to Tarr, tend to offer repeat business. Growth in this segment will also come from pricing adjustments.
Other markets like location-based services are currently 8% of the company's business. Satellite imagery provides a competitive advantage in an intensely competitive market for end users. "The web is increasingly all about location," said Tarr and growth is coming from new applications and from a new level of customer. 
Insights: A key differentiator
Both Walter Scott, founder and CTO, and Tony Frazier, vice president for marketing and insights, addressed how the company will grow beyond the core imagery business. Scott says the company is moving from raw imagery to information that's inside that image to insights for its customers and hence will tap into a much larger market for imagery. DigitalGlobe is offering advanced image processing to provide feature identification and extraction. It will take raw pixel data and turn them into vectors able to be searched and queried by GIS software. The company will rely on what it says is a more accurate and complete basemap compared to its competition for which clients will pay a premium price. And currency is a differentiator as well as it now captures a new version of the earth every six weeks.
Scott says that DigitalGlobe has automated technology to process feature extraction and image mining to "fill in the "white space in maps" … areas such as crop fields, rocks, trees and other geomorphological objects where its spectral and spatial resolution offer a better means to define them. Scott calls this "geospatial big data: a living digital inventory of the surface of the earth. 
DigitalGlobe then is moving from being just a data company to being an information company. It's a step in the direction of playing in the larger information technology and location intelligence marketplace. It will move beyond just a supplier to national governments to one where the ultimate potential in the commercial markets offers more revenue opportunity. And to investors, satellite data and spatial information just might be a potential cash cow.
Editor's Notes:
  1. See also the webcast for a replay of the company's presentation.
  2. See also our exclusive interview with Dr. Walter Scott from 2012.

Published Monday, November 25th, 2013

Written by Joe Francica

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