Shares of Terran Orbital (LLAP 0.79%) are rocketing 59.1% higher from where they closed last Friday, according to data from S&P Global Market Intelligence, after the satellite stock received a contract that was valued at 10 times its market cap.
Terran Orbital was awarded a $2.4 billion to design, build, and deploy 288 low-Earth orbit communications satellites for Rivada Space Networks, with an additional 12 satellites built as "spares."
Under the contract, Terran's subsidiary, Tyvak Nano-Satellite Systems, will act as the prime contractor to design and manufacture the approximately 500-kilogram satellites, integrate the communication payload, and perform the final satellite assembly, integration, and test. Rivada expects to begin deploying the constellation of satellites as early as 2025.
This is a massive opportunity for Terran Orbital. Revenue for the first nine months of 2022 amounts to only $62.3 million, meaning this contract is orders of magnitude larger than anything it has done before. This brings with it its own set of risks.
Companies that need to suddenly ramp up production to meet sudden, unforeseen customer demand are often unable to hit the targets expected. Many small businesses, for example, that land a contract with Walmart, which typically demands certain large quantities at specific times and prices, become overwhelmed by the challenge.
Wall Street seems to believe Terran Orbital is up to the task, with Canaccord analyst Austin Moeller telling investors in a note that the satellite maker's ability to deliver on time 10 Transport Layer Tranche 0 buses to Lockheed Martin in December likely factored in Rivada selecting Terran for the contract.
The Lockheed deal was for the U.S. Space Force's Space Development Agency. Moeller says the Rivada contract is equal to the SDA's entire annual budget and is the largest smallsat contract ever awarded.
Smallsats, or small spacecraft about the size of a refrigerator that have a mass less than 180 kilograms, are expected to be a huge growth industry, expanding from $3.2 billion in 2020 to $13.7 billion by 2030, a better than 16% compounded annual growth rate.
While Rivada's satellites will exceed the smallsat weight limit, it seems clear that having more and smaller spacecraft in orbit will be a particularly rich opportunity for Terran Orbital.