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Global Eagle Entertainment and ViaSat: Initiation of Research Coverage

Tuesday, January 31, 2017

William Blair & Company initiated research coverage of Global Eagle Entertainment Inc. (ENT $6.46) and ViaSat (VSAT $63.99), two players in the satellite communications ecosystem.

In a comprehensive report detailing the satellite communications services market, analyst James Breen and associate Louie DiPalma declared that “bringing high-speed internet coverage everywhere is the next ‘Space Race’.”

“E-commerce, SaaS, virtual private networking, over-the-top video, and social networking are integral aspects of modern society,” the authors wrote. “Despite dramatic advances in global 4G LTE cellular coverage, gaps remain in the air, over the oceans, and in remote areas of the world. Military forces, commercial airlines, cruise operators, and energy drillers are rapidly deploying very small aperture terminals (VSATs) that enable networking performance at nearly the same level as what we experience in our homes by connecting to rapidly advancing satellites. As part of this space race, newly launched satellites are expected to increase capacity fourfold over the next five years.”

Global Eagle Entertainment, as the largest in-flight content distributor, “now has opportunity to cross-sell into its maritime customer base,” the authors wrote. “Global Eagle Entertainment (GEE) is the largest distributor of media to airlines, with a 60% market share of in-flight content services, which account for about half of GEE’s revenue. We believe this revenue stream is generally sticky since airlines continue to invest in seat-back IFE systems. GEE’s content segment should maintain steady growth and be a positive contributor to cash flow with minimal capital expenditures. GEE’s new ability to sell content into the Emerging Markets Communications (EMC) customer base should further catalyze content growth.”

“According to our estimates, the $4 billion maritime satcom market is less than 25% penetrated with high-throughput connectivity. With its acquisition of EMC, GEE is a top-five maritime satcom service provider behind Speedcast and Marlink. We believe that rebounding energy prices and industry consolidation will help the industry emerge from its extended downturn. More M&A may be needed to take excess capacity out of the market and alleviate pricing pressure.”

Breen and DiPalma wrote that ViaSat’s role as a key defense contractor is underappreciated. “ViaSat’s emphasis on cybersecurity, a major U.S. government focus, has contributed to an acceleration in bookings from 4% to 44% over the past year, with the defense vertical now representing nearly half of revenue. We expect the U.S. government over the next five years to shift spending from its in-house programs to the terabit ViaSat-3 network, which has the potential to revolutionize military communications by increasing throughput by an order of magnitude. The coming launch of ViaSat-2 and the closing of the Eutelsat joint venture are further near-term catalysts that will revive growth in the company’s high-margin satellite services segment.”

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William Blair or an affiliate is a market maker in the securities of Global Eagle Entertainment Inc. and ViaSat, Inc.

William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from Global Eagle Entertainment Inc. and ViaSat, Inc. or an affiliate within the next three months.

William Blair or an affiliate received compensation for investment banking services or non-investment-banking services from Global Eagle Entertainment Inc. within the last 12 months. Global Eagle Entertainment Inc. is or was, within the last 12 months, an investment banking client of William Blair & Company and/or one or more of its affiliates.

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