GOMspace (GOMX) stock news, risk & analysis

Market Cap: kr704.8M TTM revenue: kr206.5M YOY return: +101.67%	CEO: Carsten Drachmann Cumulative pay: kr3.9M Shareholder value created: kr483.6M	Forecast effort: F Forecast accuracy: F

GOMspace is a cubesat satellite manufacturer headquartered in Denmark listed on the Stockholm NASDAQ. Offering full-builds, individual components, and satellite operation services, investors have endured a rocky run since GOMspace’s 2016 IPO. Failed business deals, missed forecasts, and repeated dilutions crushed investors since the stock peaked in 2017. Operating in what is becoming a crowded cubesat market only makes prospects more difficult. But GOMspace may be finally finding a way. In 2023, new CEO Carsten Drachmann shifted focus from topline growth to profitability. While not there yet, GOMspace is edging closer. And a new contract for 20 satellites from Indonesia may seal the deal.

2 Minute Version

• GOMspace’s flight history dates to 2013 when GOMX-1 (2U size) successfully deployed into low earth orbit. GOMspace now offers CubeSat platforms and internal components with extensive heritage. This flight heritage is sought by government and academic customers who comprised over half of GOMspace’s sales in 2023.
• GOMspace went public in June 2016 following three years of 81% revenue CAGR. Shortly thenafter GOMspace announced investment in Aerial & Maritime Ltd, a GOMspace subsidiary registered in Mauritius. GOMspace pitched investors that A&M would buy satellites from GOMspace to service Africa with air traffic monitoring services.
• GOMspace followed-up in February 2017 announcing capture of the Sky and Space Global (UK) Ltd satellite constellation contract valued at €35-55M. The stock advanced 60% on the news.
• All looked great in April 2017 when GOMspace issued its FY16 annual report with net profit of SEK 8.9M (~$860k). However, it was not as it seemed. GOMspace actually had a net operating loss, and net profit stemmed from recording a SEK 21.3M investment gain in (47.3%-owned) subsidiary A&M. GOMspace stock peaked later that September at SEK 69 per share.
• Things soon unraveled and GOMspace stock would loose as much as 98% of its value.
  • The A&M venture went nowhere. The satellites did not launch, A&M shutdown, and in 2020/21 GOMspace wrote down its investment to zero.
  • The crash of the Sky and Space Global satellite constellation contract followed. In April 2020 Sky and Space filed for voluntary administration. And the next year Sky and Space delisted from the Australian Stock Exchange.
• Somehow through all this, GOMspace still managed six years of 35% revenue CAGR through 2021. But in 2022 write-offs caught up to GOMspace resulting a huge losses. Layoffs and dilutive capital raises followed.
• In late 2022, GOMspace had a well-publicized falling-out with remaining commercial Spanish customer Startical. After Startical cancelled its contract, former CEO Niels Buus resigned. That same year GOMspace also failed to obtain what was a then-promising ESA contract.
• In March 2023, during the midst of a historic low point, GOMspace appointed Carsten Drachmann as CEO. Drachmann wrote to investors that, “Unlike focusing solely on top-line growth and technology projects with uncertain profitability, our goal is sustainable profitability. We’ve scrapped unprofitable projects and assessed all decisions based on their cash impact.”
• After appointment of CEO Drachmann, GOMspace won back Startical. And GOMspace closed FY23 posting a narrowed loss, record-high revenue, and more significantly the highest revenue-to-employee ratio in its history. GOMspace appears to be operating more efficiently than ever before. (original research)
• GOMspace has forecasted reaching cash flow positive in the second half of 2024. After achieving positive free cash flow in 4Q 2023, legitimate prospect exists for GOMspace reaching operational profitability.
• The 3X stock jump in December 2023 was on news GOMspace is on the verge of obtaining a 20-satellite contract with the Indonesian government. Financing remains unconfirmed, but €59M due to GOMspace from this deal represents almost three times total FY23 revenue!
• Unlike earth satellite imagery providers, Asia currently has practically zero CubeSat competition. GOMspace’s labor costs are likely smaller than American firms with larger market presence (Terran Orbital’s Tyvak and Blue Canyon). So if GOMspace achieves profitability, a promising path exists for mid- or long-term competitiveness.

Examining Financial Disclosures

GOMspace went public in June 2016 after 3 years of 81% compound annual revenue growth. Contracted to build voluminous satellites for two large customers – Aerial & Maritime and Sky and Space Global – sustained growth and profitability appeared assured. Both projects collapsed. GOMspace instead experienced write-downs, lay-offs, and approximately 10x shareholder dilution!

Revenue growth has largely stalled since 2020. There are multiple reasons, including (1) Statical terminating its large contract in 2022, (2) the ESA not continuing a major project, and (3) GOMspace cancelling unprofitable customer contracts to focus on reaching positive cash flow.

GOMspace’s most recent cash raise (and 120%+ dilution!) was in 2023. They finished the year with less than their previous yearly loss. So if things don’t turnaround quickly, investors should be sweating the prospect of more financing and further dilution. However, new CEO Carsten Drachmann has since 2023 been targeting (and reiterating) positive free cashflow in 2H 2024. GOMspace posted positive free cash flow in 4Q 2023, but Q1 2024 was negative again.

Drachmann wrote in his 2024 Q1 summary that the last unprofitable project he inherited is the ESA Hera asteroid Juventas CubeSat mission. Its negative impact on GOMspace’s earnings will diminish by the end of 2024. So investors will soon see if elimination of this final unprofitable contract enables GOMspace turning cash flow positive in 2H 2024 as targeted.

Earlier in GOMspace’s history, regional revenue was more evenly distributed. Now Europe dominates sales. The Indonesian contract here appears out of nowhere. This suggests GOMspace is reaching and competing in markets with little current presence. Significantly, US sales – the world’s largest satellite market – made up 16% in 2020 but slid to 7% in 2023. However low US sales likely should be viewed positively. GOMspace winning future US deals provides realistic opportunity for future revenue growth. However export control rules likely prohibit certain U.S. payloads from shipping to Denmark for satellite integration. New partnership with SAIC (U.S. government contractor) appears to alleviate this issue providing for US assembly of GOMspace satellites. This shows GOMspace is still seriously eying the U.S. market even though sales have slipped there.

Somehow GOMspace exhibits something not commonly seen among space companies: commercial sales being largest revenue contributor. Part may be due from operating in the CubeSat space. Many commercial companies first test payloads and mission capabilities in CubeSats before proceeding with larger satellites. But compare this to Terran Orbital or Blue Canyon whose revenue is predominately government. GOMspace’s ability to compete commercially appears to reflect pricing competitiveness.

Science sales (read “sales to ESA”) drove FY23 revenue to record levels. As already noted, CEO Drachmann highlighted one ESA project as unprofitable. So don’t be surprised if Science sales decline in future years as GOMspace shifts from taking on unprofitable contracts.

GOMspace’s backlog history in a way tells the history of the company. GOMspace’s backlog once rode on the A&M and Sky and Space Global deals. Their collapse took down GOMspace’s backlog. GOMspace regrew its backlog a second time, then predominately from non-commercial sources. GOMspace later disclosed these projects to be unprofitable and cut them in 2023. GOMspace ended 2023 with SEK 152.6M in backlog, amongst the lowest in its history as a public company. This equates to only about 8 months worth of FY23 revenue.

For revenue not to contract again, GOMspace needs to sign new orders. GOMspace posted in first quarter 2024 results that total backlog grew roughly SEK 8.5M to SEK 161.2M. So at least backlog is growing, if only slightly. The Indonesian deal would obviously be huge providing two to three years worth of backlog.

GOMspace consistently discloses the average number of yearly employees. As detailed in their reports, GOMspace previously ramped hiring anticipating need to execute prior large projects (A&M, Sky and Space Global, Startical). When these failed to materialize (or in the case of Statical, was cancelled the first time) GOMspace laid off unneeded employees. In FY23 GOMspace finished the year with the largest revenue-per-employee ratio in its history. By this metric, GOMspace is operating twice as efficient than in 2017-2019. This further suggests GOMspace may be on track to meet its FY24 2H cash flow positive target.

Management guidance scorecard

GOMspace has provided investors a lot of guidance that it missed. Admittedly, all misses occurred under watch prior CEO Niels Buus.

But after taking over, new CEO Carsten Drachmann stopped providing revenue and EBIT guidance. For a year and a half, Drachmann has been telling investors GOMspace aims to reach positive free cash flow in the second half 2024. I don’t like this lack of effort. Investors want public companies to clearly communicate expectations for revenue and internal costs (measured by EBITDA) in order to make informed decisions. GOMspace all but certainly has internal forecasts. Even if profitability has become main focus, the lack of revenue and EBIT forecasts hints that GOMspace may lack confidence in its own projections.

CEO Carsten Drachmann compensation

	Salary	Bonus	Share-based payments	Other	Total
2023	SEK 2,880,000	SEK 795,000	SEK 57,000	SEK 150,000	SEK 3,882,000

In 2023, the year he came on board, GOMspace paid CEO Carsten Drachmann a modest SEK 3.9M (~$370,000) to turn the company around. Whether he turns the company around remains to be seen. But the stock has turned around, up over 300% since when Drachmann started.

GOMspace outlook and risk assessment

GOMspace appears to be on the path to positive free cash flow and profitability. And the announced 20-satellites sale to Indonesia could double yearly revenue. Also:

• GOMspace’s largest CubeSat competitors are Nanoavionics, EnduroSat, Spire Global, AAC Clyde and Terran Orbital’s Tyvak. Nanoavionics and EnduroSat likely enjoy lower operating costs due to manufacturing in Lithuania and Bulgaria, respectively. (Spire Global is based in the United States but they assemble satellites in Glasgow, UK. AAC Clyde also manufactures in the UK; Tyvak CubeSats are made in the U.S. and Italy.)
• There is almost zero current CubeSat competition from Asian manufactures. But this is changing. Nothing yet in Japan. But Rapidtek in Taiwan announced development of low cost CubeSats (already experienced in manufacturing smallsat antennas). Nara Space in South Korea began selling 6U-16U cubesats after launching its first successful satellite. The prices still need to comedown before competitors sweat, likely because Nara Space buys components from GOMspace for its builds! It takes years to independently develop all power, communication, attitude & orbit control, software systems. Thus GOMspace should have plenty of cushion before cheaper competition from Asia becomes threatening.
• The market is growing. First-time SmallSat operators reached all time high of approximately 140 in 2023. This trend is promising for GOMspace and all other CubeSat manufactures.
• Obviously lack of profitability 8 years post-IPO is concerning. However, it really looks this streak may come to an end. And if so, GOMspace will be one of the few profitable new space companies.

Seemingly not as risky as many other space stocks, but GOMspace still yet to prove operational profitability. But they are close.

What to look from GOMspace going forward

In future GOMspace investor disclosures, look for the following:

1. Finalization of the 20 satellite sale to Indonesia. The Danish government is guaranteeing the financing and reported in June that final approval is on track for the end of third quarter 2024. If this project collapses, expect GOMspace stock to also retreat toward December values.
2. For over a year, GOMspace has targeted poitive free cash flow in 2H 2024. If the Indonesia project goes and significant pre-payment is made this year, this is likely guaranteed. However, I would like to see evidence GOMspace still would have reached positive free cashflow without the Indonesian sale.
3. GOMspace grew backlog ever so slightly in 1Q 2024, but need to see more. GOMspace’s backlog remains nervously low – less than yearly revenue. Competitor satellite manufactures Terran Orbital (without Rivada), MDA Space, AAC Clyde each have backlogs greater than TTM revenue. If GOMspace obtains opportunities beyond the Indonesian contract, investors should become very encouraged.
4. Growth in U.S. sales. Opportunity here is huge. GOMspace has a U.S. office and its partnership with SAIC allows for stateside satellite assembly. But investors are still waiting to see if GOMspace manages any secure any significant U.S. business as a result.

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