Founded in 1987, Israel’s Gilat Satellite Networks is a veteran in the satellite communication market and is ranked in the top five globally in satellite ground equipment, according to Mordor Intelligence. Over the years, the company has weathered the financial crisis and the dot-com bubble. Gilat’s new goal is to become the leading supplier of in-flight connectivity (IFC) equipment. With in-flight Wi-Fi becoming a differentiating tool for airlines, this market looks promising, which bodes well for Gilat’s stock, suggests investment bank Needham.
The sky beckons
Sixteen years ago, American Airlines became the first carrier to roll out in-flight Wi-Fi on its long-haul Boeing 767s, offering passengers Internet access for $13. Since then, the number of planes with Internet access has only increased, and companies are continually improving their service to provide consumers with higher connection speeds, note Global View Research analysts. Still, in 2022, according to Gilat, only 10,400 out of 25,500 commercial aircraft worldwide allowed their passengers to access the Internet. Business aviation fared somewhat better, with 26,000 out of 38,800 planes equipped with the necessary systems.
The growth potential of the IFC market is impressive, with Stratview Research expecting a compound annual growth rate (CAGR) of 13.7% to $3.20 billion by 2028. Market Research Future has an even more optimistic outlook, anticipating a CAGR of 14.21% until 2032, when the market is expected to reach $4.31 billion. The growth is to be driven by the acquisition of next-generation aircraft and the necessity to upgrade existing communication systems.
Currently, the market is dominated by major American, British, and French companies, including Intelsat, Thales, ViaSat, and Honeywell, as well as Japan’s Panasonic. In 2022, Elon Musk’s SpaceX entered the race, signing its first contract with Hawaiian Airlines to supply Wi-Fi equipment for its aircraft, CNBC reported.
Gilat, an Israeli company, made a strategic move in June 2024 with a planned acquisition of Stellar Blu, an American supplier of avionics solutions and manufacturer of Satcom terminals. The deal is expected to close by the end of 2025. Stellar Blu, a small company with 60 employees, has developed a new generation of steerable antennas, which are necessary for maintaining satellite connection while in motion and providing seamless IFC for passengers. The company claims its product is 50% cheaper than its competitors’ with 90% lower maintenance costs. The equipment meets Airbus and Boeing requirements and is already used by companies like Panasonic and Intelsat.
Gilat believes that the acquisition of Stellar Blu will help it to become a market leader in IFC technologies for commercial and business aviation, driving out the largest market players. Currently, about 7,000 aircraft from 25 airlines worldwide use Gilat solutions. With the Stellar Blu acquisition, Gilat expects 500-1,000 potential installations per year, adding $100-150 million to its annual revenue starting in 2025.
History
The IFC market is relatively new for Gilat. Previously, the company worked with military enterprises, aerospace companies, government agencies, and businesses in the market for navigation equipment. Its portfolio includes solutions for orbit constellations with very high throughput satellites (VHTS) and software-defined satellites (SDS).
Founded in 1987 by former members of the Israel Defense Forces Intelligence Corps, like many other companies in Israel’s high-tech sector, Gilat has five founders: brothers Joshua and Amiram Levinberg, Yoel Gat, Shlomo Tirosh, and Gideon Kaplan, reported the Israeli business newspaper Globes.
Initially, they tried their hand at telecommunications and even wrote a business plan for a cable television company called Matav.
Eventually, they decided to focus on satellite communication systems. At that time, the satellite communication market was in the midst of a revolution – in 1983, the first prototypes of VSAT (very-small-aperture terminal) were tested. Before VSAT, satellite stations were huge — their antennas were about nine meters in diameter — and cost around $500,000, while the first VSATs had antennas less than two meters in diameter and cost about $6,000. Even though the first generation of these ground stations could only receive signals, not transmit them, they could be quickly deployed anywhere on the planet, which made them widely popular for maritime navigation and with the military.
Gilat’s version of VSAT was launched in 1989, it says.
In a private placement in 1990, Gilat’s founders sold a 52% stake to two venture funds, Discount Investments and PEC (both part of one of Israel’s largest holding companies, IDB Group). The company was valued at $6 million. The funds remained Gilat shareholders until 1999.
In 1993, Gilat went public on Nasdaq, raising $28 million. Two years later, it issued additional shares, raising $50 million, while in 1997 it sold convertible bonds worth $75 million.
The bubble bursts
The global financial crisis of the late 1990s hit Israeli tech companies hard, though Gilat was an exception, posting revenue growth of 40% a year for three straight years, Globes reported. One of the company’s “biggest fans” was investment bank Merrill Lynch, whose analysts consistently praised Gilat and its performance.
In 1999, Gilat raised $275 million in a share issue, a record amount for an Israeli company in the U.S. The additional issue was needed to fund the $225 million acquisition of GE Spacenet from General Electric. Under the terms of the agreement, GE received newly issued shares in Gilat, becoming a shareholder, as reported by The New York Times. GE later sold its 30% stake.
After the merger, Gilat planned to shift its business focus from manufacturing VSATs (with a 40% market share) to become a high-speed satellite communications company. Merrill Lynch analysts predicted that the market would grow to $37 billion by 2007 from $90 million in 1997.
In February 2000, Gilat’s market capitalization soared to $4 billion. The company partnered with Microsoft to offer consumers satellite broadband in the U.S. for the first time. Microsoft, in turn, received a stake in Gilat’s new U.S. subsidiary, Gilat-To-Home.
However, everything fell apart when the dot-com bubble burst, and countless internet startups went bankrupt. Investment funds lost a total of about $5 trillion. Gilat’s market capitalization collapsed, its debts reached $500 million, and it had only $90 million left in cash, Globes reported, describing Gilat as a company “fighting for its life”, with analysts questioning its viability. «We probably came onto the market too early. Then we ran into the Internet bubble crisis. Perhaps we made a few mistakes as well. In those days, we had lots of debt, whereas today we have a lot of cash,» recalled Amiram Levinberg, Gilat’s CEO at the time, in an interview with Spacenews.com a few years later.
Gilat eventually reached an agreement with its creditors, and by 2005 it had come out with a new technology for creating multi-service communication networks – SkyEdge. Gilat launched a solution for cellular networks and began providing connectivity services for aircraft.
In 2020, it agreed to a merger with Comtech Telecommunications, a U.S.-based company, but the deal was called off, with Comtech agreeing to pay Gilat $70 million. Via Satellite, citing a Northern Sky Research analyst, suggested the deal fell through likely due to the COVID-19 pandemic, which severely hit the aviation industry, while Comtech had considered Gilat’s position in the growing IFC market a main driver for the acquisition.
What investors should know
In 2023, Gilat reported 11% year-over-year revenue growth to $266.1 million and net income of $0.41 per diluted share, compared with a $0.10 loss per share the previous year.
This year, the company expects revenue to grow about 18%.
IFC equipment is not the company’s sole focus at the moment. Another of its projects includes 4G/LTE and 5G coverage in rural areas and cities. In addition, Gilat has participated in building a satellite telephone network for remote locations in South America and rural telephone networks in Colombia, Chile, and Peru.
In 2023, Gilat acquired DataPath, a U.S.-based company that provides satellite communication services for the U.S. military and government sectors, according to Gilat’s 2023 annual report. The defense sector is indeed one of the company’s focal points. This acquisition contributed to a 29% year-over-year revenue increase to $76.1 million in the first quarter of this year, according to a Needham report.
Needham analysts have rated Gilat stock a buy with a target price of $8.50 per share, compared to the closing price on July 23 of $4.70 per share. To justify its rating, Needham cites accelerating growth in the IFC market, high spending on communication satellites by U.S. allies amid global conflicts, and Gilat’s increasing share in the rapidly growing LEO (low Earth orbit) satellite sector. These satellites, such as Elon Musk’s Starlink and Amazon’s Project Kuiper, operate within 2,000 km of Earth, and Gilat supplies devices that amplify signals for them. In the next decade, over 50,000 satellites are expected to be launched into LEO, with investment in their deployment exceeding $30 billion, said Gilat CFO Gil Benyamini at the recent LD Micro conference in New York.
Simply Wall St analysts, however, caution investors that Gilat stock has retreated in recent years. Sometimes good stocks do decline, they point out, but they want to see improvements in the fundamental performance of the business before getting too interested. Quotes on Gilat shares have fallen almost 40% over the last five years and are down nearly 11.5% over the last three months.
