Mynaric may not be a household name, but it’s making waves in the aerospace and defense industries with its laser communication technology. In this article, we’ll explore the company’s activities, its potential for the future, and the risks it faces.
Mynaric: A Laser Communications Specialist
Based in Germany, Mynaric is at the forefront of developing laser communication technology. While laser communication is primarily used in the aerospace and defense sectors, it also holds potential for commercial applications. Government agencies are a significant source of demand for space-based communication networks, and the company’s prospects are closely tied to defense budgets. The U.S. Space Force and Space Development Agency budgets, totaling $26.3 billion and on the rise, play a crucial role. With the growing demand for high-speed secure military communications, the future looks promising for Mynaric. Moreover, the technology’s advancements in Europe and the need for space-based communication solutions in commercial applications offer additional opportunities.
Advantages of Laser Communications
Laser communications offer several advantages. They enable significantly higher data transfer speeds, over 300 times faster than traditional Radio Frequency (RF) wave communications. Laser communication’s smaller beam makes intercepting signals challenging, ensuring secure data transfer, making it ideal for military communications. On the commercial front, laser communications are license-free, eliminating the need for separate licenses for each beaming location, as required by RF beams. This technology can revolutionize various applications, including predictive management for commercial airplanes, rapid data exchange for military and commercial purposes, earth observation, connecting remote areas, and even enabling faster communications for hypersonic weapon systems.
Mynaric’s Customer Base
Mynaric caters primarily to government customers but is eyeing a diverse customer base, including commercial clients. Notable customers include Northrop Grumman, which placed a $25 million order for the SDA’s Tranche 2 Transport Layer-Beta program. The company also secured a $6 million contract with an undisclosed customer for the CONDOR Mk3 terminals. DARPA, SDA, and ESA have funded projects with Mynaric to explore terabit-speed connectivity. Commercial customers, like Northrop Grumman and Capella Space, also contribute to the company’s high-profile customer list. With various high-speed communication applications, including military operations and commercial services, Mynaric’s clientele showcases the importance of its technology.
Revenue Challenges
While Mynaric’s technology has immense potential, translating it into revenue can be a lengthy process. The typical timeline from a request for information to revenue recognition can span years, similar to the defense and commercial airplane programs. This prolonged period involves requests for proposals, awards, integration phases, and customer sign-offs. Nevertheless, Mynaric’s backlog is crucial for the company’s growth. In the first half of 2023, the backlog expanded by nearly 50%, and revenues already exceeded the previous year’s total. This growth bodes well for the company’s future profitability.
Risks: Competition and Dilution
Mynaric faces competition from established aerospace giants and other companies in the laser communication space. Firms like Amazon and SpaceX could develop their laser communication solutions. Within the aerospace sector, competitors include Airbus, Thales, Ball Aerospace, General Atomics, Honeywell, QinetiQ, and Hensoldt. Mynaric must contend with the challenge of its competitors’ existing relationships with customers, which may allow them to compete more successfully. Additionally, shareholder dilution is a real risk. Mynaric has doubled its share count since 2017, and recent filings allow the sale of American Depositary Shares representing 5 million ordinary shares. These factors contribute to the dilution risk that investors should consider.
Is Mynaric Worth Considering?
Assessing Mynaric’s stock is complex due to its evolving technology and lack of profitability. Traditional valuation methods like EV/EBITDA may not be suitable in this case. Mynaric’s fair value seems to be reflected in its stock price, but the risk-reward profile may not be attractive for all investors. The uncertainty around shareholder dilution and competitive pressures make it a speculative investment at best.
Conclusion: A Promising Business, but Value Uncertain
Mynaric is on the path to profitability, but the journey may involve significant shareholder dilution. The competitive landscape in the laser communication space adds another layer of uncertainty. Nevertheless, the company’s growing traction and high-profile customers are promising signs. For investors seeking high-risk, high-reward opportunities, Mynaric may be worth considering, but it’s not without its challenges and uncertainties.