JR Butts ad says “Corporate executives of a small satellite company just went all-in on their own stock” — what is it?

Top Stock Advisor teases that this is "Like Buying a Brand-new Corvette for $1,000" as "One Small Detail Wall Street Analysts Missed Could Add Six-Figures or More to Your Retirement Account… Starting Today." We check up on the story...

By Travis Johnson, Stock Gumshoe, December 17, 2020

The first version of this article was published on February 21, 2020. We’re still getting questions about it, the ad is still running and appears unchanged, and we’ve updated the article to catch up to speed and check on the current prospects.

This is from an email I received from J.R. Butts, pointing at a teaser ad from StreetAuthority for his entry-level Top Stock Advisor newsletter ($39 “on sale” for the first year). The ad has been running for almost a year now, but was recently re-introduced in a new pitch from Investing Daily, here’s what the December 17 email said to pique our interest:

“Insiders Place $197M Bet On Their Own Company’s Stock

“Corporate executives of a small satellite company just went all-in on their own stock. And I’ve uncovered the reason. An obscure contract footnote other analysts missed could create a $10B a year tsunami of cash that isn’t reflected in the stock price. Investors who buy in at today’s levels could turn every $10,000 into $201,873 or more.”

So that’s exciting, right? What’s the story? Let’s dig into the actual ad, which appears identical to the one we covered in February but is undated…

“If you could buy a new Corvette today for $1,000, sell it tomorrow for $50,000…

“And pocket a quick, risk-free $49,000 profit…

“Would you do it?

“If you would, you’re going to love this opportunity…

“Because a major Wall Street ‘slipup’ means you can buy stock in a little-known satellite company at a price as much as 20X below its real value.”

So no, the newsletter ad copywriters haven’t forgotten that most newsletter subscribers are retired dudes who yearn for the sports cars of their youth… and they even manage to slip in some photos of the sexy Corvettes that get the heart of those folks to skip a beat or two on a cloudy February (or now, December) day.

But aside from copywriters using any excuse to slide in a photo of something aspirational (Corvette, yacht, etc.), what’s the ad about? Here’s the headline once you click through:

“Former Wall Street Insider Reveals…

‘One Obscure Footnote is Your Key to Unlocking a $201,873 Windfall’

“REVEALED: How One Small Detail Wall Street Analysts Missed Could Add Six-Figures or More to Your Retirement Account… Starting Today”

And theres even that partially obscured “secret” document with the highlighted footnote to make it all seem every so official — though it turns out that the ad is mostly about satellite communications and spectrum, and the footnote they highlight is citing an appellate court decision (94 S.W.3d 163) reconciling some competing laws in regards to a personal injury case having to do with some oilfield workers (thrilling stuff… Negligence! Indemnification!).

I don’t know for sure whether there’s some rational connection, or if they just made up the footnote, but the latter seems most likely — there are “footnote” specifics in global spectrum allocations that often come up with satellite companies, since they typically have to follow through to actually launch a service by a particular deadline in order to “hold” the spectrum they’re granted instead of just banking it, but I don’t see how those contractual agreements could have anything to do with this particular citation from the Texas Court of Appeals.

The profit story here apparently begins with a prescient acquisition… more from the ad:

“In late 2019, a little-known satellite company quietly purchased an Internet tech startup at a bargain basement price.

“How’d the stock market react to the news?

“Bupkis… no one cared….

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“But this time…

“They missed something.

“They completely overlooked a detail so massively important, it could add $100,937… $201,873… even as much as $504,685 to your investment account in the next 12 months.”

Butts says that this “obscure footnote” could be worth as much as $10 billion a year for the satellite company he’s teasing us with… so that’s our mission today, find out which company it is and let you make your own call about whether there’s $10 billion hiding in there somewhere. Ready?

There’s always some urgency in an ad like this — after all, you wouldn’t sign up if it wasn’t urgent, right? We want to win NOW, not in five years.

And the argument is basically that this satellite company has a “hidden” revenue stream that could be $10 billion a year, and which the market isn’t “pricing in” — but that these missed opportunities don’t get missed for long, so the market is bound to catch up… though the urgency isn’t tied to a specific date in this case:

“How soon will it take for one of those ‘rocket scientists’ to discover the massive profit opportunity I’m hand delivering to you today?

“It could happen tomorrow… the next day… or a few weeks from now.

“There’s no way to know for sure.

“That’s why taking action today is the only way to be 100% certain you can stake your claim in this hidden gem…”

And this hidden revenue stream was apparently part of the acquisition this company made late last year…

“The satellite company I’ve been following paid a measly $26 million for the tech startup it bought in 2019.

“That’s an amazing price for the assets, intellectual property, and brand name it got in the deal.

“But it’s just a small fraction of what they received for their $26 million.

“The startup they bought owned exclusive global rights to not just one frequency…

“But a huge slice of satellite communication ‘channels’ in what’s called the S-Band.”

And he says the S-band spectrum “channels” they own could support as many as five billion “smart devices,” and that they can charge the manufacturers of those devices at least $2 a year to communicate over their spectrum, which is where the $10 billion number comes from.

Which leads to some more clues…

“to a small company like our satellite firm…

“That has just under $2 billion in annual revenue today…

“An overnight increase of $10 billion a year is a HUGE deal.”

Well, it’s now back to being “just under $2 billion” again, they were a little above that in annual revenue but 2020 has so far been a relatively weak year, but this is clearly still hinting at Echostar (SATS), one of the many competing satellite companies that’s trying to build a global network to offer seamless connection for Internet of Things (IoT) devices.

And yes, they did make an acquisition last year that brought them some rights to S-Band spectrum, in this case through a little bit of a back door move as they acquired little Helios Wire (yes, for $26 million) and almost immediately moved to launch the first inklings of a low-earth orbit (LEO) constellation to test their S-band network. Helios had filed for worldwide mobile satellite service through its Australian subsidiary (Sirion Global), which meant that they gave EchoStar the possibility of global coverage on the S-band which would help their competitive stance, since most of their current satellite network focuses on Europe.

That doesn’t mean they’ll have a network up and running and be offering a service in the next few months, but it does mean that in order to hold the spectrum rights they had to launch at least one of the satellites and operate the network — apparently the deadline for Helios’ filing with the International Telecommunication Union (ITU) was April of 2021, and according to Echostar’s third quarter comments they did launch two S-band satellites this year, so perhaps that meets the “hold those licenses” deadline… but how far they go to build out the network and actually offer services beyond that, and when, is still pretty much up in the air.

They did note in the conference call

“We continue to work towards our longer-term strategic goal of full integration of S-band satellite services into 5G networks and to explore ways to integrate our complementary ground component authorizations in the EU into these and other opportunities.”

And then, more specifically…

“realistically, a network of this type especially in the NGSO environment really doesn’t become a reality until 2023, 2024.”

NGSO is “non-geostationary orbit” — a reference to the lower orbits that folks like Starlink are using to provide coverage through constellations, instead of the fixed satellite coverage offered for specific geographic areas by a larger and much higher altitude satellite in geostationary orbit (GSO)

There are a lot of companies aiming to offer satellite-based IoT coverage, both existing satellite networks (like Intelsat, Iridium and Inmarsat) and the many low earth orbit startups (SpaceX’s Starlink, OneWeb, etc. — EchoStar’s Hughes division is making ground equipment for OneWeb and is a OneWeb investor, incidentally, including an addition bolus of funding they’ll provide coming out of OneWeb’s bankruptcy in exchange for a ground systems contract), and I imagine there will be a lot of coordination and communication in the next few years… as well, hopefully, as some international standard-setting to make sure these various networks and devices can talk to each other.

I was wondering whether the existing relatively high-cost and low-speed Hughes satellite internet service, which generates a lot of EchoStar’s revenue, would survive the launch of faster low earth orbit satellite networks — and EchoStar continues to say that they expect their “legacy” GSO satellites which offer high-speed internet access and video transmission to specific areas of earth, largely in the US and Latin America, will continue to be vital in the future, even with the launch of Starlink and other LEO services, because each is good at different things. Here’s an illustration of that from their Investor Presentation:

EchoStar is probably best known for its roots in satellite TV, but is no longer in that business — they spun off Dish Network (DISH) more than a decade ago and bought Hughes Network to expand their satellite services, particularly internet service, and finally sold the last piece of their broadcast television business (back to Dish) late last year, to focus entirely on global and broadband satellite connectivity. Founder Charlie Ergen is Chairman and the largest individual shareholder of both Dish Network and EchoStar still, and I have no idea where his focus lies, but DISH is also in the midst of some major upheaval and is a far larger company (they were the major buyer of the Sprint spectrum and assets that were divested as part of the merger with T-Mobile, and intend to build a fourth mobile network).

Does this potential S-band strategy for IoT devices mean they’ll have $10 billion in revenue next year? No, definitely not. There isn’t a lot of analyst coverage of EchoStar, but the likelihood is that they won’t grow their revenue next year — it will probably remain right around $2 billion, with some hopes for mid-single-digits revenue growth after that, and it will probably remain marginally cash-flow positive… maybe even profitable, on an adjusted basis, though a lot of that depends on the capital expenses and depreciation for their massive GSO satellites (and launch costs).

Whether they’re able to build a meaningful global IoT data network on the S-band and boost sales in the future remains to be seen, that’s part of what they say they’re trying to do, but it will take years — and even if you discount the cost and challenge of operating satellite networks (which has, to be fair, improved with the new smaller satellites and variety of private launch companies), there’s a lot of competition angling to build similar global connectivity businesses using low earth orbit satellite constellations. Echostar has at least returned to positive cash flow if you ignore depreciation, which is good, but satellites are an expensive business and the depreciation of those massive boxes floating around a few miles up in space is substantial.

I have no idea how it will shake out with EchoStar in the year to come, but it’s certainly true that investor interest in satellites and commercial space projects has not been this hot in years — we get new satellite and space teaser stocks floating over the transom here every week — and the demand for global data has certainly never been higher, and will continue to grow, so maybe building satellite constellations won’t just be a money-losing project for billionaires this time around, but I can’t say I’ve got any real conviction about how the next few years will play out for SATS. It is, at the very least, more interesting at $20 than it was at $40 a year ago, and the business outlook is largely unchanged — just delayed a bit, largely because so many projects slowed down during the pandemic and the OneWeb bankruptcy caused a further hiccup.

And so I’ll leave you there, dear friends — yes, Top Stock Advisor seems (still) to be teasing EchoStar based on the impending launch of its first couple of nano-satellites to test their S-band network and hold their ITU license, and as far as I can tell those satellites have been launched, so hopefully that means they get to hold the licenses while they try to develop those networks over the next few years… but no, the deal to acquire that S-band spectrum license might have been smart and sneaky, and maybe it’s a “hidden” asset still, but they’re not going to make $10 billion in revenue from those satellites in the next few years. Whether the possibilities of that network and their existing satellite broadband services is enough to inspire you to invest, well, you’ll have to make that call. Please do let us know what you’re thinking with a comment below… love SATS, or have other favorite satellite stocks? We’d love to hear.

I should note, as well, that I can find no indication of anything like a $197 million “insider bet” on this stock as is teased, though in the ad they do disclose that what they actual mean is that they get this number because “Insiders of the satellite company own almost half of all shares available to regular investors.” I assume that’s a reference to the B shares, which are controlled mostly by Charlie Ergen and have voting control — and yes, there are almost as many B shares as A shares, roughly 50 million A shares and 47 million B shares as of October (they have roughly equal value, B shares can be converted to A shares when the insiders want to sell). I don’t know how that gets Butts to a $197 million number, though, just Charlie Ergen’s 35 million or so shares that seem to still be owned by him or in trusts and with family members would be worth a good $700 million at this point (and would have been roughly $1.5 billion back in February, with the higher share price… those numbers might be a little off, I just did a quick tally from some recent Form 4 filings and may have missed some, but not that much). And no, he’s not buying — he and his trusts do some selling from time to time, there’s been no open market buying in the past that I’ve noticed in EchoStar. The insider activity in recent years has been mostly SATS insiders converting their B shares or options to A shares and selling some of them, which is pretty typical — and for them, a good move, since the shares have lost half their value in the last year.

And that’s all, folks… just for fun, we’ve kept the original comments connected to this article, so you can see if folks had any great wisdom to share earlier in the year, when the first versions of this pitch circulated.

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