De-teasing JR Butts Satellite stock pitch: “One Obscure Footnote is Your Key to Unlocking a $201,873 Windfall”

by Travis Johnson, Stock Gumshoe | February 7, 2023 1:01 am

Capital Wealth Letter 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...

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 is only lightly updated, and we’ve updated the article to check on the current prospects. Previous commentary on this teaser was presented on 2/21/2020 and 12/17/2020.

This is from an email I received from J.R. Butts[1], pointing at a teaser ad from StreetAuthority[2] for his entry-level Capital Wealth Letter (formerly called Top Stock Advisor[3], still $39 “on sale” for the first year). The ad has been running for about three years now, but was recently re-introduced in a new pitch… here’s what the February 6 email said to pique our interest:

“I’ve just uncovered an opportunity for you to add $100,937… $201,873… even as much as $504,685 to your investment account in the next 12 months.

“It all stems from a little-known satellite company about to score a massive 38,362% return on a tiny acquisition.

“Best of all… Wall Street banks and hedge funds[4] completely missed the fine print on this deal…”

So that’s exciting, right? What’s the story? Let’s dig into the actual ad, which, other than the fact that the newsletter has since changed its name, appears almost identical to the one we first covered three years ago…

“If a Chevrolet dealer near you was selling brand-new Corvettes for $1,000 each….

“Would you buy one?

“Or a better question: ‘How many would you buy?

“Because you could easily sell each one for fifty times the amount you paid…

“And pocket an easy $49,000 profit per car.

“That’s exactly what happens when you buy an undervalued stock.

“You see, a company’s stock price ‘should’ reflect all the money it’s expected to earn in the future.

“But when the company has a $10 billion ‘hidden’ revenue stream…

“One that Wall Street hasn’t discovered yet…

“Then you have an opportunity to get the bargain of a lifetime on that company’s stock.”

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 a photo of the sexy Corvette that gets the heart of those folks to skip a beat or two on a cloudy February day.

Copywriters love using any excuse to slide in a photo of something aspirational (Corvette, yacht, etc. — if you see a boat, sports car or mansion with a swimming pook in a teaser ad, it’s a good signal to put the ad aside and do something productive with your time).

But still, we’re curious… 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 guess they realized that using an actual citation for your misleading ad was a mistake, because they’ve completely blurred it out in more recent updates and added the footnote, “*image is for reference only.”

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 that particular citation from the Texas Court of Appeals. Probably they just made it up, so we’ll ignore that bit for now.

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….

“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.”

And yes, in case you’re curious, those numbers are exactly the same as the $$ promises he was making “in the next 12 months” back in February of 2020.

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…”

Notice they don’t say “a few years from now” or “a few decades from now”… gotta keep some sense of urgency.

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 still “just under $2 billion” in revenue, within 5% or so of where that number has been for three or four years, and this ad is clearly still hinting at Echostar (SATS)[5], 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 back in 2019 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 EchoStar’s current satellite network focuses on Europe.

That never meant they would have a network up and running and be offering a service in a few months, but it did 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 they did launch two S-band satellites in 2020, so perhaps that meets the “hold those licenses” deadline… that seemed to be the initial catalyst Butts was teasing back then as the moment when everyone would realize how valuable the spectrum rights are… but so far, there’s been a clear lack of investor enthusiasm.

There have been changes at EchoStar in the intervening years… they have a new leadership team now, and speak in different ways about their strategic priorities, but the S-band spectrum assets are still a priority — they have now committed to a full buildout of the S-Band Network, which they call EchoStar Mobile, their announcement last week[6] was that they’ve hired Astro Digital to build the satellites for their global S-Band network — the plan is for a 28-satellite constellation, and they say they’ll begin to deliver global services “beginning in 2024.” No mention of how they’ll price it, or whether JR Butts’ daydream of $10 billion is going to come true.

They’re also still working on the broadband satellites that generate most of EchoStar’s cash flow right now, their next-generation Jupiter 3 satellite should launch in the next few months sometime to boost those offerings in this hemisphere, improving the Ka-band HughesNet satellite broadband service… and they’re still involved with OneWeb[7], too — that’s the low-earth orbit (LEO) service which plans to compete with SpaceX[8]’s Starlink[9] and Amazon’s Project Kuiper and others.

They did note in the last conference call that S-band remains a priority,[10] though they also implied on the call that really profiting from it is probably more of a 2026 or 2027 story.

“For this longer term strategy, we are actively evaluating opportunities for new avenues of organic and inorganic growth, including commercialization of our S-band assets and potential larger scale M&A opportunities. We will share more details on our efforts and plans as plans solidify. I remain extremely excited about our strengths, including our strong balance sheet, our global presence and trusted reputation, our engineering expertise and our S-band spectrum assets.”

And then, more specifically…

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 funding they provide coming out of OneWeb’s bankruptcy in exchange for a ground systems contract[11]), 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.

EchoStar is probably best known for its roots in satellite TV, but is no longer in that business — they spun off Dish Network (DISH)[12] 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) back in 2019, 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… and both stocks have performed very poorly in recent years.

Does this potential S-band strategy for IoT devices mean that SATS will 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 in the next couple years — it will probably remain right around $2 billion, with some hopes for mid-single-digits revenue growth in 2024 if they get a boost from the new HughesNet satellite (Jupiter 3) or from initial interest in this new S-Band service, 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 legacy satellites (and launch costs for new ones).

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.

Here’s what the stock has looked like since JR Butts first started pitching EchoStar as his “$1,000 Corvette” and as the owner of that $10 billion “footnote”… that’s the S&P 500 in orange and tne Nasdaq 100 in blue, just for some context — I know it feels like the market has gotten clobbered, but EchoStar down there in the bottom, in purple, at least reminds us that there were plenty of ways to do worse than the market, even with companies that haven’t been “growth” stories this decade.

[13]

And so I’ll leave you there, dear friends — yes, Capital Wealth Letter and J.R. Butts seem (still) to be teasing EchoStar, and they are still planning to have a commercial-ready network launching over the next year or two, holding their S-band licenses and trying to get some kind of real business built around them over the years after that.

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.

Last time I looked into this ad, by the way, Butts was also trying to sell it with an “insider buying[14]” angle… here’s how he put it then:

“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 just for posterity I’ll note that I could never find any indication of anything like a $197 million “insider bet” on this stock, though in some versions of the ad they did disclose that what they actual mean is, “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 Founder/Chairman Charlie Ergen and give him total voting control. I don’t know how that got Butts to a $197 million number, though, Charlie Ergen’s 35 million or so shares that seem to still be owned by him or in charitable trusts and with family members were worth $1.5 billion or so when the ad started running). And no, he’s not buying — Ergen and his trusts do some selling from time to time, there hasn’t been much open market buying in the past that I’ve noticed in EchoStar. A few board members have bought in the past year or so, but the insider activity in recent years has been mostly SATS insiders converting their B shares or options[15] to A shares and selling some of them, which is pretty typical — and for them, a good move, since the shares have lost value pretty steadily over the past five or six years.

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 in 2020 or 2021, when previous versions of this pitch circulated.

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