Starry has the technical goods and a sizable market opportunity upon which to seize. But the fixed wireless upstart will need additional funding to pull off its network buildout and subscriber sign-up plans in the coming years, according to a lengthy analysis (registration required) from MoffettNathanson arriving in the wake of Starry's recent debut on the New York Stock Exchange.
"Even at our slower forecast pace of build, we ... estimate that the company will need to raise $1B in additional capital in the next five years in order to pass 13 million serviceable homes, and to connect 650 thousand subscribers," MoffettNathanson analyst Craig Moffett noted.
Moffett has initiated Starry with a "Buy" rating and a stock price target of $11 (Starry shares were trading at $4.76 each, down 10.52%, in Monday morning trading). However, the analyst's forecasts for Starry fall well below the company's own. Some examples:
- MoffettNathanson expects Starry to reach 13.29 million serviceable homes passed by 2026, versus Starry's estimate of 19 million by that time.
- MoffettNathanson forecasts Starry to have 649,000 subs by 2026, well under Starry's estimate of 1.42 million.
- MoffettNathanson sees Starry's average revenue per user (ARPU) reaching $51 by 2026, below Starry's estimate of $78.
Moffett acknowledges that his "enthusiasm is tempered" by the fact that his firm's forecasts are significantly lower than the projections put forth by Starry last year.
"Some might take this as an indictment of their business. It is not. Instead, it reflects a view that achieving their targets will simply take a bit longer than Starry projected," the analyst explained. "Starry's technology works, and we believe it can and will be profitable. But it will require patience."
Moffett notes that Starry has averaged more than 1 million homes per year to reach its current level of 5.5 million serviceable homes. "Starry's plan is over twice that pace over the next five years," he added.
But the analyst also points out that Starry's need for more capital "introduces yet another wrinkle," noting that Starry's recent acquisition by FirstMark Horizon Acquisition Corp. raised just $158 million, much less than originally targeted.
With total addressable market nor unit economics being the issue for Starry, the company's "fate will be determined by their execution, competitive response, and access to capital," Moffett predicted.
Starry's technical approach – a "hybrid" that enables high-frequency spectrum to be delivered from microcell towers – works well, and the company can make money at "relatively low penetration rates," Moffett explained. But he also recognizes that "building networks is slow and cumbersome work, and building a subscriber base takes a long time."
Starry uses licensed spectrum in the 24GHz band covering 54 million homes in parts of 37 states and has the green light to test in the 37GHz band – enough, the company estimates, to address up to 40 million homes and 2 million small and midsized businesses. Starry's network today can service about 5.5 million homes (homes where Starry already has line-of-sight), equal to 54% of its current addressable footprint of homes (those within its deployed markets). Moffett notes that Starry's current serviceable home footprint breaks down to 2.5 million multiple-dwelling units (MDUs) and about 3 million single-family homes.
He also notes that Starry believes its basestations can produce 14 Gbit/s to 86 Gbit/s per site, with each sector generating 7.2 Gbit/s of capacity. "The mid-point of that would be capable of serving thousands of households per site at peak data consumption rates today," Moffett estimates.
Investors have been keen to get behind broadband infrastructure buildouts, particularly with respect to those involving fiber. Starry's ability to raise more capital, perhaps as early as later in 2022, "will demand, of course, that the market's appetite for long fuse infrastructure investments remains strong," Moffett wrote.
International licensing potential
While Starry is currently focused on the US, Moffett says he can imagine an international model by which the company's technology and equipment is licensed to others. That, he added, would help to drive incremental revenue and also boost manufacturing scale of Starry transceivers. However, that potential is not currently built into Moffett's financial models for the company.
Starry added about 8,000 fixed wireless subscribers in Q1 2022, for a total of 71,000, with expectations that it will exceed 100,000 customers by the end of 2022. However, the company also pulled back some of the 2022 goals laid out late last year. Starry currently offers service in six US cities: Boston; New York City; Los Angeles; Washington, DC; Denver; and Columbus, Ohio.
Starry's 71,000 customers at the end of Q1 represent about 19% of "activated" units. It had about 190,000 units in buildings waiting to be deployed as of Q2 2021. Assuming those are MDUs, adding that backlog to already-activated units would increase Starry's potential activation to roughly 23%, Moffett estimated.
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— Jeff Baumgartner, Senior Editor, Light Reading