BlackSky's Positive 2025 Earnings Report Belies Persistent Financial Risks and High Valuation

What happened

BlackSky reported fourth quarter and full-year 2025 results, touting a second consecutive year of positive adjusted EBITDA driven by Gen-3 contract awards and growing demand. However, this narrative clashes with the company's recent guidance cuts and a 13% year-over-year revenue decline in Q3 2025, as highlighted in the DeepValue master report. CEO Brian O'Toole's emphasis on converting customer pilots to long-term subscriptions obscures underlying issues like heavy capital expenditure, negative free cash flow, and reliance on volatile government programs. DeepValue's analysis rates BlackSky as a 'POTENTIAL SELL' due to unsustainable profitability, a premium valuation, and execution risks amid U.S. budget headwinds. Thus, the earnings release portrays superficial strength while failing to address core financial vulnerabilities that threaten investor returns.

Implication

The reported positive adjusted EBITDA for 2025 does not resolve BlackSky's chronic profitability issues, given historical losses and ongoing cash burn from heavy Gen-3 capex. High valuation at ~8x revenue remains unjustified without sustainable earnings growth or margin improvement, especially with revenue stagnation and dependency on a few government contracts. Investors must monitor upcoming FY26 guidance for revenue exceeding $130M and positive EBITDA to validate any turnaround, as failure could trigger a re-rating toward the bear case of $14 per share. The stock's risk-reward profile remains unfavorable, with downside risks from potential dilutive capital raises or contract cancellations outweighing upside from Gen-3 adoption. Prudent investors should reduce exposure or avoid new positions until clearer evidence of operational leverage and self-funded growth emerges.

Thesis delta

The positive adjusted EBITDA reported for 2025 does not alter the negative investment thesis, as it may be adjusted or temporary without addressing fundamental financial weaknesses. Core concerns—such as heavy capex, volatile government dependency, and lack of sustainable profitability—remain unchanged, keeping DeepValue's 'POTENTIAL SELL' rating intact. A shift to a more bullish stance would require revenue exceeding $130M with positive adjusted EBITDA and stable capex, which the current report does not convincingly demonstrate.