Laughing Water Capital: NextNav ($NN) Investment Case
Introduction
In their Q4 2024 letter, Laughing Water Capital (“LWC”) outlines NextNav Inc. (NN) as a key contributor to the fund’s performance and largest holding. NextNav, a next-gen GPS and wireless spectrum company, is currently in a holding pattern while awaiting updates from the Federal Communications Commission (FCC) on its petition to modify the 900 MHz spectrum rules. If approved, this would enable NextNav to create a terrestrial GPS system in the U.S. and secure approximately 15 MHz of 5G spectrum. LWC views NextNav’s potential as substantial, with the FCC’s focus on national security and spectrum refilling potentially creating favorable conditions for approval.
Investment Highlight: NextNav Inc. (NN)
Business Overview
- Terrestrial GPS Technology: NextNav aims to create a nationwide terrestrial GPS system, a critical capability that would complement the existing satellite-based GPS infrastructure, providing more accurate, reliable positioning services, particularly in urban and rural areas.
- 5G Spectrum: The company’s petition also seeks access to ~15 MHz of 5G spectrum, which could further accelerate its market positioning.
Competitive Advantages
- Strategic Spectrum Holdings: NextNav’s low-band spectrum is nationwide, making it highly valuable compared to Verizon’s recent purchase of low-band spectrum for rural areas at $1.44 MHz/Pop, with NextNav’s spectrum potentially deserving a significant premium due to its nationwide coverage.
- National Security Importance: With terrestrial GPS being a national security priority, NextNav is positioned as a key player in enhancing the U.S. Positioning, Navigation, and Timing (PNT) capabilities, which is a critical concern for the FCC and policymakers.
Performance and Market Dynamics
- FCC Petition and Approval Prospects: While the FCC’s decision is still pending, LWC believes that the chances for approval are favorable due to the national security implications and the urgency to refill the spectrum pipeline.
- Private Equity Selling Pressure: Recent stock declines have been driven by aggressive share sales from private equity funds nearing the end of their fund lives. LWC expects this overhang to clear with time as market conditions stabilize.
- Spectrum Value: LWC cites Verizon’s purchase as a marker for NextNav’s spectrum value, suggesting that NextNav’s spectrum could be worth significantly more, should the FCC approve the petition as currently proposed.
Risks
- Regulatory Uncertainty: There remains uncertainty surrounding the FCC’s decision, as the petition faces opposition from various parties, including transit authorities and RFID technology users. However, LWC believes that these concerns can be addressed through negotiations, and the FCC’s role as a referee will likely lead to a favorable resolution for NextNav.
- Market Perception: Many investors view NextNav’s FCC petition as a binary, high-risk event, which has caused some volatility in its stock price. However, LWC believes this view is overly simplistic and that the situation is more akin to a negotiated process rather than an all-or-nothing scenario.
Conclusion
Laughing Water Capital remains bullish on NextNav Inc. despite the uncertainty surrounding the FCC’s decision. The company’s positioning in the national security space, its nationwide spectrum holdings, and its potential to create a terrestrial GPS system place it in a unique and favorable position. LWC believes the market is undervaluing NextNav, and once the FCC petition process plays out, the stock will likely experience significant upside, potentially driving the value of NextNav’s spectrum much higher, offering compelling returns for long-term investors.
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