Iridium (NASDAQ: IRDM) recently completed the deployment of its first round of satellites for its next-generation Iridium NEXT network, and the next one is scheduled for launch next month. The new satellite array promises to usher in new possibilities in global communications, as well as take Iridium's business to the next level.
Continue Reading Below
What is Iridium NEXT?
Iridium NEXT will be a new array of low-orbit satellites powering the company's Certus communications network. While mobile carriers like Verizon and AT&T are working on a 5G network for basic consumer usage, Iridium's answer for enterprise use is Certus, the only telecom network that can boast coverage of 100% of the globe's surface.
Image source: Iridium.
The satellite carrier has always set its sights on hard-to-accommodate clients, and the new satellites will expand on that coverage. Industries typically interested in the service are maritime, aviation, and government entities, but really, anyone looking for communications service in isolated areas fits the bill.
The new Certus network will expand Iridium's current offerings to include broadband data as speeds up to 1.4 Mbps will be possible once the satellite array is fully deployed. That not only opens up HD video streaming ability anywhere on the planet, but it also plays into the Internet of Things, meaning devices connected to and communicating via the internet. For businesses that operate in hard-to-reach areas, asset tracking, fleet management, remote monitoring, and remote control will be feasible on Iridium's network.
Continue Reading Below
The first 10 NEXT satellites were launched by SpaceX back in January and have since been put into service. The second batch of 10 will launch on June 25. In total, SpaceX will send 75 Iridium NEXT satellites into orbit over eight launches. Full deployment is on schedule for completion by the middle of next year.
What the company expects will happen
During the first quarter of the year, Iridium reported total revenue that was flat from the previous year. Service revenue was up 2.4%, offset by declines in equipment sales, in line with guidance given at the beginning of 2017.
The company's stock has bounced around quite a bit in the last few years, but it has been showing signs of life recently, with profitability on the rise after the company front-loaded paying for the new satellites.
Data by YCharts.
Iridium has also been talking up its longer-term guidance as the new services enabled by the NEXT array come on line. The company has high hopes, which it reaffirmed again during its first-quarter report, further supporting the most recent run in share prices.
|Metric||2019 Guidance||Full-Year 2016 Results|
|Service revenue (excluding equipment sales)||$440 to $465 million||$334.8 million|
|Operating EBITDA profit margin||60%||59%|
Data source: Iridium Q1 2017 earnings release. Chart by author.EBITDA = earnings before interest, tax, depreciation, and amortization.
That's a big jump in service revenues over the next two years -- 31% at the low end of guidance to be exact. Driving that expected increase are the new services NEXT provides, including Internet of Things and high-speed internet offerings.
A stock poised for liftoff?
Iridium's shares may have been up and down for years, but that could change. Paired with that big expected rise in service revenues and similar profit margins by 2019 is management's view that debt will fall over the next two years. That creates the potential for a big boost to the all-important bottom line.
It remains to be seen if any of that actually transpires, but investors won't have to wait too much longer to find out. Iridium management says network subscribers have been on the rise, so subsequent quarters will show if the projected service revenue figures are achievable.
10 stocks we like better than Iridium Communications
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and Iridium Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of May 1, 2017.