Robust Subscriber Growth Helps Iridium Communications Stock Take Off

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Shares of Iridium Communications (NASDAQ: IRDM) are up over 15% as of this writing thanks to strong third-quarter 2017 results. While the previous report was mixed, the company made great strides during the late summer and early fall months.

New satellites = new business

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The next 12 months is an important stretch for Iridium, as it launches its next-gen satellite constellation, called NEXT. While Iridium continues deployment, subscribers to the network are already ramping up to take advantage of new services. Revenue, as well as operational earnings before interest, tax, depreciation, and amortization (OEBITDA), were up as a result, although the bottom line is down slightly on the year because of increased depreciation expense.

Revenue and OEBITDA especially benefited from growth in the company's Internet of Things (IoT) business and from supporting equipment sales. That's likely to be the case as the next-gen satellite array gets closer to fully operational in 2018.

It's all about data

Much like the land-based 5G telecom networks currently under testing, Iridium's NEXT satellites will enable faster data speeds and new services. Chief among those services will be Certus, combining voice, video, and high-speed data that will enable IoT connections across the entire surface of the globe. That could have a far-reaching effect on the aviation and maritime industry, as well as for companies and government entities operating in remote and hard-to-reach locales.

Commenting on the rollout of new services, CEO Matt Desch had this to say:

A runway for future growth

In light of its better-than-expected quarter, Iridium management upped its guidance for 2017. Service revenue is still expected to increase 3% to 5% over 2016, but the bottom end of OEBITDA guidance was increased $5 million and is now expected to be $260 to $265 million. That would be as much as a $10 million increase over last year.

Management also reaffirmed that it's on track to hit its targets through 2019 when accounting for the NEXT satellites running at full speed. OEBITDA profit margin is expected to be in about the same place as now, but total service revenue is expected to increase to $440 million to $465 million. That compares with $334.8 million for the full year 2016 and would be a 30% increase at the low end of guidance.

Having revenue increase by 3% year over year this year isn't going to get Iridium to that goal. However, the double-digit addition of new subscribers in the quarter is a positive sign and a good indication that revenue momentum will pick up when new services come online.

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Nicholas Rossolillo owns shares of Iridium Communications. The Motley Fool recommends Iridium Communications. The Motley Fool has a disclosure policy.