Globalstar Stock Forecast Threatened By Billionaires

Globalstar, Inc. (NYSE:GSAT) is a Covington, Louisiana-based satellite communications company operating a low Earth orbit satellite constellation used for satellite phones and low-speed data transfers. It has customers in government, energy, maritime, construction, forestry, transportation, and more.

With the Internet of Things growing and remote work more common, what is Globalstar’s stock forecast?

Satellites are typically launched as clusters in Medium Earth orbit (MEO) and Low Earth orbit (LEO). This is because each individual satellite can only cover a specific region of the globe at a time. Creating a mesh network passes the signal between satellites to enable functions like global positioning systems (GPS) in MEO and RapidEye and Globalstar in LEO.

Both Starlink and OneWeb are also building LEO constellations, and this sets the stage for the future of mobile connectivity. Will it be a boon for investors? 

Globalstar Market Share Is Small

Globalstar’s in-orbit LEO constellation is a game-changer in providing connectivity outside the terrestrial wireless footprint. While you may get decent service in most places, you won’t on a cruise ship, or even generally in an airplane. And unlike other competing networks that are scheduled to launch in the future, GSAT’s is available right now.

5G isn’t widespread yet. The company is currently operating in transportation, logistics, mining, and oil/gas. These are the industries where it has the most opportunity in the next few years as 5G modems roll out.

In 2020, the company earned $128.5 million, a one-percent increase from 2019’s haul of $127.8 million in revenue. This is paltry compared to the $62.63 billion satellite communication market size, according to Grandview Research. However, it’s a crowded global market.

Globalstar seeks to expand horizontally to service new geographic regions while also expanding beyond the markets it currently serves. This two-pronged approach should lead to sustainable growth if it can protect itself from competitive forces.

Globalstar Vs Competitors

Since growth is dependent on retention, it’s important to understand what separates Globalstar from its competitors. The company’s moat is in its partnerships – businesses like Qualcomm (QCOM) and Nokia are designing their chipsets to be Globalstar compatible.

These B2B contracts are typically long-term and incredibly lucrative.

Military satellite communications are the bread and butter of today’s market. The military uses SATCOM to operate in remote locations around the world. It’s necessary for high-tech missiles, drones, and other advanced weaponry and equipment to operate. However, both the government and commercial uses are growing, as are industrial uses.

This means the company’s competitive advantage should hold steady. There’s a high barrier to entry into satellite communications because of the massive upfront capital cost and network needed to launch. Although SpaceX CEO Elon Musk and others are racing to overcome those hurdles and launch their own networks soon.

Is Globalstar Growing Revenues?

Globalstar is increasing its revenue, albeit slowly at the moment. Total revenues of $128.5 million in 2020 are a 1 percent increase from $127.8 million in 2019. Service revenue of $3.7 million drove this increase, although it was offset by lower subscriber equipment sales for the year.

The company also increased engineering services revenue to $10.5 million for the year, with Duplex and SPOT revenue decreasing.

GSAT will grow revenues as it opens to more industries and continues expanding beyond its existing government, commercial, and industrial contracts. The rollout of 5G and increase in self-driving cars, industrial automation, and the widespread Internet of Things (IoT) are keys to the platform’s success.

The company will grow alongside the proliferation of wireless communications. Besides remote areas, it can also help connectivity in small rural areas much faster than terrestrial fiber and other options can be implemented. There are downsides to satellite communications, however, which we will dig into later on.

Globalstar Earnings Growing Marginally

Although the company grew earnings, it took a net loss of $109.6 million in 2020 compared to net income of $11.4 million in 2019. This was due to underwriting issues and loan rewriting that took into account losses from previous years. It’s a one-time issue and there’s positive news that can’t be underweighted.

Operational losses in 2020 were $8.8 million, which includes an $8.1 million decrease in operating expenses.

The company also held $13.3 million in cash at the start of 2021, which is a $7.6 million increase from its balance a year prior. It also has $54.7 million in restricted cash, which includes $51.1 million reserved for its December 2022 lien facility agreement.

Should 5G reach full penetration soon, the company stands to gain huge, but even without that, it should continue its growth trajectory. Globalstar’s EBITDA increased 12 percent to $42.2 million in 2020, and it’s going to be in a great position with cash to continue competing through the decade. Much depends on the company’s top brass though.

Globalstar Management Team Is Seasoned

David Kagan is Globalstar’s CEO, a position he took on in September 2018. Prior to that, he was COO for just under a year. Kagan is an industry veteran who served as COO of SpeedCast International Limited and President of premier global VSAT provider ITC Global.

Prior to that, he spent over a decade serving as President and CEO of Maritime Telecommunications Network. This company largely serviced maritime communications, giving him inside knowledge on an important niche.

He’s also experienced as a CFO for ICG Satellite Services and once served as Norwegian Cruise Line’s Vice President of Finance and Treasurer. While there, he led a $1 billion refinancing to help the company weather growth conditions. Now he’s deeply embedded in one of the premiere satellite communications networks on the planet.

At $2 billion, the company could be heavily undervalued, but there are obstacles ahead.

Globalstar Staring Down Billionaire Rivals

Globalstar’s biggest obstacle is the competition. Once Musk and others launch their satellite arrays, there will be a lot of competition in the skies. And the growing market isn’t guaranteed to grow the company alongside it. There’s a reasonable chance it could be overshadowed by rivals with bigger pockets.

And it needs to continue servicing its existing customers too. The company has churn that caused some decreasing revenues in certain markets, despite an overall great year. If it can push through these headwinds, it will be a strong company in the coming technological age.

Is Globalstar Stock A Buy? Conclusion

Satellite communications could be the next generation of wireless internet. Everything from the military to our phones and modems may someday use it, as 5G rolls out to more device manufacturers. Globalstar is one of the only companies with an already-established LOE satellite constellation.

As it continues to grow, it has competition speeding into its lane, including Elon Musk. The company needs to focus heavily on earning and retaining high-value recurring contracts if it wants to remain competitive moving forward.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.