Shares of satellite communications provider Iridium Communications (NASDAQ: IRDM) rocketed 40% higher in the last two weeks. The company has had good press since its first-quarter 2018 report at the end of April, making advancements with its new network and getting some help from Wall Street analysts. While there was good reason to feel optimistic, expectations might need to be tempered after the stock pop.
A busy couple of weeks
On May 22, it was announced that another round of Iridium NEXT satellite launches was completed by SpaceX. This was mission No. 6 of out of eight, leaving two more deployments to go before the company’s next-gen satellite constellation is complete. It is scheduled to be finished the second half of this year and will power broadband data speeds and new connected services that span every location on the globe.
The day before that launch, though, Iridium announced it won approval from the International Maritime Organization to begin developing its services for use with the Global Maritime Distress and Safety System (GMDSS). GMDSS is a set of protocols, equipment, and systems the maritime industry is required to use in case a vessel at sea is in distress. Iridium’s approval is significant because only one service, London-based satellite company Inmarsat, has been available for GMDSS use since the standard was adopted in the late 1990s. It will take a couple of years to get things up and running, but Iridium expects to be able to offer its new alternative at a competitive price starting in 2020.
Another newsworthy item the last couple of weeks was that in-flight broadband internet provider Gogo (NASDAQ: GOGO) will begin making devices supporting Iridium Certus, the broadband internet service enabled by the NEXT satellite constellation. Testing in aircraft will begin later this year, and commercial rollout is expected in mid-2019.
Since its first-quarter report and in tandem with the GMDSS and other announcements, several analysts upgraded or initiated Iridium’s stock to a buy. While that in of itself doesn’t constitute news, the nod from Wall Street has helped investors muster some courage and buy Iridium in the last couple of weeks. Thus, the big upward move in shares in such a short period of time.
Will the run continue?
Not much has really changed here, at least for the time being anyway. Sentiment on Iridium Communications may have gotten an upgrade as of late, but it’s worth noting that Inmarsat got approval on an upgraded version of its GMDSS-compliant system the day after Iridium did. Chinese satellite telecom BeiDou Navigation Satellite System also got approved to have its GMDSS proposal evaluated. Pairing that with the fact that Iridium won’t see any results from this new maritime industry opportunity until 2020 should temper expectations.
Along with the maritime news, though, was the first-quarter report in April. Total revenues were up 14% year over year, and guidance for full-year service revenue growth remained unchanged at 10% to 12% growth. That is being driven by an 18% increase in government voice and data subscribers, as well as a 25% and 24% increase in commercial and government Internet of Things data connections, respectively. The only negative was earnings per share were a third less than last year, though much of that was due to increased expenses related to launching the NEXT satellites.
The takeaway is to not chase this recent boom in Iridium Communication’s stock. The outlook for the satellite telecom remains positive ahead of the completion of the NEXT constellation, but don’t be surprised if shares take a breather in the short term. In the years ahead, though, the company should do well as it continues to scoop up new customers with its next-gen communications network.
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