Globalstar (NYSEAMERICAN:GSAT) is a company focused on connectivity. It uses satellite solutions to offer telecom services in remote parts of the globe that are out of the reach of reliable mobile phone networks. Primarily, GSAT stock customers include firms such as mining, oil & gas, shipping or agriculture operations that are based in remote locations. This sort of technology is also vital for safety purposes, such as firefighters or rescuers responding to natural disasters in the wilderness.
Globalstar is also enjoying another rising source of business. This is from the Internet of Things (IoT). Now, it’s not just people that need connectivity in remote places, but devices as well. As more and more pieces of industrial equipment, sensors, and the like connect to the internet, the need for reliable broadband increases as well. Globalstar’s network seems like an ideal asset in the current landscape.
And yet, things haven’t worked out for GSAT stock. Shares crashed from $15 to less than a dollar each during the 2008 Financial Crisis. They made it back to $4 at one point since then, but have largely lingered in penny stock territory. Earlier this summer, GSAT stock appeared to be heating up, however that soon fizzled out. Here’s why.
The Apple Rumors
Throughout the summer, traders built up excitement for Globalstar. There were all sorts of suggestions that the new Apple (NASDAQ:AAPL) iPhone 13 would include satellite phone capability. These weren’t entirely unfounded, either.
After all, Apple CEO Tim Cook talked about potentially using satellites in a future phone to get around limitations of local carriers in some markets. Additionally, in a huge boost for Globalstar, Qualcomm (NASDAQ:QCOM) added support for Globalstar’s spectrum into its 5G modem, giving Globalstar far more connectivity opportunities. Qualcomm, after all, is the de facto standard for rolling out new generations of mobile technology, and GSAT stock had skyrocketed on that news.
However, the Apple new product launch came and went without any details of an actual Globalstar partnership. GSAT stock quickly melted from $2.50 back into the mid-$1s following the Apple disappointment. Getting an iPhone partnership would have validated Globalstar in a tremendous way and potentially made the firm a profitable player in one move. Now, however, it’s back to the old grind for Globalstar.
Still A Niche Business for GSAT Stock
If Apple had opened up a market for Globalstar, that could have changed everything in an instant. Instead, Globalstar has to make due with its existing operations.
Over the past four years, Globalstar has tended to generate about $130 million annually in revenues. In turn, it sees operating losses of around $60 million each year off of that revenue base. In theory, Globalstar should be a high-margin strongly cash flow-generative business. However, it simply doesn’t have enough customers yet to fully defray its high fixed costs. Maintaining a satellite network has higher overhead than, say, a software business.
It’s not the end of the line for Globalstar, by any means. The Qualcomm move gave the company a fighting shot at obtaining broader acceptance for satellite telephony in general. The assets are there, and you can see a potential path to how Globalstar could become a more meaningful player in the telecom industry. Until it moves out of just being a niche player in remote geographies, however, the company will struggle to ever make much money.
In the meantime, it faces some financial strain. The company had just $16 million of cash on hand as of its June quarterly results. That might not last too long given the company’s ongoing losses. It also sees rising competition from the likes of AST Spacemobile (NASDAQ:ASTS) which could further complicate Globalstar’s plans going forward.
GSAT Stock Verdict
Globalstar is getting by for the time being. The company appeared to be in grave danger of falling into insolvency during the financial crisis, however management was able to maneuver around that. Globalstar’s financial picture isn’t great, but it’s workable for the time being.
The bigger question for now is what will cause customer demand to pick up. An Apple phone that created tons of new Globalstar customers would have been a silver bullet. Alas, those rumors appear to have been overblown or at minimum premature. So don’t count on a quick turnaround for the business over the next few quarters.
In the longer-run, it still seems like Globalstar’s satellite spectrum should have a ton of value. The question is, however, if management will be able to transform that potential into reality. So far, it’s been a rough ride for GSAT stock owners and there’s simply not enough there to say confidently that we’re at an inflection point yet.
On the date of publication, Ian Bezek held a long position in QCOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.