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Iridium shows significant growth potential despite modest reporting

Shares of satellite operator Iridium Communications fell slightly after the company reported mixed results for the second quarter of 2018. Shares of telecommunications companies, including Iridium, fell this year, as the deployment of satellite constellations and new launches lead to additional costs. However, although the profitability in the current report turned out to be elusive, Iridium made key investments that should soon pay off.

Iridium Iridium’s gross revenue increased by 21% to $ 134.9 million year-on-year, mainly due to an increase in the number of subscribers to the Iridium global communications network by 15%. Sales of equipment compared to the previous year increased by 37%.

Despite the jump in revenue, a net loss of $ 0.06 per share was received. Iridium explains this with higher depreciation costs for the new Iridium NEXT satellite constellation and a change in state tax during the quarter. The adjusted base data, that is, taking into account investments and net of depreciation, shows that, compared with the previous year, the satellite operator Iridium increased operating profit by 20% to $ 78.7 million.

The Iridium report was delayed by a week, because Iridium at the release date was just busy with the seventh launch of SpaceX as part of the creation of the Iridium NEXT group. The eighth and final launch will be carried out over the next few months, according to the results of which a new generation global broadband network Iridium CERTUS will be formed. Several years of painstaking work of Iridium are now being realized in a new high-quality service and the opportunities it opens.

Demand for satellite voice and data services has always been slowly increasing, but the boom of the so-called Internet of Things (IoT) has become a significant reason for the increase in the number of Iridium subscribers. Billions of devices around the world are connecting to the Internet, and the Iridium network is reaping the benefits. Services such as asset and cargo tracking, remote monitoring of ships stimulated a sharp increase in the number of connections in both the commercial and public sectors.

Iridium IoT While the Internet of Things seems to be the main driver of growth in the near future, voice and data services may soon get hit when Iridium CERTUS goes live later this year. CERTUS is primarily responsible for the previously mentioned jump in equipment sales. A few months ago, Iridium also received very important news related to the approval of the use of its network and its adaptation for use in the GMDSS (Global Maritime Distress Communication System). The implementation of this project will take several years, but in the coming years and without it there are enough opportunities to expand the Iridium business.

Management seems to be counting as well. It is expected that the total growth in service revenue will be from 12 to 14 percent in 2018 compared with previous forecasts of 10-12%. Service revenue is expected to reach $ 440 million in 2019. For the two quarters of 2018, revenue from services amounted to $ 193.7 million, which, as Iridium expects, will mean an increase of about 13% next year over the same period.

The second quarter for Iridium with a net loss was not ideal, but this does not apply too much to the launch of Iridium NEXT satellites. After all, an increase in the number of subscribers is good news and should be equated with profits for the owners of this asset in the short term.

Iridium subscribers growth is key
Iridium has exceeded 1 million subscribers this quarter. This is a major milestone for the company, but accelerating growth in this area is even more important. Below is the corresponding table:

Service Number of subscribers at the end of the quarter Growth year-on-year Growth quarter-on-quarter
Commercial voice and data communications 364,000 1% 3%
Commercial Internet of Things (IoT) 576,000 25% 7%
State voice and data communications 54,000 13% 2%
State Internet of Things (IoT) 53,000 20% 4%

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