After news broke in March that Facebook (NASDAQ:FB) was in talks to acquire Titan Aerospace, analysts quickly emerged to handicap the looming face-off between Mark Zuckerberg's brainchild and Google's (NASDAQ:GOOG) Project Loon.
A month later, the debate ceased when Google swooped in and purchased Titan Aerospace for itself. The implication is that Google will utilize Titan drones to collect mapping imagery and deliver Internet services.
A few months earlier, we had introduced Globalstar (NASDAQ:GSAT) to investors. Our interest was sparked by the discovery that Amazon (NASDAQ:AMZN) had performed tests on GSAT's satellite network. GSAT has been in the process of seeking FCC approval for a measure that promises to open Globalstar's spectrum to a range of interesting new possibilities, most notably public Wi-Fi service.
This possibility places GSAT in the center of a strategic battle of Internet titans.
Understanding their position requires knowledge of GSAT's capabilities. For starters, Globalstar's technology is known as an ATC (ancillary terrestrial component), which combines both land-based terminals and satellites to create a complete network on a single chunk of spectrum. The US Defense Department operates predator drones using exactly this sort of technology.
With Project Loon now setting its sights on a similar network, it appeared that Google would need access to an ATC network for its drones. Rather than purchase its own band of spectrum for the drones, Google decided to partner with one or more wireless operators and lease their spectrum.
On Monday, Google provided new clues, revealing a plan to deploy its own proprietary fleet of 180 low-Earth orbit satellites (one billion dollars' worth). One report states that these 180 satellites will constitute only half of GOOG's total constellation and will likely require 5 years to deploy at a total cost possibly reaching $5 billion.
Five years is a long time. Further, GOOG's plans have already morphed a few times. Meanwhile, it's pretty clear that FB and AMZN are pondering their counter maneuver. Globalstar's new fleet of satellites, ATC architecture, and large swath of uncongested spectrum appear to be a strategic piece on the chess board:
GSAT's network could even fit into GOOG's current plans. GOOG's network will be lacking in coverage in a manner that may be complementary to Globalstar's satellite coverage. FYI, Globalstar's market cap of $3B is in the same ballpark as the plan GOOG just announced.
Also enticing for Globalstar is the possibility that Facebook or Amazon might be eyeing Globalstar as a way to steal Google's thunder. It would be a decisive victory if one of these names could boast any sort of functioning global wireless internet network years before Google's five year horizon. Such a deal would eliminate not only time obstacles, but also the headaches associated with relying on satellite experts/producers.
Facebook recently partnered with names like Ericsson, Nokia, Samsung, and Qualcomm to create Internet.org for the purpose of challenging Project Loon. Much like Google, the initiative requires a vast wireless network. To accomplish their goal of delivering internet to 5 billion people, part of the plan includes enlisting the help of wireless operators. With Google's latest milestone, partnership with Globalstar might be the perfect way to respond.
We've seen these companies go back and forth to match each other in the past. Google's acquisition of Titan Aerospace came just 2 weeks after Facebook's announcement that they purchased drone-maker Ascenta back in March. Make no mistake -- these companies know that PR is just as important to this race as having the technology to make it happen. We expect Facebook to respond decisively in the near future.
Though Facebook and Google may have stolen the spotlight for now, we continue to monitor Amazon's involvement. With GSAT's TLPS set to see a ruling shortly, we may see renewed interest from Amazon, especially if it has hopes of catching up with Google and Facebook.
With all of this excitement, it should come as no surprise that GSAT required just four months to fully validate its selection in the Poised To Triple Portfolio. Under our watch, the stock rose from $0.67 to $2.01.
Consistent with the rules of our Methodology (required reading for investors who seek to profit from my picks), GSAT automatically graduated from our portfolio upon tripling. Some investors mistook this for a "pump-n-dump", but they were in for a surprise. GSAT has appreciated an additional 250%. Monday, it hit a new 52-week high of $3.70 per share.
Indeed, most of our selections continue to rise after they graduate. Looking at the stats, 10 of our 19 former selections (53%) graduated as 200% gainers (triples). The remaining 9 were expelled with an average return of 2%. Of the 10 that tripled, eight have set higher 52-week highs this year (with an average peak-ROI of 319%):
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GSAT is nearing the top of that list. Accordingly, we continue to track the company's enviable progress. Over the past several quarters, we have only seen good things from GSAT. With its latest quarter's results in the books, we continue to monitor the company's core performance, along with the status of its TLPS proposal with the FCC:
Core Business Update
· GSAT saw a 6% YOY increase in revenue for the quarter, supported by growth in service and equipment. The new generation of satellites was not in place this quarter last year, so major growth was expected.
· More progress on the plan to reduce low-revenue subscribers and increase high-revenue subscribers. New technology means GSAT can justify more expensive plans to customers. 13% increase in high revenue customers and deactivation of 26,000 Duplex (low revenue) subscribers.
· Average revenue per unit (customer) rose from $28 to $34 since this quarter last year. Essentially, the company is increasing the cash it receives on assets already in place.
· GSAT also initiated "more aggressive collections procedures and reengagement campaigns," according to Chief Accounting Officer Rebecca Clarry, which should help boost the average revenue figure moving forward.
· Depreciation and interest expense drove the quarter to a net loss, but EBITDA soared 50% to $3.8 compared to this quarter last year. We are beginning to see the new generation of satellites boost revenue in all segments while operating expenses remain mostly unchanged. This is exactly what long-term investors like to see.
· Debt and liquidity remain a concern. Principal and interest payments will amount to approximately $11 million in June and $15 million in December, while management expects to spend $24 million on capital expenditures for the year (up from an estimate of $15 million in January).
· Operating cash flow was positive at $3.8 million, but much more cash will need to be raised from debt and equity to finance these costs.
· Moving forward, the next 2 quarters present peak season for GSAT, and should continue to drive revenue growth in all segments. New products being released in the upcoming quarter, as well as increased marketing/sales costs should help drive revenue as well. We should continue to see revenue outpace operating expenses as the business scales up.
Globalstar has traditionally been a satellite based company that provides wireless service to remote areas like deserts, oceans, and wilderness. They are petitioning the FCC to allow them to use their satellite spectrum (which they own exclusively) to create a network of Wi-Fi hotspots.
These Wi-Fi zones would be much more effective than the standard Wi-Fi hotspots we are used to, because existing hotspots are unlicensed and compete with thousands of other signals that use their range of the wireless spectrum. Globalstar's proposal means they would have exclusive ownership of their spectrum, which other signals would be unable to use. This spectrum would likely be worth several billion dollars, based on recent spectrum transactions.
Bluetooth, Wi-Fi special interest groups, and The National Association for Amateur Radio believe this new network would interfere with the signals they use; this is the primary obstacle to Globalstar's proposal. Bluetooth and Wi-Fi special interest groups are not directly opposing the proposal, but have asked the FCC and Globalstar to specifically address their concerns in detail. The National Association for Amateur Radio strongly opposed the proposal, but their influence appears limited.
FCC commentary on GSAT's TLPS proposal is currently set for June 4th. In the meantime, we remain focused on FCC and US Government rhetoric that relieving Wi-Fi congestion is a priority goal.
Thus, the pieces are falling into place for a TLPS approval and/or partnership with a major Internet giant. Either would mean great things for Globalstar's continued evolution toward becoming a significant telecom player. As its journey continues, risk/reward minded investors can benefit as events unfold.
Disclosure: I am long GSAT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Aspects of this article were co-written by PTT Analyst Kiran Pande and appeared in the June 2 edition of the PTT Newsletter. Mr. Gomes' investment Methodology serves as the basis of his selection process, asset allocation, and trading decisions. Investors who seek to act on his research should first read his Methodology at PoisedToTriple.com.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.