*OT* on Globalstar (GSTRF). Neil, 7/8 and 7/24 upcoming launches of 4 satellites each from the Cape will provide the 32 satellites necessary to start service in Sept. And, 8/6 and 9/99 (no specific date yet) launches should provide 8 more satellites before the service start.
Last week, GSTRF got $500M financing from BofA without equity dilution (LOR guarantees only) -- stock jumped from $17 to $23 on very heavy volume in a couple days after this news. Along with a couple hundred million vendor financing, GSTRF has all the money needed until revenue starts rolling in.
GSTRF has the most home run potential of any stock in my portfolio. Check out the article (below) from BusinessWeek online last week -- should whet any investors' appetite. It contains a few inaccuracies (e.g., GSTRF most likely won't be at full revenue capacity in 2 years) but captures the flavor of its enormous potential profits.
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Talk : Communications : Globalstar Telecommunications Limited GSTRF
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To: trenzich (5328 )
From: djane
Wednesday, Jun 23 1999 2:27PM ET
Reply # of 5392
Full BusinessWeek nice, nice article
BW ONLINE DAILY BRIEFING
STREET WISE by Sam Jaffe
June 23, 1999
As Iridium Stumbles, Globalstar May Be Set to Soar
Thanks to Iridium's problems, its rival's stock is also grounded right now. But that
could soon change
This was supposed to be the year of the mass-market satellite phone.
Thanks to its newly launched 66-satellite constellation, Iridium (IRID) was
able to roll out the first handheld satellite phone for the public at the end of
1998. According to company pronouncements at the time, by now the
number of customers paying $3,000 for the phones and as much as $5 a
minute to talk on them should have been as high as 500,000. But instead,
Iridium spent the last six months doing a demo on how not to launch a
consumer product. As a result, its stock price has dropped from an
all-time high of $61.62 to its current $10.31, and the company's financial
woes are mounting with every orbit.
At the same time, Iridium's main competitor, Globalstar
Telecommunications (GSTRF), which expects to launch its satellite-based
phone service this September, has watched its stock swoon in sympathy
with Iridium's, dropping to $17.19 from a high of $28.87 last June. But
Globalstar won't necessarily inherit the same problems that Iridium has
suffered, since its service is based on a different technology, and it knows
what errors not to make, thanks to its rival.
Iridium's biggest blunder was launching its service before it worked. Even
though there were still communications problems between the satellites,
Iridium executives rolled out a $140 million advertising campaign in
October and then officially unveiled the service in November.
"UNFATHOMABLE." Although those problems were fixed, many customers
who requested the service in its first weeks weren't able to get phones,
since the two manufacturers, Motorola (MOT) and Japan's Kyocera,
were behind their production schedules. "They were selling a phone
service, and they didn't even have the phones," says C.E. Unterberg
Towbin analyst William Kidd. "That kind of mistake is unfathomable."
But Iridium wasn't finished tripping over itself. The company had bet
heavily that it would quickly attract customers, but most companies and
governmental organizations took a wait-and-see approach. By the end of
the first quarter, Iridium had just 10,000 paying customers. According to
the provisions of the bonds Iridium had issued to pay for its satellite
launches, it was supposed to have 20 times that number. Now, those
bonds are reaching milestone dates that will put the company officially in
default by the end of the summer.
So why is its stock selling for $10, not for $0.10. Because the market fully
expects Motorola, which owns 18% of Iridium and has already sunk
almost $2 billion into it, to inject more cash. For its part, Iridium has
drastically cut the service's cost to resemble a high-end cellular service,
and handset costs should drop to around $1,000.
If Motorola can keep the tiding the company over, analysts expect its
new, cheaper service to attract enough customers to make Iridium
profitable within 12 months. "My sense right now is that what will happen
will be some sort of restructuring which will involve Motorola taking a
more active role," says Riyad Said, an analyst with Friedman Billings
Ramsey. "What exactly that looks like, and what it means to current
equity and debt holders, is anybody's guess, though." But it's also possible
that Motorola could simply cut its Iridium losses, which means investors
should be very wary about buying Iridium stock.
WILLING SUGAR DADDY. And that brings us back to Globalstar. After
debuting its service in September, it should have complete global capacity
by early next year. Its corporate sugar daddy, Loral Space &
Communications (LOR), which owns 34% of the company, has said it'll
be willing to provide extra financial help if Globalstar runs into any
Iridium-like problems.
Originally, analysts expected Iridium's first-to-market status to create a
major advantage. But Globalstar can provide global phone service at a
cheaper rate, and it has four times the capacity of Iridium's network.
Now, with its first-to-market advantage squandered, Iridium has lowered
its prices to match its rival's.
Another edge for Globalstar: It will market its service in a much more
low-key manner than Iridium, allowing it to gain market share at a much
lower cost. Globalstar also has the ability to service as many as 8 million
customers. So if demand is anything like what every market study says it
will be, Globalstar will be ready to get it. With only 15% of the earth's
surface area covered by cellular service, globe-trotting business travelers
say they're desperate for a single phone they can use at any time, in any
place.
Globalstar's stock is especially cheap right now. If the service is running at
full capacity in two years, it could make as much as $12 billion in revenue.
At its current price of $17, that would give the company a price-to-sales
ratio of 0.1. A comparable cellular company, Sprint PCS (PCS), has a
2001 price-to-sales ratio of 3.9. That's almost 40 times larger for a
company that makes much lower profit margins on its revenue than
Globalstar should get.
Analysts who follow Globalstar rate it a strong buy or buy, and expect it
to reach profitability by early 2001. By then, today's stock price could
look like a launching pad, rather than a fallen bird.
Jaffe writes about the markets for Business Week Online |
