Explaining the Recent Drop in Globalstar Shares


Globalstar (NYSEMKT:GSAT)

Globalstar (NYSEMKT:GSAT) shares dropped 23% early on Wednesday, then jumped 85% (off their lows) before finally trading down 1.4%. That was an exciting development.

As of 1 p.m. ET on Thursday, Globalstar (NYSEMKT:GSAT) shares have been down 5.8% from yesterday’s closing. And if my worst suspicions are correct, Apple (AAPL -1.18%) is to blame.

What’s the Reason?

In preparation for the release of iPhone 14, Apple said at lunchtime on Wednesday that it would collaborate with Globalstar (NYSEMKT:GSAT) to offer a new feature on its phone: the ability to send and receive brief, emergency messages via satellite while in a cell-phone-dead area.

Investors had been waiting for this news all year, but this week’s arrival apparently disappointed. Justify your answer.

Consider that Apple has promised to invest $450 million in laying the groundwork for this new service, with Reuters reporting that the “bulk” of this sum would go into Globalstar (NYSEMKT:GSAT). While $450 million may seem like a lot of money, it won’t be nearly enough to pay the expenses of Globalstar deploying new satellites to serve the Apple service (the company only had less than $140 million in sales last year). This, according to Globalstar, would need more borrowing, bringing the company’s total debt to roughly $350 million after accounting for cash on hand.

What’s Next?

Sure, Apple’s service should help Globalstar (NYSEMKT:GSAT) pay off its new debt, but how much Apple will end up paying for Globalstar’s satellite communications support is still up in the air. However, it is probably not where the big bucks are, enabling the transmission of brief, emergency text messages that no one truly wants to have to send until they’re stranded in a dead zone. As for the price, it’s likely to be low, given that Apple provides this emergency service for free for the first two years of membership.

If the expenses were substantial — or, more importantly for Globalstar (NYSEMKT:GSAT) investors, if they would yield a significant amount of income — Apple is unlikely to bear them. I’m afraid Globalstar’s stock price will wind up being exactly where it was before the news was made. The satellite firm, which has a market worth of $3.5 billion while losing money, is selling for a price-to-sales ratio far higher than Apple’s own P/S ratio. Toss up losing Globalstar and switch to Apple shares instead.

Featured Image – Megapixl © Skypixel

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.