Iridium (IRDM)

Satellite communications provider beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 5.4% year on year to $214.9 million. Its GAAP profit of $0.27 per share was 27% above analysts’ consensus estimates.

Company Overview

With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ:IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.

Satellite telecommunication is generally buoyed by rising global demand for connectivity in costly-to-connect and remote areas. IoT (Internet of Things) expansion and government-backed space and defense initiatives also help. As advancements in low Earth orbit (LEO) technology happen, companies in the space will have more favorable competitive positions, which could lead to further partnerships with mobile network operators to extend coverage. On the other hand, headwinds include high capital expenditures for satellite deployment as well as regulatory hurdles related to spectrum allocation. Competition from larger players like SpaceX’s Starlink and Amazon’s Kuiper could also intensify over time, especially if tech advancements lead to better unit economics and financial prospects.

Iridium's main competitors in the mobile satellite services market include Viasat, Globalstar, ORBCOMM, and Thuraya. In the broader satellite communications industry, it also competes with geostationary satellite operators and emerging low-earth orbit constellations focused on broadband services.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $841.7 million in revenue over the past 12 months, Iridium is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

As you can see below, Iridium’s 8% annualized revenue growth over the last five years was solid. This is an encouraging starting point for our analysis because it shows Iridium’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Iridium’s annualized revenue growth of 5.4% over the last two years is below its five-year trend, but we still think the results were respectable.

This quarter, Iridium reported year-on-year revenue growth of 5.4%, and its $214.9 million of revenue exceeded Wall Street’s estimates by 0.7%.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.

Iridium has managed its cost base well over the last five years. It demonstrated solid profitability for a business services business, producing an average operating margin of 13.5%.

Looking at the trend in its profitability, Iridium’s operating margin rose by 19.5 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, Iridium generated an operating profit margin of 28.1%, up 3.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Iridium’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, Iridium reported EPS at $0.27, up from $0.16 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Iridium’s full-year EPS of $1.06 to stay about the same.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Iridium has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging an eye-popping 36.8% over the last five years.

Taking a step back, we can see that Iridium’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Iridium has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.5%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Iridium’s ROIC increased by 4.8 percentage points annually over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Iridium reported $50.9 million of cash and $1.82 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $477.7 million of EBITDA over the last 12 months, we view Iridium’s 3.7× net-debt-to-EBITDA ratio as safe. We also see its $92.3 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Iridium blew past analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock remained flat at $23.45 immediately following the results.

Updated: June 3, 2025 at 11:56 PM EDT

When considering an investment in Iridium, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

When it comes to Iridium’s business quality, there are some positives, but it ultimately falls short. First off, its revenue growth was solid over the last five years. And while Iridium’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Iridium’s P/E ratio based on the next 12 months is 17.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $38.63 on the company (compared to the current share price of $26.17).