Throughout the last six months Globalstar, Inc. (NYSEMKT:GSAT) has been in the middle of a debate between long investors and short-sellers regarding the value of the company. And while short-sellers have been silent for the last couple of months, activist hedge fund Maglan Capital shared its latest views regarding Globalstar in its March investor letter. The stock of the $3.3 billion telecom company advanced by 21% in the first quarter amid the company reporting an improvement in its financial results for 2014, with revenue appreciating by 5% on the year to around $22 million and net loss narrowing to $0.50 per diluted share, from $0.96 a year earlier. Globalstar was the biggest contributor in Maglan Capital’s 4.4% return in March.
Insider Monkey tracks the moves of hedge funds and billionaire investors in order to identify actionable investment opportunities in real time. Our research has shown that hedge funds are extremely talented at identifying small-cap investment opportunities. In our back tests ranging from 1999 through 2012, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Total Return Index by nearly a percentage point per month. We have also been sharing this list of hedge funds’ favorite small-cap stocks since the end of August 2012. These stocks returned 137.7% through Tuesday, vs. a gain of 57% for the S&P 500 ETFs (read the details here).
Maglan Capital stated in its investor letter that Globalstar, Inc. (NYSEMKT:GSAT) has made “significant progress” since the beginning of the year regarding the approval of its terrestrial low-power service (TLPS) initiative by the Federal Communications Commission (FCC), which, if granted, will create many opportunities for the company, according to the investor. However, most short-sellers, including Sahm Adrangi‘s Kerrisdale Capital, consider that the TLPS initiative is actually worthless, because it will represent a channel in the 2.4GHz band that will be accessible to a limited number of users and therefore doesn’t have any commercial viability among the three unlicensed channels in the 2.4GHz band and 22 channels in the 5GHz band that already exist. As Kerrisdale stated in a report published in October 2014:
“GSAT’s TLPS concept is nothing more than the addition of one new Wi-Fi channel in the legacy 2.4GHz band – a licensed, for-profit channel that only authorized devices could use. In a world that already has three free, unlicensed channels in the 2.4GHz band and an additional 22 in the 5GHz band, the notion that one more channel, hypothetically accessible to only a circumscribed subset of users, could be worth many billions of dollars has elicited chuckles of ridicule and disbelief from every Wi-Fi engineer we could find.”
Yet Maglan considers that the approval of TLPS is only a matter of time and once the process is completed, Globalstar, Inc. (NYSEMKT:GSAT) will initiate discussions with licensees, joint-venture partners and buyers, with potential counter-parties being AT&T Inc. (NYSE:T), Comcast Corporation (NASDAQ:CMCSA), Cablevision Systems Corporation (NYSE:CVC), Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), Amazon.com, Inc. (NASDAQ:AMZN), and others. “Those opportunities could yield incredible value for Globalstar,” Maglan added.
One of the main arguments made by Globalstar in favor of its TLPS initiative is the fact that it might help to solve problems concerning Wi-Fi congestion. However, the counterargument is that given the large number of channels, the Wi-Fi congestion is not a problem, as evidenced by the strong connection observed during major events such as the Super Bowl and Apple’s WWDC conference. On the other hand, there haven’t been any recent testing results for Globalstar, Inc. (NYSEMKT:GSAT)’s TLPS system.
