Sunday, April 23, 2017

With Assets In Place, Orbcomm Ready To Drive Wider M2M Penetration

Satellite-based Internet of Things (or "IoT") datacomm services provider ORBCOMM Inc. (Orbcomm) (NASDAQ:ORBC) has spent the time and money to establish a strong end-to-end industrial IoT infrastructure, underpinned by a dedicated low-earth orbit satellite network. Now it is time for the company to demonstrate that it can sign up, and keep, enough customers in diverse fields like trucking, marine shipping, intermodal, and heavy equipment to deliver on the promise and potential of a high-margin, high-ROIC business model that can have meaningful growth from widespread adoption of industrial IoT.

This is no sure thing. The shares are down a bit over the past year (and up about 50% over the past three years), and recently reported revenue growth has been lackluster - particularly for a company that many believe should be solidly in its "growth phase." That said, the adoption and use of IoT to track mobile assets is still a relatively novel (if not experimental) concept for many of Orbcomm's customers and I wouldn't regard the relatively "missionary" aspect of today's sales process as a permanent issue. What's more, with a strong asset base now in place, I expect Orbcomm to start seeing the benefits of early adopters realizing (and reporting on) the benefits of IoT-based asset tracking and their peers moving to catch up.

If Orbcomm is in fact in the early stages of its adoption curve, there is significant uncertainty when it comes to modeling. I don't think 15x-17x forward EBITDA is unreasonable for a company that should be able to grow EBITDA faster than that over the next three, five, and 10 years; but investors will likely not be patient with the name if hardware sales don't start materializing in a bigger way in 2017.

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With Assets In Place, Orbcomm Ready To Drive Wider M2M Penetration

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