Shares of satellite network company Iridium Communications (NASDAQ:IRDM) got another bump recently after a new deal was announced with Amazon's (NASDAQ:AMZN) Web Services segment. The new agreement, which makes Iridium a new member of the AWS Partner Network, is big news -- especially for Iridium as it finishes up the deployment of its new satellite constellation this year. Cloud-computing like that offered by AWS is a high-growth industry, so Iridium's new CloudConnect could be instrumental to the satellite service provider's plans in the coming years.
The cloud high in the stratosphere
Iridium's new satellite constellation, dubbed Iridium NEXT, is almost complete. The eighth and final launch is expected to go by year end via SpaceX, completing the 66 satellite array that will cover every corner of the globe with voice and broadband-speed internet and data service.
With a date of completion in sight, Iridium has been adding new customers ahead of the new service's launch, especially in the Internet of Things (IoT) space. As the only communications provider with global coverage, Iridium can cater to the needs of a diverse customer base ranging from government entities and multinational organizations to the maritime and aviation industries. The company's work on the new CloudConnect service aims to capitalize on IoT growth. According to research from IHS Markit, the number of connected devices around the globe is expected to roughly triple to over 75 billion by 2025.
CloudConnect will make use of AWS, Amazon's hosted cloud-computing platform. It will enable companies building out IoT capabilities on AWS to extend their reach. Iridium CEO Matt Desch explained the service, which will be available in 2019, this way:
Iridium CloudConnect will completely change the speed at which a satellite IoT solution can be deployed and will allow existing AWS customers to keep everything the same on the back end, while opening up the opportunity to quickly expand their coverage. This is a major disruption for satellite IoT. Costs will drop, time to market will speed up, risk will be reduced, and AWS IoT customers that choose Iridium CloudConnect can now enjoy true global connectivity for their solutions.
Why it matters to Iridium, and Amazon, too
CloudConnect and AWS intersect at two fast-growing areas of technology. Amazon got an early lead in cloud when it launched its hosted computing platform a number of years ago. Though AWS was only 34% of total revenue through the first six months of 2018, it generated most of the online retailer's profits.
CloudConnect will give AWS a powerful tool for developers looking for a singular communications platform to handle connected devices. That should help AWS continue to grow and stave off other cloud companies bringing similar offerings to market. The newly inked deal means even more to Iridium, though.
Voice and internet service growth has been modest for Iridium this year, but IoT services have been on a tear. At the end of the second quarter 2018, commercial IoT billable subscribers had grown year over year by 25% to 576,000. Billable government IoT connections grew 20% to 53,000. While updated voice and internet coverage with the NEXT satellites is important, it's these rising IoT connections that will be key to Iridium hitting its growth targets in 2019.
For 2018, total service revenue is on track to increase 12% to 14% over last year. In 2019, management thinks service revenues will increase to $440 million, another low- to mid-teen percentage rise. That could lead to some big profit gains as expenses from the satellite launches subside and the full-blown services they enable come online.
Of course, all of that remains to be seen, and Iridium Communications remains a risky venture as it operates at a loss from its ambitious satellite upgrades. However, with a new partnership with Amazon and its industry-leading cloud-computing platform, things are looking up for the satcom company.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Iridium Communications. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.