08.14.08

Is SPOT generating cash for Globalstar?

Posted in Globalstar at 11:50 am by timfarrar

Globalstar hasn’t given much detail about how much it costs to acquire a SPOT customer, but it looks from the company’s 2008Q2 10-Q like the growing demand for SPOT might not do much to improve Globalstar’s cash situation in the immediate future. The company’s marketing (MG&A) costs are about $5M higher than for the corresponding period in 2007, and they look to have added close to 20K SPOT customers in the quarter. At an ARPU of say $11 per month (a mix of the $100 basic subscriptions and the $50 tracking add-on), then if all the increase in MG&A is from SPOT, the subscriber acqusition cost is roughly about 24 months of revenue. That means that SPOT is unlikely to generate much if any incremental cash for Globalstar in the near term.

Of course SAC is always higher in the early days, when there are a lot of launch and start-up costs, and should decline to a more reasonable level in the future. A reasonable benchmark is probably satellite radio, given their similar ARPU levels, which has a cost per gross subscriber addition of around 10 months revenues (although much greater scale). At this level, then once things settle down, Globalstar should be able to generate at least some cash from the first year upfront payment made by each new subscriber. However, SPOT probably won’t help Globalstar generate cash to pay their satellite construction costs over the next 12 months.

2 Comments »

  1. TMF Associates MSS blog » Globalstar - saved by the exchange rate? said,

    September 16, 2008 at 8:08 am

    [...] from operations if the SPOT product really takes off. However, in the short term, as we’ve noted previously, SPOT isn’t producing cash. Excluding the money already in the escrow account, Globalstar had [...]

  2. TMF Associates MSS blog » SPOT’s economic stimulus plan said,

    December 18, 2008 at 11:07 am

    [...] incentives will allow SPOT to show significant subscriber gains in the fourth quarter. However, as we’ve highlighted before, the cost of subscriber acquisition for SPOT is quite high and this rebate/free unit program will [...]

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