Iridium's Q4 Earnings Beat on IoT Strength Sparks 21% Rally, But Revenue Miss and Leverage Concerns Unchanged

What happened

Iridium Communications reported Q4 2025 earnings where EPS topped estimates, driven by strong IoT performance and recurring service revenue that offset equipment sales weakness. However, total revenues lagged expectations, highlighting ongoing growth challenges beyond the IoT segment. The stock surged 21% on the news, reflecting market enthusiasm for the earnings beat and IoT momentum, which aligns with the DeepValue report's emphasis on IoT as a critical offset to declining government subscribers and broadband ARPU pressure. Despite this positive reaction, the revenue miss and persistently high net leverage at 4.1x EBITDA underscore the unchanged fundamental risks, including the binary EMSS contract renewal in 2026-27 and balance sheet stress. This event reinforces the report's base case of ~3% service revenue growth but does not materially alter the underlying investment thesis or valuation concerns.

Implication

The strong IoT performance in Q4 supports the bull case for service revenue growth, potentially easing near-term fears about deceleration, but the revenue miss indicates core growth remains subdued, consistent with the DeepValue report's base scenario of ~3% annual growth. The 21% stock surge may have priced in optimism, yet the report's attractive entry point of $17.00 suggests limited upside from current levels without clearer evidence of sustained acceleration. Investors should monitor upcoming quarters for consistency in IoT trends and any developments on EMSS renewal, as the high net leverage at 4.1x EBITDA and interest coverage of 2.3x leave little room for error. Ultimately, this earnings beat does not significantly improve the risk-reward profile, and the 'WAIT' rating remains prudent until leverage trends down or new platforms like STL PNT show material revenue contributions.

Thesis delta

No material shift in the investment thesis; the Q4 earnings beat confirms IoT strength as a key revenue driver, aligning with the report's emphasis on commercial growth offsets. However, it does not address the core risks of slowing service revenue growth, high leverage, or EMSS renewal uncertainty, keeping the 'WAIT' rating and base case implied value of $22 intact.