EchoStar (SATS)

Satellite communications company EchoStar (NASDAQGS:SATS) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 3.6% year on year to $3.87 billion. Its GAAP loss of $0.71 per share was 11.4% above analysts’ consensus estimates.

Company Overview

Following its 2023 acquisition of DISH Network, EchoStar (NASDAQ:SATS) provides satellite communications, pay-TV services, wireless networks, and broadband solutions across consumer and enterprise markets.

The sector faces structural headwinds from declining linear TV viewership, shifts in advertising spend toward digital platforms, and ongoing challenges in monetizing print and broadcast content. However, for companies that invest wisely, tailwinds can include AI, the power of which can result in more personalized content creation and more detailed audience analysis. These can create a flywheel of success where one feeds into the other. Still there are outstanding questions around AI-generated content oversight, and the regulatory framework around this could evolve in unseen ways over the next few years.

EchoStar's competitors vary by business segment. In Pay-TV, it competes with cable providers like Comcast and Charter, as well as streaming services such as Netflix and Disney+. In wireless, it faces major carriers including Verizon, AT&T, and T-Mobile. For satellite broadband, key competitors include ViaSat, SpaceX's Starlink, and OneWeb.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $15.68 billion in revenue over the past 12 months, EchoStar is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

As you can see below, EchoStar grew its sales at an incredible 52.6% compounded annual growth rate over the last five years. This shows it had high demand, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. EchoStar’s annualized revenue growth of 25.7% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

We can better understand the company’s revenue dynamics by analyzing its most important segment, DISH PayTV. Over the last two years, EchoStar’s DISH PayTV revenue averaged 7.6% year-on-year declines. This segment has lagged the company’s overall sales.

This quarter, EchoStar reported a rather uninspiring 3.6% year-on-year revenue decline to $3.87 billion of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 2.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.

EchoStar was roughly breakeven when averaging the last five years of quarterly operating profits, inadequate for a business services business.

Analyzing the trend in its profitability, EchoStar’s operating margin decreased by 10.6 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. EchoStar’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q1, EchoStar generated an operating profit margin of negative 2.3%, down 1.9 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Although EchoStar’s full-year earnings are still negative, it reduced its losses and improved its EPS by 9.9% annually over the last five years. The next few quarters will be critical for assessing its long-term profitability.

In Q1, EchoStar reported EPS at negative $0.71, down from negative $0.40 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects EchoStar to perform poorly. Analysts forecast its full-year EPS of negative $0.80 will tumble to negative $3.75.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

EchoStar has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 7.1% over the last five years, better than the broader business services sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that EchoStar’s margin dropped by 3.5 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

EchoStar’s free cash flow clocked in at $465.2 million in Q1, equivalent to a 12% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

EchoStar historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.7%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, EchoStar’s ROIC averaged 2.6 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Companies with more cash than debt have lower bankruptcy risk.

EchoStar is a well-capitalized company with $5.06 billion of cash and $1.00 billion of debt on its balance sheet. This $4.05 billion net cash position is 59.3% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing EchoStar beat analysts’ EPS expectations this quarter. On the other hand, its revenue was in line and its EBITDA missed. Overall, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 3.5% to $23.02 immediately following the results.

Updated: May 21, 2025 at 11:56 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in EchoStar.

EchoStar isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s scale makes it a trusted partner with negotiating leverage, the downside is its projected EPS for the next year is lacking.

EchoStar’s EV-to-EBITDA ratio based on the next 12 months is 3.8x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $31.33 on the company (compared to the current share price of $21.14).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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