If there is one thing I’m allergic to when I’m shorting a stock it’s a high borrow fee. When I started shorting Globalstar earlier this month the borrow rate was below 1%. Unfortunately that is changing and at the moment you already have to pay more than 5% to borrow to stock. Because of that I have exited my position today after already reducing it two days ago (when the borrow fee started to rise). My timing is a bit crappy compared to what would have been possible in this time period, but can’t complain with a 27% return in less than two weeks.

Disclosure

No position in GSAT anymore

Kerrisdale Capital presented their case for shorting Globalstar today with a lot of hype. The small asset manager took a page out of the Bill Ackman playbook and hosted a live presentation and webcast while also publishing a lengthy report on a brand new website. When a short case is made so public you have to wonder if it is possible to have an edge as a small retail investor who never knew the company existed until today. I obviously do think I have, but it’s quite possible that I’m overestimating my abilities in being able to play this game.

Dealbook describes the short case as complicated and relying on a lot of jargon which makes it difficult to summarize in a sound bite. I don’t think it is, although some technical knowledge is certainly helpful. My attempt to summarize the thesis in a single sentence:

WiFi congestion not a problem: limited value of a 4th 2.4GHz WiFi channel in the US

GSAT is trying to get FCC approval for using their 2.4GHz spectrum for this purpose. The other part of the company is a money losing mobile satellite services business, so monetizing their spectrum asset is crucially important. Their spectrum has some value, but it will be very though to monetize. In almost all cases there is sufficient free spectrum available on the 2.4GHz band, while newer devices communicate using the 5GHz band where an abundant number of free channels are available for high-speed WiFi.

At the same time it will take the company a lot of time to do anything with the spectrum even in a best case scenario. After they receive FCC approval they somehow need to get manufacturers of phones, access points and other equipment to support the new 2.4GHz WiFi channel. This is doable with just a simple firmware update. The reality however is that phone/tablet/notebook manufacturers prefer not to spent too much resources on older products while most consumers wouldn’t take the effort to upgrade their firmware. At the same time support for a 4th 2.4GHz band is irrelevant for new devices since they already have 5GHz support.

I don’t see how GSAT will be able to effectively monetize their spectrum. Their spectrum is a solution for a problem that never really existed and is already solved in the latest WiFi standard.

Disclosure

Author is short GSAT