AST SpaceMobile (ASTS) is a company that’s been flying under the radar since shortly after it came public via SPAC in early 2021.
Shares doubled from 10 to 20 between December 2020 and February 2021 before falling back to 10 by the time the new firm went public on April 7, 2021, and drifting as low as 2 per share in April of this year.
The company, which plans to offer space-based broadband cellular service via large antennae arrays, was plagued by the same issues that impact many early-stage companies, namely, delays going to market and concerns about financing.
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The original pitch proposed direct-to-device cell service that would help cover existing terrestrial gaps in the 4/5G networks, such as rural areas, emergency coverage during outages, maritime service and the like, something that is undeniably valuable for governmental and military organizations but may be of limited benefit to most of the broader population.
It also featured a moonshot element: providing cellular coverage to underserved areas globally.
As originally envisioned, the SPAC process would raise sufficient funds for the company to achieve profitability on its first round of five satellites which would then allow them to launch a second tranche of 20 or so satellites to improve speeds and coverage areas, with the ultimate goal of as many as 100 1,500kg BlueBird satellites.
The company was plagued by cost overruns and delays that have pushed the “Block 1” (first five satellites) launch to July or August of this year – although AST SpaceMobile did successfully demonstrate the technology via their prototype “Blue Walker 3” in September of 2023.
But an announcement made in conjunction with their earnings on May 15 has drastically changed the shares’ fortunes. The company announced that AT&T had tapped the firm to provide satellite cell coverage to its subscribers, which gave an immediate boost to shares, driving them up as much as 400% since mid-May.
With the service itself entirely dependent on the success of the upcoming launch (and deployment), how AT&T plans on offering the service to subscribers is as of yet undefined.
Apple (AAPL), for instance, offers free (for two years) emergency SOS satellite coverage with new activations of iPhone 14 models (or later) via an agreement with Globalstar. AT&T could certainly make a similar offer to their subscribers by providing emergency coverage at no additional cost or with a minimal fee.
AST SpaceMobile, in a number of investor presentations, has offered a more subscription-adjacent model wherein their partner providers would offer day passes, monthly subscriptions, or annual subscriptions to the space-based coverage, similar to what you may have experienced with international roaming if you’ve traveled abroad.
In the short term, the largest opportunity for generating immediate additional revenues appears to be in the specialty maritime or government contract arena, and that will likely require the successful deployment of the Block 1 satellites at a minimum (as well as regulatory approvals).
Analyst price targets for shares are near where they’re trading now, anywhere from 13 to 22 a share, with an average of about 15.50. That said, the company believes the opportunity could be much larger in the long run. An early investor presentation (which predates launch delays; projected $1 billion in revenues in 2024) estimated that the company could achieve nearly $10 billion in revenues as early as 2027.
Those targets are almost certainly optimistic, and even if they’re achievable, they’ve likely been pushed back by launch delays (which have prompted class action suits by investors).
Even so, given the firm’s expected margins (90%+), almost all of those revenues would be expected to flow to the bottom line and would justify a significant hike to analyst price targets in the next few years, assuming that AST executes flawlessly.
What’s the Biggest Risk to AST SpaceMobile (ASTS)?
Space is hard.
The company plans to deploy 700sqft satellites in low-Earth orbit (LOE) at an altitude that is at relatively high risk for space junk. The BlueBird satellites are roughly the same size as the Blue Walker 3 prototype, which was tested successfully but under ideal conditions for a single cell phone. There’s no guarantee that AST will be able to roll out widespread service at meaningful speeds and persistent or near-persistent availability.
The July/August launch is also a significant single point of potential failure. Unsuccessful deployment (unfolding) of the satellites could be catastrophic for the company, especially should they encounter widespread failure as opposed to, say, a single satellite that does not deploy.
Given that the individual satellites are estimated to cost around $16 million, the company cannot easily bear the cost of replacements at this stage.
Between the single-point-of-failure risks and the company’s aggressive revenue targets, ASTS is worth adding to your watch list, but probably not to your portfolio (at least not yet).
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