AST SpaceMobile (NASDAQ:ASTS) is known for its unique approach to the telecom and satellite space. ASTS stock listed on the Nasdaq exchange on April 7 after merging with a SPAC named New Providence.
The company is working to provide a global broadband solution that integrates satellite communications with an existing carrier’s basic cellular service. In theory, users won’t know if they’re using a tower connection or a satellite.
The opportunity set is very large. More than five billion people have cell phones, which is two-thirds of the world’s population. And while about the same number of people have internet access, four out of every ten people do not.
AST SpaceMobile is working to develop technology that will close connectivity gaps and give more people mobile internet access. The company recently announced that it has claimed 1,000 patents.
ASTS Stock and Its Proprietary Technology
Its long-term plan is to launch a total of 168 satellites, but the company believes true global coverage can be achieved with just 110 satellites. Its first launch phase will commence by the end of 2022 or early 2023, reaching its global coverage goal in 2023 or early 2024. All launches are expected to be completed by the end of 2024.
AST SpaceMobile’s merger, along with existing cash, provided it with $541 million in funding. The company expects this will cover the cost of the first 20 satellites, which is estimated to total $510 million.
The technological hurdle of connecting traditional cell phones to satellite signals is enormously complex and not well-understood at this point. In fact, the company’s website used to include the following disclaimer:
“the technology is highly proprietary, and exactly how it works cannot be disclosed.”
This may be necessary to protect them from competitive rivals. However, it makes it difficult to thoroughly research and provide thoughtful analysis on ASTS stock.
Financials Indicate a Growth Company
AST SpaceMobile is a pre-revenue company with commercial operations not set to commence for quite some time. Satellite deployment is not a hasty affair. But that hasn’t stopped it from growing this year.
In the first quarter of 2021, operating costs totaled $12.1 million. However, in Q2 2021, operating expenses increased to $25 million. The company attributed the rising cost to research and development (R&D) spending.
AST SpaceMobile is backed by some powerful players, including Vodafone (NASDAQ:VOD), Rakuten (OTCMKTS:RKUNY), American Tower (NYSE:AMT) and Samsung. So maybe there is a theoretical safety net in place.
On Aug. 16, the company provided a business update. Among the financial highlights were a cash position of nearly $403 million and an increase in R&D costs to $8.7 million.
AST SpaceMobile shared that its BlueWalker 3 prototype satellite is set to launch in a window of time that starts in March 2022. It is also building out its facilities Midland, Texas. Additionally, it signed agreements with several groups, including Smart Communications and Africell, and received regulatory approval in six countries.
The company saw subscribers increase to 1.5 billion. These customers are “represented by mobile network operators who have agreements and understandings with AST SpaceMobile.” This was an increase of 200 million compared to the previous quarter.
ASTS Stock Has Two Possible Outcomes
ASTS stock is what we call a binary stock, meaning its future holds two possible outcomes. In one scenario, the company could survive the buildout phase with functioning technology. Over the next several decades, the stock would go up 100-fold.
The other option is, of course, that everything goes wrong and ASTS stock is worth nothing. Muddling along at a steady low-single digit growth rate for long periods is not in the cards for this company.
I don’t think AST SpaceMobile will survive on its own without massive capital raises. Shareholders will have to deal with dilutions unless large amounts of free cash flow become a reality. However, if the underlying technology works, the company’s patent portfolio could make it a prime acquisition target for a larger and better-capitalized telecom player.
In any scenario, ASTS stock will be very speculative and volatile — so tread carefully.
On the date of publication, Tom Kerr did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tom Kerr has worked in the financial services industry for over 25 years. Currently he is a Senior Portfolio Manager at Rocky Peak Capital Management. Prior to that he was Chief Investment Officer and Director of Research of SGL Investment Advisors, and has served in a number of positions at other investment related organizations. Mr. Kerr has also been a contributing writer to TheStreet.com, RagingBull.com and InvestorPlace.com. He’s a CFA charterholder and obtained a B.B.A in Finance from Texas Tech University.