Editor’s Note: This article was updated October 14, 2010 to remove incorrect information.
2021 was the year of Memes Actions and Special Purpose Acquisition Companies (SPAC). In this frenzy, a new space enterprise, AST SpaceMobile, Inc. (NASDAQ:AST) started trading through a SPAC in April 2021 and hasn’t budged much since. ASTS stock has a 52-week range of $ 6.96 to $ 25.37 and its current price of $ 10.65 as of October 14 shows a lack of momentum.
AST SpaceMobile has a bold vision and a very promising business plan. This is the official website says, “AST & Science and our global partners are building the first and only spatial broadband cellular network accessible by standard smartphones. Called SpaceMobile, this ultra-powerful network is designed to provide connectivity at 4G / 5G speeds anywhere on the planet – on land, at sea and in flight.
Its business plan is supported by many catalysts. Still, I think ASTS stock is too risky now and too expensive for what is currently a speculative bet on space exploration. This is due to the risks associated with the implementation of its business plan, the very high costs and the timing of revenue generation. He will also likely need several additional rounds of fundraising to support them. So let me elaborate further on my analysis of ASTS actions.
A difficult start for ASTS Stock
Back in April 2021 when It has been reported that ASTS would hit the market via a SPAC merger, there wasn’t much buzz about it.
AST SpaceMobile is a pre-revenue company, with a business plan that is great in theory, but riddled with risk on the revenue path. And that there is a huge difference between planning to do things in business and the actual outcome of those results. While the ASTS stock may try to “go to the moon,” Earth’s gravity may anchor it in harsh realities.
Business plan: smart, promising and ambitious, but will require more funding
When AST SpaceMobile went public, the management showed a lot of enthusiasm.
“We don’t see the other satellite [low Earth Orbit] constellations like Starlink as a competitor. In fact, we think it’s a good thing they’re happening, because they lower the cost of launching and make space more affordable, essentially, for the masses, ”said Abel Avellan, chairman and CEO of ‘AST. said CNBC.
Avellan also said: “This is a long term opportunity… but it is a very, very big opportunity in a very large addressable market”
In the September 2021 investor presentation AST SpaceMobile said it was “to build the first and only space-based cellular broadband network”. They also identified a $ 1,000 billion addressable market for global wireless services.
They highlighted the main advantages of their business model, which are good – the main advantage being the barrier to entry for an ambitious company like that of AST Spacemobile.
They have already entered into several binding and mutually exclusive trade agreements with large and reputable global wireless companies. If you eliminate competition from a market then the odds are in your favor to dominate and achieve very good financial performance.
I am skeptical, however, that the costs and risks of implementing this business plan as planned are too high. AST SpaceMobile went public raising less than $ 500 million in cash. Is this enough to support the increased capital expenditure required to develop this unique space-based cellular broadband network?
Personally, I don’t think so. I think several future fundraisers will be needed to get this business off the ground (figuratively and literally). This will make the stock market dilution a factor to be weighed very seriously before investing in this spatial value.
No gains, no surprises
The commercial update for the second quarter of 2021 showed a strong commercial dynamic linked to the commercial, organizational and industrialization advancement of the business plan. It also showed an increase in operating expenses, doubling to $ 25.1 million for the second quarter of 2021, compared to $ 12.1 million in the first quarter of 2021. Capital spending also amounted to $ 54.3 million.
Form 8-K for the second quarter of 2021 showed that AST SpaceMobile “ended the second quarter with cash and cash equivalents of $ 402.6 million and no financial debt as of June 30, 2021”.
For the six-month period ended June 30, 2021, the net loss attributable to common shareholders was $ 31.5 million, compared to a loss of $ 9.9 million for the six-month period ended June 30, 2020.
So, until AST SpaceMobile starts generating revenue, losses, cash consumption and operating expenses and capital expenses will increase. I expect this trend to continue.
A daring bet on space
The good news is that the business is debt free. But I have two concerns – first about the timing of income and second about how big the income is when it starts coming in. This should be more than enough to generate a profit, but it might not happen until 2024-2025.
For now, ASTS shares appear to be very expensive based on the lack of income. I would like the bold plans for commercialization and industrialization to generate income. Until then, the stock is too risky.
As of the publication date, Stavros Georgiadis, CFA does not have (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, submitted to InvestorPlace.com Publication guidelines.
Stavros Georgiadis is a CFA Chartered Equity Research Analyst and Economist. He focuses on US stocks and has his own stock blog at thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be contacted at Twitter and on LinkedIn.