Is AST SpaceMobile a Space Stock Worth Buying?

AST SpaceMobile trades under the ticker ASTS, with shares previously listed under the SPAC New Providence before the merger.

A SPAC (special purpose acquisition company) is a shell company that’s designed to raise money through an initial public offering for the purpose of acquiring a private firm and taking it public.

The company, based in Midland, Texas is planning to launch satellites that can communicate with existing cell phones to get 4G LTE/5G service anywhere in the world.

From ASTS website on describing their goals:

“In the middle of the city or on a remote mountaintop, at a crowded event or becoming one with nature, billions of mobile phone users are forever moving in and out of connectivity. With SpaceMobile filling all the coverage gaps — anywhere traditional wireless networks don’t exist or become overwhelmed — mobile subscribers can be assured of connectivity no matter what.”

“For the first time ever, mobile subscribers will be able to automatically roam from land networks to a space network​. In the most remote location, on rural farmland or in the midst of a crisis or natural disaster, people will remain connected at broadband speeds — without having to invest in expensive, specialized hardware.”

“For the over 1 billion people who are still unconnected today because they remain out of reach by traditional wireless networks, SpaceMobile will finally welcome them into the digital economy … not to mention open them up to all sorts of opportunities for education, social networking, healthcare and more.”

Building the first, and only, global broadband cellular network in space that will work with normal mobile devices. Basically, like EE or O2 but instead of phone towers and masts that provide phone signals for phones, they will use their own satellites in space.

They expect to launch 20 satellites by 2023 and cover 49 countries. They will be 700km above Earth, and therefore need a total of 66 satellites for coverage of the whole planet, as demonstrated by Iridium. ASTS plans for a total of 168 satellites just for redundancy and better service.

The addressable market is believed to be worth about $1 trillion. AST SpaceMoblie is expecting margins to be over 90%. They plan to eliminate the connectivity gaps faced by today’s five billion mobile subscribers moving in and out of coverage zones and bring cellular broadband to the half of the world’s population who remain unconnected. In fact, cell phone carriers have already signed on with ASTS as customers are expected to demand better phone coverage. The integration is supposed to be seamless and users won’t know whether they are using a tower connection or satellite.

Stock Performance

Shares have been on a huge, multi-week downtrend, in which ASTS stock slipped from highs of $25 in early February, to $7 by mid-April. This can be attributed in some part to new regulatory scrutiny and longstanding concerns about the SPACs. More reasons can be attributed to surging Treasury yields earlier in the year, fears of inflation, and hopes for big growth in cyclical parts of the economy have lead investors to shun early-stage technology investments for parts of February, March, and April.

ASTS as a pre-revenue company that doesn’t expect to commence commercial operations until 2023, is a very early-stage risky technology investment.

However, this sell-off may have been overdone and is now starting to reverse course.

ASTS Stock Price Forecast

AST SpaceMobile is a pre-revenue company that has only launched one satellite, which is still seeking all the necessary licenses, is still trying to figure out how to make all these satellites in a scalable manner, and won’t start commercial operations until 2023. Therefore, there are massive risks involved. Some of these risks are offset by partnerships and investments from some of the world’s largest telecom companies like Vodafone and Rakuten, and a strong engineering team that includes 161 scientists and engineers, 24 of whom are PhDs and 40 of who have previously built and launched satellites.

Deutsche Bank analyst Bryan Kraft initiates coverage on AST SpaceMobile with a Buy rating and announces a Price Target of $35.

• The $35 target is the average of four scenarios — but turning to the extremes, Deutsche Bank notes the upside could be significantly higher than 243% with great execution over the next four to five years.
• But on the downside, “the stock could also end up being worth $0 if AST’s technological solution to enable satellites to communicate directly with smartphones doesn’t work or scale as intended, or if the company’s very large (24m x 24m) arrays do not unfold in space as they are designed to.”

AST SpaceMobile could change the world and become a massively successful company but on the other hand, it can just easily turn to dust. They are promising to beam high-speed, cellular broadband connection to everyone, everywhere, at all times, without any dead spots. Emerging companies in the space economy have tremendous upside value, and many of these stocks, ASTS included, have been deeply oversold. This gives it the potential for a massive upside if they deliver on their goals.

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