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AST SpaceMobile (NASDAQ:ASTS) Investors have had a long and bumpy ride over the years since the company's SPAC's origins in 2021, but finally the company's biggest milestone to date is about to arrive. The launch is scheduled for early Thursday morning. This is just the beginning of a series of launches that will enable the company to offer communications services to the entire continental United States and, eventually, the rest of the world. The market for this potential is substantial and ASTS, as the market leader, is an attractive long-term buy.
Ready for takeoff
On Thursday morning at 4:52 am, ASTS is expected will launch 5 of its BlueBird satellites on SpaceX's trusty Falcon 9 rocket in an effort to bring broadband connectivity to communications deserts. After delaying the initial April 2024 launch, this will mark the beginning The company's mission is to provide broadband connectivity that can be used anywhere on Earth. There has been something of a frenzy around the stock recently, which has risen from about $2 per share in May to about $30:
I admit that I was not familiar with the company when I initially noticed the price developments and was concerned by the lack of real progress aside from the company's two proof-of-concept BlueWalker satellites. However, strategic partnerships with AT&T (T) and Verizon (VZ) to provide communication services to US customers and the ambitious timeline for launching the necessary satellites convinced me that there was something here.
First, ASTS closed a revenue-sharing agreement with AT&T through 2030 to “deliver a space-based broadband network directly to everyday cell phones,” then a couple of weeks later the company insured A $100 million deal with Verizon to do the same and provide “100 percent coverage of the continental United States.” Acquiring two of the Big Three telecoms is the most important stamp of approval a company like ASTS can receive, and these deals sent the stock soaring.
As part of fulfilling these agreements, ASTS will launch a series of BlueBird satellites to provide continuous coverage to areas without traditional cellular service. The first 5 will launch Thursday morning, barring any setbacks (weather, lightning fields, etc.), but there are at least 50 planned for the U.S., depending on a variety of factors, and many more planned after that in an effort to achieve global coverage. This upcoming launch will be the first real test of ASTS’ ability to build out that global network. If the launches are successful, as all indications are, this will be a defining moment for the company and for investors.
While most competitors are private and it is difficult to find a comparable one, the satellite communications market is already sizable and growing. It is difficult to define something with few public participants, but the overall satellite communications market is My dear $84 billion by 2023 with an expected compound annual growth rate of 10% for the next few years at least. One of the closest comparable companies would be SpaceX's Starlink, which is expected reach $6.6 billion in revenue by 2024 and has a My dear A valuation of around 60% of SpaceX’s total valuation of $210 billion equates to $120 billion. Of course, Starlink is miles ahead of ASTS in virtually every aspect of this race, but being second best in a lucrative space is still a great position.
The stock's market cap of around $7.5 billion is high, but with the potential for global deals with other customers after a successful launch and demonstration of broadband connectivity in currently unreachable areas, I believe the company has plenty of room to grow over the long term.
Risks and conclusions for the investor
As has been the case in recent months, the company has been selling shares to fund its growth as the price soared. Raising funds while the market is showing interest is common for companies that have just experienced a price explosion, but dilution is a notable risk that investors should pay attention to. A couple is fine and even healthy, but if there are too many (GameStop is the example that comes to mind) it would be smart to consider what might be happening behind the scenes and whether the financial risks are increasing.
Another risk is competition from companies like Starlink and others. While ASTS currently has a head start in low-band satellite communication, Starlink could fairly easily enter this space and compete for the same dollars. In my view, this sector is large enough for both companies to succeed and not step on each other’s toes, but there are still risks, one of which is that Starlink is of course part of SpaceX, which ASTS uses to launch its satellites.
Finally, ASTS has seen a significant price increase in a short period of time, which lends itself to potential volatility. Investors buying at these levels should be prepared for the possibility of a sharp price drop should there be, for example, launch setbacks or a broader market downturn where speculative stocks are hit hard.
Even with these risks, I believe ASTS has a favorable risk/reward profile and would be a good addition, either as a pure investment or as a way to diversify a portfolio. I am looking forward to the release of BlueBird 1-5 and will likely provide more information afterward.
Thanks for reading!