In at least one respect, Q2 2023 has already been a terrific quarter for AST SpaceMobile (ASTS 2.34%). Last month, as you may have heard, AST succeeded in placing the first-ever cellphone-to-cellphone phone call conducted directly via satellite.
No cell towers needed. No fiber optic cables. Most importantly, no purpose-built satellite phones. These were basic, run-of-the-mill Samsung S22's of the type you can find on sale at the local Costco -- talking to one another via space, with a little help from AST's BlueWalker 3 satellite in orbit.
So yes, Q2 is already going pretty great for AST SpaceMobile. It's Q1 that should worry you.
AST SpaceMobile by the numbers
And it was Q1 that was the subject of AST SpaceMobile's earnings report last earlier this week. In a very curious report Monday, AST advised that it had neither revenue nor cost of revenue in Q1 -- versus $2.4 million in revenue and $2 million in cost of revenue a year ago.
When it came to operating costs, AST had aplenty, laying out $44.4 million (up from $32.7 million a year ago) as it continued working to get its space-based communications business off the ground. Ultimately, AST ended the quarter with $0.23 per share in losses.
That may not sound too bad considering AST had no revenue, yet lost only $0.02 more per share in Q1 2023 than it lost in Q1 2022 (when it did have revenue). It may not sound too bad, that is, until you consider that AST inflated its share count by more than 20 million new shares (39% stock dilution) over the course of the past year.
Had AST not spread its losses out among so many more shares, its net losses would have rocketed 52% higher, rather than just 10%.
Honey, who shrunk the bank account?
And it gets worse.
Moving on to AST SpaceMobile's cash flow statement, we find that AST burned $53 million in cash during Q1 2023, up slightly from the $52 million consumed in Q1 2022. To put that in context, AST ended Q1 with $185.7 million in cash. Thus, unless something changes soon, it appears that AST has a little less than 11 months' worth of cash left in the bank.
Put another way, AST will be out of cash in less than one year, and need to find some more money.
What it means for investors
Now, is it possible AST SpaceMobile might slow down its rate of cash consumption, and stretch out the cash it does have for a bit longer? Perhaps. But when you consider that the company only has one working satellite in orbit right now -- but needs 168 satellites in orbit to complete its network for global cellphone-to-cellphone coverage -- it's more likely that AST will be spending more money in future quarters, rather than less.
Indeed, analysts polled by S&P Global Market Intelligence estimate capital spending at AST will nearly double this year in comparison to 2022, then triple (to nearly $395 million) in 2024, and then require a further $1.5 billion in spending over the period from 2025 through 2027. Perhaps the company will be able to generate some small amount of revenue along the way to help offset its cash burn. But as Q1's results demonstrate, that revenue will be starting literally from zero. They're going to have to grow awfully quick if they're to have any chance of keeping up with the company's capital expenditures.
So what's the solution? AST might take on some debt. To date, the company has been largely successful at keeping debt off its books, but when push comes to shove, the money must be found somewhere.
Or AST could sell more shares. It's certainly not averse to that. As noted above, AST has already sold enough shares to dilute its shareholders out of 39% of their stake in the company in the past year alone.
Personally, I suspect selling stock is the route AST will choose to take -- and I suspect management's trumpeting of its successful phone call last month was the first step in a PR campaign designed to raise interest in the stock to facilitate such share sales. But whichever road AST chooses, the company's massive -- and growing -- rate of cash consumption, combined with its limited cash reserves, probably mean nothing good for investors who own the stock today.
With AST shares still up 16% since news of the phone call broke, now might be an excellent time to exit this stock before AST places its next call -- and asks for more money.
