What happened

Shares of cellphone-to-cellphone-via-satellite company AST SpaceMobile (ASTS 1.83%) popped 5.5% through 10 a.m. ET on Tuesday morning despite the company reporting disappointing earnings results for its fiscal second quarter 2023.

Analysts had forecast the company, which is building a satellite constellation to permit ordinary, store-bought cellphones to call each other around the globe without the need for cell towers, would lose $0.19 per share on zero revenue this past quarter. Analysts got the revenue number right -- AST didn't have any. But they were overly optimistic about the company's losses.  

AST SpaceMobile actually lost $0.24 per share.

So what

Revenues for Q2 fell 100% from the $7.3 million recorded a year ago. Losses quadrupled, from $0.06 per share in Q2 2022 to $0.24 this time around.  

The reason investors seem to be ignoring the large and growing losses is that AST is spending money now in order to make money later. As management explained, AST is "laser-focused on the manufacturing of our BlueBird satellites" to support the establishment of more call capacity around the globe. The company plans to launch its first satellite in Q1 2024 and to begin commercial service later that year.

Now what

Two things are noteworthy about this announcement. First, initiating commercial service next year brings the prospect of reliable, repeatable, and growing revenue for the company -- and even eventually profit -- as it gets its business off the ground.

But second, getting to that point is going to be expensive. At the same time that it announced earnings, AST noted that it has just taken out $115 million in new loans on top of previously announced sales of $64 million worth of stock. This should all add up to about $306.5 million in cash for the company to work with as it begins launching a series of five new communications satellites beginning next year.

No word yet, though, from management, on how much revenue AST might reap as a reward for this investment, or whether it will even be enough to cover the cost of the debt. Which worries me, although I should point out that analysts are optimistic, forecasting $125 million in revenue next year quadrupling to $531 million in 2025.

Whether AST can successfully hit those targets, however, remains to be seen.