AST SpaceMobile (ASTS 5.95%) has an interesting business plan, which is basically designed to ensure that cellphone users can make calls from anywhere on the planet. How? By creating a space-based cellular broadband telecommunications network.
The idea of no more dead zones is attractive, but it will take a lot of cash to get the company to a point where it has a viable service. A look at its balance sheet and the company's spending rate helps to show just how far away it is from achieving its grand ambitions, and the next year will be pivotal.
AST SpaceMobile has proved the concept can work
In 2019, AST launched its first satellite, known as BlueWalker 1. It was basically just a test to see if the company could get a working satellite into space and then use it in the way it intended.
The real proof of concept came in 2022, with the launch of the BlueWalker 3 satellite. While still a test, this satellite was used to make actual phone calls and transmit and receive data in 2023.
Image source: Getty Images.
Putting satellites into space is impressive in its own right, but the really cool part of the BlueWalker 3 testing is that the devices used to connect to the satellite were (you might want to sit down for this) regular old cellphones. You know, like the one you probably have in your pocket right now.
That might not sound incredible to you, but if you have ever used (or even seen) a bulky satellite-based cellphone, you know AST's achievement is a pretty big deal. More importantly, the company has basically proved that it can do exactly what it says it wants to do.
The ultimate goal is to partner with telecommunications companies, which it has already started to do, so that AST SpaceMobile's service becomes an add-on offering. That way, it isn't trying to compete with entrenched industry giants, it can work with multiple telecoms, and it can try to get funding from all of them.
That last point is going to be key, and it is what investors might want to pay the most attention to over the next year, and likely longer.
NASDAQ: ASTS
Key Data Points
AST SpaceMobile is spending too much
As a start-up, AST SpaceMobile is spending heavily to build out its business. That's normal, but it isn't something that investors should ignore. In fact, 2023 puts a very fine point on the problem.
The company brought in exactly zero revenue but spent nearly $79 million on engineering services, about $47 million on research and development, and another $42 million or so on general and administrative costs. You don't need an accounting degree to see that no income and around $168 million in spending is going to lead to a very big loss.
No shock: A huge loss is exactly what you'll find on the company's income statement. Management hopes to start generating some revenue from a contract with the U.S. government in the first quarter of 2024, but that's unlikely to be enough to fund its spending needs.
For example, it is currently prepping five more satellites for launch into orbit. And that's just the start; it's likely going to need to keep building and launching satellites for years before it has a fully functioning service.
That's where the balance sheet comes into the story. At the end of 2023, the company had just under $86 million in cash. That's roughly half of what it spent in 2023 on engineering, R&D, and the general costs of running its business.
Luckily, it was able to raise some capital during the first quarter of 2024, ending the period with about $211 million. That's a much better number, but simple math shows that this will last the company only about a year or so.
The next year is going to be about further proving out the model so that AST SpaceMobile can convince investors and its partners to keep giving it more money. The company admits in the "risks" section of its 10-K that, "We require substantial amounts of capital, and we expect such requirements will increase in the future."
So this story is only just getting started, and it seems highly likely that current shareholders are going to see their investment get diluted by future capital raises, including the sale of stock and the conversion of warrants and convertible securities into shares.
Probably best to monitor AST SpaceMobile from the launchpad
The business concept behind AST SpaceMobile seems reasonable and, with the success of BlueWalker 3, actually attainable. But the company is short on the one thing it needs to build its business: cash.
In fact, if it doesn't raise more capital over the next year, all of its big dreams could go to waste. That's probably unlikely, since it has lined up some important partners. But current shareholders still might not make out as well as they hope if raising much-needed capital ends up in massive dilution, which seems like a reasonable expectation.
All in, AST SpaceMobile appears to be a fairly high-risk stock even in the best possible outcome. Most investors interested in the company should probably watch from the sidelines. There are two important things to monitor over the next year: the company's success in launching satellites and its success in raising additional capital.
