AST SpaceMobile (ASTS 1.77%) is about to go from a company with big dreams to one that is making its dreams a reality. This is a pivotal moment for the company and its partners, which includes telecom giants like AT&T (T -0.91%) and Verizon (VZ -0.25%). If you don't mind taking on high-risk investments, now is probably the time to start getting excited about AST SpaceMobile's long-term future.
AST SpaceMobile is not for the faint of heart
Before going anywhere, investors need to understand that AST SpaceMobile is a high-risk investment. Until Sept. 12, 2024, the company didn't even have a service it could sell. It just had the big dream of creating a space-based broadband cellular network. And while it now has five satellites in orbit that can support a service, that's just a drop in the bucket here. The company estimates that it needs at least 95 satellites to provide the full service it hopes to offer.
Image source: Getty Images.
Management has put a price tag on the company's expansion plans. The next 20 satellites are projected to cost around $400 million to build and launch. Quick math will tell you that the price tag per each additional satellite is a cool $20 million. That's a lot of money. If you extrapolate that to the 90 additional satellites that will be needed for the company to provide a full service, the price tag comes out to about $1.8 billion. That's even more money...and it generously assumes that inflation won't raise the price tag.
It is highly likely that AST SpaceMobile's income statement will be bleeding red ink for years. That's probably not something that a risk-averse investor will find attractive. Only aggressive investors should be looking at AST SpaceMobile.
1. AST SpaceMobile has done something big
That said, if you are an aggressive growth investor, well, AST SpaceMobile has clearly just reached a very important developmental milestone. It finally has a real service to sell. However, that fact alone isn't why investors should be so excited about the company's long-term prospects. It is one of many factors, but it does speak to a company that is executing well.
2. AST SpaceMobile has a good business plan
A key part of AST SpaceMobile's business plan is to create a service that can be sold to multiple different telecommunications providers. There are two big takeaways from this. First, by partnering with large telecom providers it gets to tap into a pre-existing pool of cell customers. Unlike competitor Starlink, which is basically trying to go it alone, AST SpaceMobile won't have to build its own customer base.
Second, AST SpaceMobile can milk its partners for cash to help it pay the huge costs of building out a worldwide satellite network. It will probably still need to raise more funds from investors, which could dilute current shareholders, but having deep-pocketed partners is a clear benefit to the long-term success of the company.
3. AST SpaceMobile has a long list of potential customers
This is why it is so notable that AST SpaceMobile has already partnered with AT&T and Verizon. In fact, AT&T's chief operating officer, Jeff McElfresh, even added a quote to the news release announcing the launch of the first five satellites. According to McElfresh, "This is an exciting next step to a future where our customers will only be hard to reach if they choose to be -- giving them the power to go anywhere and the possibility to do anything while staying connected with just an everyday cellphone."
That pretty much sums up the opportunity here. But in addition to these two industry giants, AST SpaceMobile has agreements with a host of other companies around the world. It believes all of its agreements will provide it with a long-term target market of 2.8 billion potential customers. Assuming AST SpaceMobile can keep executing well operationally, there seems likely to be huge potential for the business as it ramps up over time.
AST SpaceMobile will be a wild ride
To repeat the warning: AST SpaceMobile is a high-risk stock that is only appropriate for aggressive investors. That's highlighted by the fact that the shares have now fallen 25% from their 52-week highs. But, even after that drop, they are still up more than 600% over the past 12 months! Growth stocks normally have a jagged upward trajectory. If you have the staying power to stick it out through such wide price swings, now could be the time to buy AST SpaceMobile as it continues to build a bigger, better tomorrow.
