Shares of AST SpaceMobile (ASTS -9.53%) are tumbling on Friday, down 10% as of 3:00 p.m. ET. The move comes as the S&P 500 and Nasdaq Composite both gained 0.4%.
The space-based broadband provider announced a private offering that sparked dilution concerns.
AST is raising funds
The company announced that it is seeking to raise $500 million through a private offering. The convertible notes will be due in 2032, and initial purchasers will get the option to acquire another $75 million in notes. A direct offering of its common stock will be used to raise an additional $135 million in order to repurchase existing convertible notes.
While the company is using capped-call transactions to mitigate dilution, some dilution is still likely.
Image source: Getty Images.
AST is teaming up with Vodafone
In more positive news, last month the company announced it was partnering with Vodafone to create a joint venture, SatCo. SatCo will bring space-based broadband to Europe. Commercial operations are expected by 2026.
Investors should know the risks
The very nature of AST SpaceMobile's business means stock offerings and debt raises are something to be expected. It takes an enormous amount of capital to build and launch a network of satellites into space and then maintain and operate it. Since it is still in its early days, its revenue is nearly non-existent. It must establish its network first.
I think AST has a lot of potential, but it faces major challenges, including competition from much better capitalized players like Elon Musk's Starlink, which can more cheaply launch its satellites thanks to SpaceX. For investors with significant risk tolerance, AST could pay off, but it's a tall order.
