AST SpaceMobile Inc. (NASDAQ: ASTS) is a little-known satellite company with ambitious plans to create the world's first and only space-based cellular broadband network. The goal is to enable direct-to-cellphone satellite communication through any off-the-shelf, unmodified smartphone, providing coverage to every inch of the planet. Seamless 5G cellular coverage that eliminates any connectivity gaps is the endgame. Customers for this service would be existing cellular carriers seeking to contract the services without putting up numerous cell towers.
AST SpaceMobile operates in the computer and technology sector. The company is in the pre-revenue phase but competes with satellite companies like Planet Labs PBC (NYSE: PL), Momentus Inc. (NASDAQ: MNTS), and Rocket Lab USA Inc. (NASDAQ: RKLB). Its top competitor would be Tesla Inc. (NASDAQ: TSLA) CEO Elon Musk and his Starlink, which has the largest satellite constellation of 4,000 satellites delivering broadband capabilities.
AST SpaceMobile's Competition with Starlink
Starlink focuses on fixed-point broadband services, whereas AST is rooted in direct-to-device connection. Starlink has been fraught with problems when it comes to line-of-sight and signal obstruction issues, such as inclement weather, buildings, and small obstructions that can impact connectivity. Like any satellite TV and broadband, customers will tell you how bad the signals get when there’s a storm or even heavy clouds. While Starlink has more satellites, they don't have direct-to-cellular technology like AST does. Starlink satellites require specialized equipment placed in specific areas. Starlink will have to launch a new wave of satellites to compete with AST, as its legacy technology just won't cut it.
Satellites Versus Cell Towers
Satellite phones require direct line-of-sight, which makes them great for outdoors but useless indoors unless near a window. They also require much more power to operate than cellular phones to transmit signals. Cell phones need to transmit to a nearby tower, whereas satellite phones have to pick up signals from hundreds of miles away, even when signals travel at speeds of up to 16,000 miles an hour. Satellite phone calls are expensive, ranging from as low as 15 cents to $2 per minute.
AST SpaceMobile’s Plan of Attack
AST will be launching its initial five Bluebird satellites on its way to the ultimate goal of 168 satellites, which could cost in excess of $5 billion. AST invested around $30 million per satellite or $150 million for the first batch. However, even a third of the 168 satellites would result in comprehensive global coverage capabilities at a cost of around $1.68 billion.
The first five Block 1 Bluebird satellites will allow for nationwide non-continuous U.S. service with over 5,600 cells in the premium low-band spectrum. The first five satellites will enable cellular broadband everywhere for existing cell phones across the United States, including voice, data, and video streaming. Since the service is non-continuous, it will be used as an add-on for cellular customers who find themselves out of range with their cellular providers.
While the company's core strategy is consumer cellular broadband, it is also pursuing government contracts. In the first quarter of 2024, it established its first revenue-generating government contract.
Milestones will include the launch and successful operation of its Block 1 satellites, market access, regulatory approval in the U.S., and commercial agreements with additional mobile operators. The company has 50 memorandums of understanding (MOUs) with mobile operators worldwide.
Block 2 satellites are expected to deploy in late 2024 to the first quarter of 2025.
AST's AT&T and Verizon Deals
AST has signed a six-year commercial agreement with AT&T Inc. (NYSE: T) to provide coverage for every inch of the United States. AST also signed a $100 million deal with Verizon Communications Inc. (NYSE: VZ), targeting 100% geographical coverage of the U.S. on premium 850 MHz cellular spectrum. The $100 commitment includes commercial payments of $65 million and a $35 million investment in convertible notes.
Dilution Dangers Loom for AST
AST went public through a reverse merger with a special purpose acquisition company (SPAC). These can be sticky. The company issued 17,597,600 warrants with an exercisable strike price of $11.50, which can be exercised when ASTS stock trades above $18 per share for 20 trading days within a 30-day period. The stock rose above $18 on July 26, 2024, and has been elevated above there for five days so far. If the warrants are exercised, it will result in $202 million of inflows and a 7% dilution of shares. It's worth noting that warrant holders could lock in profits by "shorting the box." This means shortening the stock at elevated levels in hopes of covering the short upon exercising the warrants at $11.50.
AST SpaceMobile Will Report Q2 2024 Earnings on August 14, 2024
While AST is still a developmental-stage company, it has started to generate revenues from a government contract as well as prepaid revenues from AT&T. These will likely be included in its second-quarter earnings report. Commercial operations begin with the launch of the first five Bluebirds, which are expected in early September 2024.
ASTS analyst ratings and price targets are at MarketBeat. There are three analyst ratings on ASTS stock, comprised of three Buys with an average consensus price target of $14.97.
