Prediction: AST SpaceMobile Will Sell Lots of Stock (If It’s Smart)

From an initial public offering (IPO) price of nearly $10 in 2021 to a post-IPO nadir of closer to $2 earlier this year, the direct-to-cell (DTC) satellite communications company AST SpaceMobile (ASTS 1.27%) has taken investors on a pretty wild ride over the past few years.

Thanks in no small part to support from big telecom names like AT&T (T 2.66%) and Verizon (See 2.75%)however, AST stock went parabolic in 2024. The company went from operating a single BlueWalker experimental communications satellite (comsat) to building five fully operational comsats ready for launch in September. It has won Federal Communications Commission (FCC) approval to launch and operate satellites, and it looks very likely to begin beta service before the end of the year.

Oh! And AST’s share price exploded 13-fold in size, from $2.21 in April to over $29 last Thursday. Today, I’ll argue that the next step in the AST saga should be to sell a lot of that stock, cash in on this year’s gains — and future-proof it for years to come.

From skeptical to… still skeptical, but less so

I admit that I was skeptical when AST SpaceMobile first announced plans to hold an IPO in 2021. AST burst onto the space scene with some very big bragging rights, after all, promising to go from an acquisition company with special purpose (SPAC) without name. less than $400 million worth of stock to create “the first and only space-based cellular broadband network directly accessible by standard cell phones.”

AST said it would target a market of “five billion mobile subscribers”, representing a “$1 trillion global mobile services market”. It promised to capture this market by using “an extensive portfolio of IP and patents”, enabling “seamless cellular broadband connectivity directly to existing, unmodified mobile phones without the need for specialist hardware”.

But AST declined to say exactly how its technology worked, explaining that “it is highly proprietary and exactly how it works cannot be disclosed.” Suffice to say, the explanation did not inspire confidence.

And yet, within just a few years of its IPO, AST was able to place the first DTC phone call in history from one available cell phone to another, with nothing but a BlueWalker satellite in between. A year later, the contracts started rolling in as AT&T and Verizon (and others) lined up to sign more than $100 million in contracts to secure access to the AST network through 2030.

Today, S&P Global Market Intelligence puts AST’s implied market capitalization at $8 billion. And with $285 million in cash on its balance sheet — more cash than it has debt, in fact — AST looks ready to get down to business.

So what’s next for AST?

Time to sell some stocks

In its March 2024 10-K filing with the Securities and Exchange Commission (SEC), AST estimated the cost of “assembling, integrating, testing and launching” its first five BlueBird (BB) Block 1 satellites at about $115 million — so , USD 23 million per comsat. The company also said it needs between $350 million and $400 million to build, launch and operate the next 20 Block 2 BlueBird (BB) satellites — $17.5 million to $20 million on satellite.

As volume production begins, prices are expected to drop, but not by much. AST estimates that the first 95 Block 2 BB satellites will cost between $16 million and $18 million per satellite. That means at least $1.6 billion in short-term capital requirements. Ultimately, the company wants to put about 168 satellites into orbit. All of this implies the need to raise something on the order of $3 billion in new funds to fully build the satellite network.

The $285 million that AST currently has on hand will not be enough. The $200 million AT&T and Verizon are also promising won’t help much. What It It would help AST if it announced a big share sale at its new and improved share price.

A sale of 55 million new shares, for example, could raise the $1.6 billion AST needs to build and launch its first 100 satellites. A sale of 100 million new shares (64% of outstanding shares, but only 36% of understood shares outstanding, according to S&P) would raise all of the $3 billion AST will need to complete its constellation of satellites.

Warnings and caveats

It absolutely does AST need sell so many shares and collect all that money in one go? No, it isn’t. today TO it sells shares in dribs and drabs over the course of a few years and spreads the pain of stock dilution as it expands its operations.

But that would carry the risk of having to sell future shares at lower prices if the stock stumbles at some point — for example, if a rocket launch goes awry or problems arise in expanding the business. Also, shareholders may tire of enduring endless rounds of stock dilution. (Investors in IPO SPAC Lucid (LCID -4.97%) I can tell you all about it.)

As far as I’m concerned, it’s better to rip off the bandage right now, remove the dilution, and secure all the money AST will ever need to make its project a success — all in one fell swoop.

Given AST’s enormous cash requirements and its current inability to generate cash without selling shares, this really is the most shareholder-friendly move AST can make: Take advantage of today’s sharp rise in share price for to be able to focus on building the business tomorrow.