Why AST SpaceMobile Stock Soared 40% in August

In the preceding period AST SpaceMobilehis (ASTS -0.65%) the most significant satellite launch to date, investors flocked to the stock. The company’s shares rose 40.4% in August, according to data provided by S&P Global Market Intelligence. It came as the space cellular broadband satellite maker prepares to launch its first five commercial satellites as early as this week.

But investors may have outdone themselves by jumping into AST shares. Some of those gains were erased as the stock fell 10% in the first week of September.

The drop was a result of the company’s announcement of plans to raise fresh capital. A look at the August peak and subsequent pullback can help investors understand what could be in store for this rising space name.

Global Internet from space

The launch window opens on September 12 for AST SpaceMobile’s five BlueBird satellites to launch on a SpaceX rocket. They will represent the company’s initial range of commercial satellites as it begins to build a network that would be the only space-based cellular broadband network to deliver Internet access directly to smartphones globally.

Its network will differ from what SpaceX already offers with its Starlink network, as the latter service requires users to purchase a satellite dish. The AST market could be much bigger as it will go directly to mobile phones. AST estimates that even with more than 5 billion mobile phone subscribers, more than 3.5 billion of them were not mobile broadband subscribers.

In the recent update for the launch, AST founder and CEO Abel Avellan said: “We believe that space-based cellular broadband connectivity will revolutionize the way people connect, empowering communities and driving economic growth on a global scale.”

Launching satellites is not cheap

The company’s plan to build and launch a satellite network will be expensive. AST is already working on building the next block of 17 BlueBird satellites. And in the final days of August, the company said it would buy back warrants issued when the company went public more than three years ago through a merger with a special purpose acquisition company (SPAC).

This will add more than $155 million and result in more than $440 million in cash on its balance sheet. But it will also dilute existing shareholders as the company issues new shares to warrant holders. That prompted some investors to take profits after the stock surge in August.

Long-term investors should not worry about dilution. Holding shares in AST SpaceMobile will require a good level of risk tolerance both operationally and financially. If the company succeeds in giving billions of smartphone users access to the Internet, it should be a winning investment.