- AST SpaceMobile seeks to bring high-speed broadband to everywhere at cost effective pricing.
- SpaceMobile service uses low earth orbit satellites to connect to the typical smartphone with no special equipment, just like a cell tower does.
- AST SpaceMobile has key strategic partners, such as American Tower. SpaceMobile plans to revenue share with mobile network operators, not compete with them.
- AST SpaceMobile is a speculative investment with impressive upside if they succeed. Initial commercialization could start as early as the second half of 2022, or perhaps early in 2023.
AST SpaceMobile, Inc. (NAS:NASDAQ:ASTS) is a satellite design and manufacturing company that plans to create a mobile broadband network in space through its SpaceMobile service. SpaceMobile intends to offer global cell service levels from 2G to 5G, to anywhere on the globe, with no additional equipment requirements for smart phone users. While there is substantial risk, if SpaceMobile is successful in its plan and if its technology becomes widely used, then it could represent a lucrative future revenue potential for the company. AST SpaceMobile stock has pulled back some in recent days, as has some other space stocks. I see AST SpaceMobile as a good speculative buy at these levels, as they are closer to the lows of the year and that may provide more room for upside potential.
Source for data, information, and images: AST SpaceMobile
AST SpaceMobile has locations in the U.S., Spain, the U.K., Israel, and Lithuania. In Lithuania, AST SpaceMobile operates its 51% owned subsidiary named "Nano". Nano develops and manufactures satellites and makes all arrangements for their launch and orbit operations. Nano also offers payload services, sells satellite parts and subsystems, and software licenses. The SpaceMobile service does not generate revenue yet, so all of AST SpaceMobile's current revenue comes from the Nano subsidiary's ancillary sales.
The SpaceMobile service is headquartered in Midland, Texas. SpaceMobile expects to bring its high-speed mobile broadband service at cost-effective pricing. Smart phone users will not need to subscribe to the service as SpaceMobile plans to partner with mobile network operators (MNO's) so that the use of the service is integrated with the MNO.
SpaceMobile has already worked out its plans for how the service will be available, and they have several different plan options. Service would only apply as the smartphone became out of range of a cell tower, or if a cell tower was down for any reason. See the company graphic below for a full description.
Source: AST SpaceMobile
AST SpaceMobile cites data from GSMA Intelligence that shows a current global wireless market of over $1 trillion in annual revenue. This is made up of 5.2 billion cellular subscribers. Some of whom have broadband and others do not, but all may move in and out of terrestrial cell coverage as they go to work or travel. Also, an additional 2.6 billion people currently do not have a cell subscription. For a lot of those people who have no service it may be that it is due to the current lack of coverage in their areas.
SpaceMobile intends to earn market share, and perhaps help to increase the overall size of the market, by providing service in underserved areas across the world. SpaceMobile's business plan is to utilize revenue sharing with the MNO's. The company states that they already have agreements with several MNO's, that represent 1.5 billion cell users, once the service becomes available. That information is current as of September 30, 2021, but the trend appears to be that they continue to add more arrangements as they go forward.
SpaceMobile claims extensive IP and holds over 1,600 patents and patent pending's that they will use to offer what they believe will be a unique service. The company has secured partners such as Vodafone, American Tower, and Rakuten, and perhaps others with some having an equity stake in AST SpaceMobile.
SpaceMobile service is planned to operate from 168 large sized low earth orbit satellite arrays. Traffic will be directed to an on-earth gateway then to the MNO's core network. Users will connect to the service directly to the satellite, just like they do a typical cell tower. They can accomplish this without the delays that are normal for geostationary satellites which are much further out in space.
SpaceMobile ran tests from space to validate its process in April of 2019. Their first rendition of the "BlueWalker" satellite proved capable with managing delays and managing doppler effects using a 4G-LTE protocol. The company is currently developing its BlueWalker 3 version (BW3). The initial plan was to launch BW3 as a test model using SpaceX as the launch provider, and to occur around March - April 2022. The company notes that the time frame depends on a lot of factors including their ability to complete BW3 in that time frame, and the actual availability of a launch provider.
Thus, depending on that schedule, the company estimates a commercial launch later in 2022 or early 2023 using 20 satellites that they expect to serve 49 countries located around the equator. Those countries represent a population of about 1.6 billion people, per their information.
The company estimates full global coverage to be available by the end of 2023, or early 2024 with the full complement of 168 satellites in operation by the end of 2024. Obviously, these timelines could vary somewhat.
Source: AST SpaceMobile
Competition and Growth Potential
AST SpaceMobile makes statements in its presentation and other materials that sound a lot like they believe they have no competition. In fact, one statement asks, "Why no competition?" They also state that they will be the first and only space-based cellular broadband network and they claim as being the "first mover".
I'm not sure that I understand this correctly. I looked around a little and quickly found at least one or two other companies that make some similar claims. One, claimed to be the only company that has had a successful test, claims to have numbers of patents, and says it will use satellites like cell towers with no user equipment needed, just like SpaceMobile claims. They also claimed to have about the same number of agreements in place with MNO's.
It is confusing. I don't know if there is some subtle differentiation in the services or whether some claims are a stretch. Maybe if I was more into the technical aspects I would know, but I am not. Maybe SpaceMobile's statement of "only space-based cellular broadband" does provide something a bit different than others and it's all in the terminology.
Regardless, several companies are working on similar plans to provide cell service or broadband from space. Starlink is not the one I referred to earlier, but it alone is a major competitor, even if the type of service is a bit different.
As for SpaceMobile, it should fit into the current world of cell use well, I think. Their plan does not compete with MNO's but rather provides an enhanced service for the MNO's existing customer base.
SpaceMobile's uses large array satellites. The bigger size allows each satellite to cover more area and more transmissions. SpaceMobile believes it can cover the globe well with its planned 168 satellites while other company's plans may involve hundreds more satellites or even thousands more. This could give SpaceMobile some advantage on launch costs and perhaps will mean less construction costs, maintenance costs, and operation costs. And, importantly, less launches could mean getting to the market quicker than some others.
Overall, I was impressed by SpaceMobile's attention to details compared to some other competitors, and I am just basing this on the primary website data. One or another has its plans listed, but SpaceMobile checks several boxes in its business plan including revenue sharing through its multiple customer plans, as shown earlier. Its recent acquisition of a new manufacturing facility also shows their confidence in their ability to have a market ready for them to capture.
The American Tower relationship is very interesting and is apparently unique to SpaceMobile. American Tower is among the largest tower owners in the nation, and they have a global presence as well. American Tower basically does on earth what SpaceMobile plans to do in space. MNO's have longstanding relationships with American Tower, and SpaceMobile with its connection to American Tower, I think, may be able to leverage that clout to MNO's with a foot in the door so to speak.
I suspect American Tower may have a motive in that they will get the data from space which may help them decide where to add new towers. This seems a bit counter-intuitive for SpaceMobile as that implies a potential loss of revenue. I believe that could be valid concern, but the data and ease of use could also convince American Tower to not add towers in some areas that they might otherwise have added. Also, while SpaceMobile's intention is to complement cell towers instead of competing with them, you must wonder what the longer-term trends will be as technology continues to improve. Space based broadband could become more and more attractive with its coverage advantages.
Also, it may speak to SpaceMobile's competitive strengths as shown in a company video, where an American Tower exec seems very impressed with SpaceMobile's technology versus some others. Coming from them, I think it's a reliable expert opinion. They may be partners, but apparently there is a reason for that.
Is SpaceMobile the first mover? Maybe, I don't know, but they don't have to be. You don't want to be so late to the game as to let another company sew up the market. But if they are early enough, and especially if their service provides something better than others, or even just fits into the current mix of things better than others, then they should do well. We will have to see what SpaceMobile brings to the table as the future becomes the present.
As far as growth potential I previously discussed the overall global market. I don't think SpaceMobile will have to be the only space-based broadband provider to succeed, but they do at least need to get established and get a good piece of the market. It may all come down to whether their patents provide superior technology. I believe MNO's will seek to provide the best service for their customers with whomever may provide it.
Source: AST SpaceMobile
I am sure that for most the primary reason to invest in this company is in the potential for its SpaceMobile service, which currently does not generate revenue. The Nano subsidiary produced about $2 million in revenue for Q3 and the company reported $.07 in EPS. If that were typical then you might see $.28 in EPS and multiply with a P/E of your choice. I'll say 25 and you might say the value of the company is at least $7.00 just on the Nano business. That may be right, but Q3 doesn't seem to be typical at this point.
The company ended the quarter with over $360 million in cash and it has other substantial assets with total assets above $400 million. That amount is over 4 times total liabilities. The company has spent $56.7 million for its BW3 test satellite and expects the total cost to come in at about $76.6 million. AST SpaceMobile expects to use its $360 million cash position to complete BW3 and to go towards funding the commercial rollout.
There is not a lot to use for a good fair valuation yet, but I think if you consider Nano's business and the asset position alone you might nearly justify the current share price. At this writing the stock trades at around $9.50.
The stock has averaged around $11.00 or so, up, and down for the last several months. Some warrants were set at $11.50, with covenants for prices trading at $18.00. I think using $11.50 as a fair market price is reasonable. That should value its current business and its potential with substantial risk considered. If the company has commercial success, I expect the fair market value to adjust to reflect the potential for much higher revenue gains.
The company provides a full list of risks in its SEC filings. I recommend reading in its entirety, but I will add a few notes.
The most obvious risk is a total miss on the plan. Maybe a competitor with better technology, or one that wraps up the entire market somehow. It could be a total loss, and why this is speculative. Even if the SpaceMobile service plan fails the company may still have some value in assets, patents, and technical ability. That might or might not translate to some value for shareholders. I think an investor here should be prepared for the possibility of loss. Greater risk, greater reward they so though, right?
There are so many other risks, but the other I will mention is just being slow to execute. If any space test fails, space stocks typically are hit hard. But it may not be as bad as it seems. Sending up another test will rely on mostly already established R&D, and the cost of one test device compared to the cost of a fleet is maybe not so much. Probably the biggest concern though is time lost whether from failing to launch, or from equipment not working. Valuable time that a competitor might use to gain an advantage.
Another of SpaceMobile's claims is that they are the only pure-play low earth orbit communications company that is publicly traded. Of course, that can change, but this may be the best chance for the average person to purely participate in the potential opportunity of broadband delivered from space.
There is no overestimating the importance of smartphones as communication devices and their ability to bring the internet to people's hands. Consumer's will come to demand that those services are available any and everywhere they go. If a company can get a large part of this market share the potential is enormous. But not everyone, not even the biggest corporations, have made this coverage available yet. The world is waiting for someone to do it. AST SpaceMobile, and maybe a few others, think they can make it happen. We just need to watch and see who does.
I made an investment in this company just below $9.50. I plan to keep current on their news to see if they appear to stay on track and I will try to determine if it looks like they can capture a good part of the market. If not, I will find a place to sell. But if things look good and keep looking better this could be great ride up in the speculative category. I would just keep in mind that it will take some time before the path is clear.
Source: AST SpaceMobile
Maybe we live to see an age of no more dropped calls!
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of ASTS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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