TEFOF - AST SpaceMobile Screams 'Watson I'm Calling You From Space'

2023-04-27 03:47:33 ET

Summary

• AST SpaceMobile just announced their technology to send voice calls and data at 4G/5G from a satellite direct to your cell phone works.
• This is unlike anything that SpaceX or other competitors are doing, as all other systems require external hardware beyond a phone.
• It looks like AST SpaceMobile has at least a 2-year lead on the competition and is well into negotiations for more contracts with both telecoms and government.
• This tech can help half the global population get primary 4G and 5G phone service and serve as a back-up connection over most of the planet - FirstNet is set to use it.
• I rate ASTS stock a buy for growth investors and those who have an "inheritance" sleeve in their portfolio.

AST SpaceMobile ( ASTS ) made a major announcement on Monday that the stock market barely acknowledged as breathy narratives about banks, attention to tech earnings and news that sanctions would be removed on Venezuela if they had fair elections, took up all the oxygen.

Good thing there is no oxygen in space.

On Monday, April 25th, AST SpaceMobile,

"the company building the first and only space-based cellular broadband network accessible directly by standard mobile phones... announced the successful completion of the first-ever two-way voice calls, directly to everyday unmodified smartphones using the BlueWalker 3 (“BW3”) satellite."

By Wednesday midday, ASTS was up over 10%. Let's call that one small step SpaceMobile, and one giant leap for telecommunications. I expect the stock to rise quite a bit more as investors realize what just happened.

AST SpaceMobile Calls Home

This week, AST SpaceMobile was able to demonstrate across multiple devices, the ability to connect voice calls directly to cell phones from satellites.

"In addition to test calls, AST SpaceMobile engineers conducted initial compatibility tests on a variety of smartphones and devices. The phones successfully exchanged Subscriber Identification Module (“SIM”) and network information directly to BW3 — crucial for delivering broadband connectivity from space to any phone or device. Additional testing and measurements on the smartphone uplink and downlink signal strength confirm the ability to support cellular broadband speeds and 4G LTE / 5G waveforms."

This success was not slow in the making. The company was founded in 2017 and brought to market via a SPAC. Given the SPAC hate that has thrown the babies out with the bathwater, shares and hope were depressed the past year. Shorts exploited that. More on that below.

The first satellite the company launched was BlueWalker 1. Its job was to receive messages from the ground to an orbiting cell phone. It succeeded. The next test was to send the messages back direct to cell phones.

In early 2021, at the request of a major investor, an analyst report by experts in the field , provided their opinion why the AST SpaceMobile tech would work.

In September 2022, the company launched BlueWalker 3 via a SpaceX rocket after a few months delay. Within months the company was able to deploy the satellites large antennae, necessary for sending long and precise transmissions, and move data packets back and forth.

It was sometime late last year that AST SpaceMobile ceased being a binary bet and became an execution story. The company just proved that cell service from space is possible.

Cell Towers In Space

Think of this as telecom towers in space. That is in fact exactly how, cell tower operator and shareholder in ASTS, American Tower ( AMT ) thinks about it.

The company has signed agreements and MOU with over 35 mobile network operators to date:

"AST SpaceMobile has agreements and understandings with mobile network operators globally that have approximately 2 billion existing subscribers, including Vodafone Group ( VOD ), Rakuten Mobile ( OTCPK:RKUNY ), AT&T ( T ), Bell Canada ( BCE ), Orange ( ORAN ), Telefonica ( TEF ), TIM ( TIMB ), Saudi Telecom Company, Zain KSA, Etisalat, Indosat Ooredoo Hutchison ( OTCPK:PTITF ), Smart Communications, Globe Telecom ( OTCPK:GTMEF ), Millicom ( TIGO ), Smartfren ( OTCPK:FRENF ), Telecom Argentina ( TEO ), Telstra ( OTCPK:TLGPY ), Africell, Liberty Latin America ( LILA ) and others."

At a minimum, the partnerships and investment should point to the significant and major market opportunity this proof of concept entails.

AST SpaceMobile Business Opportunities

The business opportunity is vast, not as vast as space, but pretty big. See the recent presentations from AST SpaceMobile investor relations. Of note, consider the regulatory successes the company has had. That is vital.

Also consider the strong patent position. While I have no doubt there will be competition at some point, the company seems to have at least a 2 year head-start and up to around 5 years. Judging from the agreements and MOUs, first mover advantage is significant.

Finances obviously play a key role. The company has over $230 million in cash. That is enough to launch its first batch of equatorial satellites. Those will be cash flow positive from day one that service is switched on.

Ultimately, the company will need to raise money to launch the full constellation. The shorts will cry dilution. I'm not so sure.

We have to consider that the CEO is very aligned with shareholders as he owns nearly 40% of the company. The last thing he wants it dilution.

My educated analysis is that the company will issue debt, possibly with a small warrant kicker for minor dilution, to finish their launches.

Currently, the global wireless services market is about $1.1 trillion and expected to double within a decade.

There are roughly 5.5 billion mobile devices moving in and out of coverage. 90% of the surface of the earth is without cellular coverage. This technology is not designed to offer overlap within cities, rather, is for when leaving primary cell coverage areas, on water and in the air.

A primary opportunity is in emerging markets where there are not vast cell tower networks. The initial equatorial satellites will cover nearly 2 billion people, largely in emerging markets.

There's no knowing how many people will sign up for supplemental coverage in developed markets, but I think it will be a core add-on for people who travel or leave their home city. And, in emerging markets, AST SpaceMobile coverage is likely to be primary service for hundreds of millions.

It is too early to put revenue and EPS targets on the stock, however, given the market cap now, the massive market and first mover advantage, it looks like enough to drive it into being an S&P 500 stock someday.

ASTS Called A Binary Bet By Shorts

Way back two whole years ago, Michael Dolen, wrote an article titled: AST SpaceMobile: 20-100x Return Or 100% Loss, It's A Binary Bet. He went through some of the scientific and engineering information, then correctly said to buy the stock. The article is still worth reading today.

Yet, shorts glommed onto the "binary" bet idea and started to bet against the stock. At the time, it was probably a fair enough bet. Who really knew 2 years ago the tech of sending a 5G signal from a satellite direct to a cell phone would work?

About the same time, I very slowly started accumulating a position. Here's the first contact headline:

Here's one of my bullet points from that piece:

• Hedge funds and traders are shorting stocks in order to flip to a long position after the flush out weak emotional hands (this is not speculation).

Indeed, the stock became a battleground stock. The shorts on one side, and a lot of the Reddit Army on the other. There was the obligatory short seller report that led to deep gasps from the uninformed.

Eventually, the short interest grew to 21% and the stock fell in price. Millennial and Gen Z traders suffered attention deficit and largely moved on.

In fact, Millennials have put more into cash the past year than any other age cohort according to Ernst & Young. We'll see if they pile back in soon, either on a correction or a new FOMO rally.

Frankly, it is in the Millennials and Gen Zers best interest to stop trying to outsmart the market so much and remember that "time in the market" almost always beats "timing the market."

AST SpaceMobile, as noted above, ceased being a binary bet late last year. Continued short attacks on potential failure would seem to be out of place now. However, many who do not do the reading would not know that.

Unfortunately, studies show that negativity can persist and negative feedbacks to both shareholder returns and sometimes the company itself it relies on share sales for funding. That is a risk with AST SpaceMobile to some degree.

So, while I anticipate debt versus dilution, we do not know that yet and management teams have made bigger mistakes. I do except a short squeeze, but, if it does not manifest, it could be this negative feedback loop that prevents the shares from recovering sooner than later.

So, here we are, still a large short interest in AST SpaceMobile, which could be rocket fuel for a rally to a new higher trading range. The problem right now, like always, is with all the narrative noise filling people's eyes and ears, did anyone hear the message that ASTS flipped heads, not tails?

AST SpaceMobile Is A Buy

Whether you are a growth investor or a retiree with a sleeve in your portfolio for the grandkids to inherit, shares of ASTS are a buy today.

We have an initial $17 price target by late this year or early next year. Our longer term targets are just developing, but look to be well over $50 per share. FOMO spikes could take the stock even higher.

We use a four step process in our analysis:

• Identify secular trends.
• Analyze the impact of government and central bank policy.
• Study industry and company fundamentals.
• Apply technical and quantitative signals.

On the technical side, our analyst is using standard forms of analysis, an AI assisted Elliott Wave analysis and Harmonics. He sees a target in the upper teens on those methods. The downtrend is still intact (red line), but is invalidated around $8 per share which would be a new uptrend.

I am primarily a Wyckoff and Volume Weighted analysis user. I see a first price target to a new all-time high in the upper teens. I see the breakout around $8 as well, so that is the first hurdle. I think it will get there on the short squeeze. Long-term, it's still unknowable, but a market cap of $20 billion would translate to around $100 per share. I think that is a reasonable first long-term fair value.

There will be small pullbacks for sure, and those are very buyable in our opinion. I have made ASTS a full 2-4% position in appropriate accounts (I manage money). I rate ASTS a strong buy .

Scaling in over time is always important; however, I would be ramping up a position quickly at this point. We like taking a long stock position and selling a cash-secured put just out of the money.

For those who use options, I recommend selling cash-secured puts and buying some shares. Premiums are very high on the volatility. Right now you can sell the August $7.50 puts and receive around $3. That would give you a net cost on shares of only $4.50 if assigned.

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