2023-04-19 09:53:14 ET
Summary
- AST SpaceMobile is building a space-based cellular broadband network that standard smartphones will be able to easily and readily access without any technological modifications.
- The company is targeting EBITDA margins in excess of 90% and is expecting to be cash flow positive from the launch of its commercial service.
- Operational cash burn is running at around $39.12 million per quarter with AST's cash and equivalents at $240 million as of the end of its fiscal 2022 fourth quarter.
- Whilst this has provided a more than one-year cash runway, the company will likely need to continue to tap the equity markets for more funds.
I thought about building a speculative position in AST SpaceMobile ( ASTS ) on the back of a 45% decline in its common shares over the last year that has somewhat skewed the risk-return ratio to the upside but decided to pass. The risks are clear, AST is a pre-revenue company that will be reliant on investor goodwill and the capital market to meet its medium to long-term liquidity needs even as its chases a large total addressable market. Prior investor euphoria pushed shares of the Midland, Texas-based firm to as high as $22 per share after it went public via a blank check firm in the spring of 2021.
AST is now trading close to its record lows and it continues building a space-based cellular broadband network that's accessible by standard smartphones. The SpaceMobile satellite constellation will be able to provide connectivity at 4G/5G speeds across the planet. This means connectivity on land, sea, and air, to help bridge coverage gaps to unlock what AST has stated to be a $1.1 trillion TAM. Essentially, the technology is being designed so existing smartphones can gain connectivity without any modifications. Planned monetization could see smartphone users pay a fixed fee for a day pass or opt to add SpaceMobile as an additional service to their existing cellular plan. It's an ambitious plan that has run into the current risk-off environment that threatens to derail AST's ability to raise funds. The company is aiming for EBITDA margins in excess of 90% and thinks it can be cash flow positive from the launch of its commercial service.
The Liquidity Risk
BlueWalker 3, AST's prototype satellite and predecessor to its planned commercial offering, was launched into orbit last year with SpaceX. The company was targeting the latter half of 2023 to begin its commercial offering but this has been pushed into early 2024 when AST expects to launch the first five Block 1 BlueBird satellites. However, investor angst has built up over the lack of test results from BlueWalker. There is a distinct lack of clarity on confirmed data speeds and capacity. For example, cell towers can be overloaded when there is a sudden surge in demand, hence, detail on the maximum capacity of a satellite at any time would be useful as it would dictate how much more BlueBirds AST will need to launch into low-earth orbit.
Critically, AST realized cash burn from operations came in around $156.5 million for fiscal 2022, around $39.12 million per quarter. This has placed into view its overall liquidity position. The company was able to complete a $75 million stock offering in November last year to buff up its cash and equivalents to $238.6 exiting the fourth quarter. This would extend its runway to just over four quarters with capital expenditure expected to come in at around $56 million through 2023. AST will need to raise more funds within the next year. Whilst current earnings are unimportant in the sense that the company is yet to start its commercial service, the overall viscosity of cash burn and its impact on cash and equivalents is important.
The NYSE and Nasdaq are littered with previously highflying and ambitious deSPACs who are now facing delisting fears after running short on cash. This presents the core risk for AST as the company's current stock price means equity offerings have a more outsized dilutive impact. The broader stock market continues to be constrained by a still-rising Fed funds rate which Chairman Powell has indicated will stay higher for longer. If interest rates are as high as they are now in the spring of 2024, AST would likely still face headwinds to its valuation expansion.
Lost Space Dreams
A ton of space companies that went public during the space SPAC boom like Spire Global ( SPIR ), Astra Space ( ASTR ), and Momentus ( MNTS ) are all now trading below the minimum listing requirement for their stock exchanges. Whilst AST is chasing a larger TAM, the specter of a liquidity gap still lingers. Hence, investors looking to take a speculative position in AST should do so with the view that further delays could be realized to disrupt the existing cash runway.
To be clear here, AST is a zero-revenue high-risk play building a new and unique business that literally requires rockets to launch its assets into space. A lot could go wrong and the equity markets have long switched to a risk-off mode that is entirely antithetical to the conditions required for companies like AST to realize positive share price momentum. Hence, the share price could remain depressed for longer than the bulls would like and bears who form the 23% short interest could be handed further victory if AST runs into the same type of liquidity bottlenecks that have entirely discombobulated other blank check public companies from the 2021 class. The company is chasing the first quarter of 2024 for its commercial launch and it continues testing BlueWalker 3 to validate its design. The results of these would form the next catalyst but I'll remain on the sidelines.
For further details see:
AST SpaceMobile: A Speculative Space Investment Play That Could Fail