There's a new space race in full swing, but private industry, not world superpowers, are driving this post-Cold War iteration. While Elon Musk and Jeff Bezos have dominated headlines with their exciting advancements in rocketry, a cottage industry of smaller start-ups is vying for dominance in all manner of space-based markets.
AST SpaceMobile (ASTS -7.13%) is betting it can be a crucial provider of mobile communications using a fleet of satellites. Investors seem to be buying into the vision that the company is selling, with its stock up more than 400% this year alone. With all the excitement, is AST a buy now?
Can you hear me now?
Those of us in the United States are pretty familiar with the cell towers that dot our landscape. By and large, reliable cell service and broadband access are a given in much of the country.
That's not true, however, for much of the rest of world -- far from it. More than a third of the global population lacks access to the internet, and for many more, it's extremely unreliable. Cell service is more widespread but is still sorely lacking for many.
AST designs and manufactures satellites that can provide cellular broadband anywhere in the world without the need for any specialized equipment or modifications to your cellphone.
The latest earnings weren't great, but it's early days
The company reported its third-quarter numbers last week. Investors were underwhelmed, and its stock tumbled nearly 20% in the immediate aftermath.
In the days since, shares have mostly recovered, and are now down just 2.7% since before the earnings call. The red mark that drove the stock plunge was a hefty earnings miss. The company reported an earnings per share (EPS) loss of $1.10, while analysts expected just a $0.23 loss per share.
While that's a painful miss, remember that the company is still in full start-up mode. Traditional financial markers that work well for more mature companies, like steady EPS growth, aren't always all that telling for a company like AST, at least right now. At the moment, it is hardly bringing in any revenue at all -- just $1.1 million last quarter.
This quarter marks the launch of its first five satellites, a huge milestone. It intends to begin testing its network in beta, already having inked agreements with AT&T, Verizon Communications, and others. It has also secured contracts with launch providers, like Blue Origin, that will allow it to send up another 60 satellites.
A spike in revenue is coming, but profitability may be further behind
With five satellites now in orbit and more coming, AST can begin delivering the services it was created to provide. Revenue should follow suit.
That being said, it will take time -- and money -- to bring the network to full capacity. Launching satellites is expensive, and the company will have to shell out more than $1 billion just to put the next 60 into orbit. This will require raising more funding. That could mean selling stock or taking on debt.
Either way, the key to AST's success will be how quickly and efficiently it can bring its network on line. Can it raise enough capital without blowing up its books? I think so, but be wary of potential stock dilution in the near future.
AST is a compelling option
AST's model vision of the future of broadband access is compelling. It's not hard to see the value it can provide. Having already made inroads with key telecoms, the company is in a great position to capitalize on that promise.
For those with a high risk tolerance and a longer time horizon, I think AST SpaceMobile is a buy. However, if you are more interested in protecting your capital -- maybe you're nearing retirement -- I would look elsewhere.
