Where will AST SpaceMobile be in a year?

AST Space Mobile (ASTS 0.95%) There is an interesting business plan that is basically designed to allow cell phone users to make calls from anywhere on the planet. how? Build a space-based cellular broadband communications network.

The idea of ​​no more dead zones is appealing, but it will take a lot of cash to get the company to the point where it can offer a viable service. Looking at the balance sheet and the company’s spending ratios shows how far it is from achieving its grand ambitions, and next year will be a pivotal year.

AST SpaceMobile has proven that this concept works.

In 2019, AST launched its first satellite, known as BlueWalker 1. This is basically just a test to see if the company can get an operational satellite into space and then use it in the way it was intended.

The real proof of concept came in 2022 with the launch of the BlueWalker 3 satellite. Although it is still in the testing phase, this satellite will be used for actual phone calls and data transmission in 2023.

Image source: Getty Images.

Sending a satellite into space is impressive in itself, but the really cool part about the BlueWalker 3 test was that the device used to connect to the satellite was a regular old cell phone. It’s the same thing you have in your pocket right now.

This may seem hard to believe, but if you’ve ever used (or seen) a bulky satellite-based cell phone, you know that AST’s payoff is quite significant. More importantly, it basically proved that the company can do exactly what it wants to do.

The ultimate goal is for AST SpaceMobile’s service to become an additional service through partnerships with carriers that have already launched. That way, rather than trying to compete with established industry giants, you can work with multiple carriers and try to get funding from all of them.

That last point will be key, and it’s where investors may want to pay the most attention over the next year and beyond.

AST SpaceMobile is spending too much money.

As a startup, AST SpaceMobile is spending a lot of money to build its business. This is normal, but not something investors should ignore. In fact, 2023 makes a very good point on this issue.

The company earned exactly zero revenue, but spent about $79 million on engineering services, $47 million on research and development, and $42 million on general and administrative expenses. You don’t need an accounting degree to see that no income and approximately $168 million in expenses would result in a very large loss.

It’s not a shock. Huge losses can be clearly seen in the company’s income statement. Management hopes to generate some revenue from contracts with the U.S. government in the first quarter of 2024, but this will not be enough to meet spending needs.

For example, we are currently preparing five more satellites for launch into orbit. And that’s just the beginning. For the service to be fully operational, satellites will need to continue to be built and launched for many years.

ASTS data from YCharts.

This is where the balance sheet enters the story. As of the end of 2023, the company had just under $86 million in cash reserves. This is roughly half of what we spend on engineering, R&D, and general costs of business operations in 2023.

We were fortunate to raise some capital in the first quarter of 2024, ending the period with approximately $211 million. That’s a much better number, but simple math shows that this number will only last a company for about a year.

The next year will be about AST SpaceMobile further proving its model so it can convince investors and partners to continue donating more money. The company acknowledged in the ‘Risks’ section of its 10-K that “we require significant amounts of capital and expect those requirements to increase in the future.”

So this story is only just beginning, and it seems very likely that current shareholders will see their investments diluted by future capital raisings, including share sales, warrants and conversion of convertible notes into shares.

It would probably be best to monitor the AST SpaceMobile from Launchpad.

AST SpaceMobile’s business concept seems reasonable, and with the success of BlueWalker 3, it actually seems achievable. But the company is short on one thing it needs to build its business: cash.

In fact, if you don’t raise more capital next year, all your big dreams could go to waste. That’s highly unlikely, as they’ve secured some important partners. However, current shareholders may not be as understanding as hoped if the much-needed capital raising ends up leading to massive dilution, which seems like a reasonable expectation.

Overall, AST SpaceMobile appears to be a fairly high-risk stock even under the best possible outcome. Most investors interested in the company will probably have to watch from the sidelines. Two important things to monitor in the coming year are the company’s success in launching satellites and its success in raising additional capital.