Description

AST Spacemobile (ticker: ASTS) is a short. Currently trading at ~$30, it has a ~$9.4 billion market cap (fully diluted incl the converts), but it’s a pre-revenue 'VC stage' business that is only available in the public markets due to the 2021 SPAC craze.  In the private markets it would almost certainly be valued at less than $1 billion (net assets + some IP / optionality), however it has surged from $2 earlier this year to $30 on hype around the recent launch of 5 satellites into orbit (you need ~60+ to have any material commerical offering) and they've arrived at a 'commercial agreement' with several Telcos (VOD, VZ, T) to the extent they're successful.

What ASTS Does:

AST Spacemobile is an LEO (low earth orbit) satellite business aiming to provide "gap cell coverage" for users who are away from cell towers (i.e. when you're fishing in remote areas or skiing in the mountains).  While they haven't been explicit on specifics, the idea is users could buy a day pass or subscribe monthly for off-grid coverage (maybe ~$10 for the day and a 50/50 split with the telco).

Key Problems with ASTS:

1. Expensive Satellite Network: They need at least 60 satellites to cover the northern hemisphere and 90+ more to cover the globe, each costing around $20 million to launch. That means they need an additional ~$1.5+ billion in funding. However, they only have $300 million on hand and are burning $30 million per quarter on G&A alone.
2. Small Addressable Market: Most people are near cell towers or Wi-Fi 99% of the time. The big tech companies (Meta, Google, Amazon) wouldn’t be as successful if mobile connectivity was a major issue. The real need for off-grid coverage is limited, and those who truly need it will likely opt for a real satellite phone, not a casual service like ASTS offers.
3. Years Away from Revenue: ASTS is likely years away from generating significant revenue, with their best-case scenario being a functional constellation in the U.S. by 2027. They will need significant additional capital, and their competitors are already far ahead.
4. Strong Competition:

• T-Mobile and SpaceX already offer off-grid coverage and give it away for free to customers.
• Apple has a deal with GlobalStar for emergency satellite services.
• Amazon’s Kuiper project is also heavily investing in satellite services.
• VSAT (and other satellite operators) are also moving to participate in the 'direct to cell' market

Even if ASTS raises enough capital to launch their network, they’ll face stiff competition by the time they're operational.

5. Uncertain Revenue Splits: ASTS needs telecom partners (like AT&T and Vodafone) for distribution and spectrum, but they haven’t disclosed the exact revenue splits (the original spac presentation in '21 said 50/50 but they are 'cagey' about it when you ask management today). It’s unlikely that big telecoms will allow ASTS to capture significant value (TMUS gives this benefit to subscribers for free via SpaceX, and AT&T has board influence over ASTS). Moreover, ASTS relies on SpaceX to launch its satellites, one of its biggest competitors.

Why the Stock Has Spiked:

• ASTS announced revenue agreements with AT&T and Verizon, and they recently launched their first 5 satellites. However, with just 5 satellites, they only provide about 15 minutes of connectivity twice a day, which isn’t useful.
• They plan to launch around 20 more satellites next year, meaning they’ll only be halfway to their goal by the end of 2025, assuming no delays.

Upcoming Catalysts:

1. Cash Needs: ASTS will need $600-800 million to cover the northern hemisphere, not including their G&A burn. They’ve filed a shelf offering, indicating they’ll likely raise equity soon (up to another ~$400mm per this filing).
2. Launch Delays: Any setbacks in their satellite launches could be detrimental.
3. Competitive Announcements: News from competitors like SpaceX, Amazon’s Kuiper, or Apple’s GlobalStar partnership could negatively impact ASTS.

Risks:

• There’s potential for a short squeeze, as ~25 million shares are short (about ~8% of the fully diluted company), which has already caused volatility.

Valuation:

Even with extremely generous assumptions around launch success (market size, market share, ARPU and revenue splits), ASTS is unlikely to generate more than $300 million in EBITDA in a best-case scenario, which might support a valuation of a few billion dollars in the future. With 312 million diluted shares outstanding (and likely more as they raise funds), the stock will ultimately be worth less than $10 per share (either files BK or gets sold for IP/assets), and I expect it will be less than $20 again in the not-too-distant future.

Conclusion:

With the stock spiking after the launch of 5 satellites, this presents an opportunistic time to get involved on the short side, as the company is far from generating significant revenue, burning cash, needs to raise cash, has questionable business model and TAM, and faces mounting competition.

Catalyst

Upcoming Catalysts:

1. Cash Needs: ASTS will need $600-800 million to cover the northern hemisphere, not including their G&A burn. They’ve filed a shelf offering, indicating they’ll likely raise equity soon (up to another ~$400mm per this filing).
2. Launch Delays: Any setbacks in their satellite launches could be detrimental.
3. Competitive Announcements: News from competitors like SpaceX, Amazon’s Kuiper, or Apple’s GlobalStar partnership could negatively impact ASTS.