AST SpaceMobile (NASDAQ: ASTS) might someday be known as a pioneer of satellite-based connectivity. For now, however, the company is just struggling to stay afloat financially. I am bearish on AST SpaceMobile stock even though I respect the company’s ambitious vision. AST SpaceMobile and its starry-eyed investors might have lofty dreams, but harsh reality will sink in if the company can’t fund its operations without resorting to massive share printing.
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Texas-headquartered AST SpaceMobile is trying to do what’s never been done before on such a large scale: build a cellular broadband network for mobile phones that’s run by satellites in space. This would be a blessing for people living in remote, hard-to-reach parts of the world where 5G connectivity is difficult or impossible.
It’s a lofty ambition, and I’m rooting for AST SpaceMobile to succeed, but that’s quite different from staking money on the company. The last thing any investor needs now is to wager on a business that’s too early in an emerging field. It’s better to wait until there’s a better-capitalized company with a profitable profile or at least a fair chance of becoming profitable soon.
The Good News: AST SpaceMobile Successfully Launched a Test Satellite
In AST SpaceMobile’s third-quarter 2022 business update, the company spent a lot of time touting its operational achievements. You’ll have to scroll down toward the bottom to learn about AST SpaceMobile’s revenue and profits (or lack thereof) – but we’ll save that data for the “bad news” section.
Still, a fair and balanced discussion of AST SpaceMobile means that I must congratulate the company for successfully launching the BlueWalker 3 test satellite from Cape Canaveral, Florida. In a separate press release, AST SpaceMobile described BlueWalker 3 as spanning 693 square feet when fully unfolded. Furthermore, the satellite is “expected to have a field of view of over 300,000 square miles on the surface of the Earth,” according to the company.
Looking ahead, AST SpaceMobile is preparing to launch not just one satellite but a full constellation of them. Specifically, the company plans to launch five Block 1 BlueBird satellites in late 2023. Exciting stuff, right?
Check the Financials before Investing in ASTS Stock
Sure, launching five next-generation telecommunications satellites into space is exciting to think about. However, no mission will be accomplished without capital, and any prospective investor should look closely at AST SpaceMobile’s financials before considering an investment.
You know it’s probably not a good sign when you have to scroll down a company’s quarterly update to find out whether it’s profitable or not. As it turns out, AST SpaceMobile swung from a net income of $4.115 million in Q3 2021 to a $9.766 million net loss in Q3 2022.
The company’s capital position also appears to be dwindling. Specifically, AST SpaceMobile had $321.787 million in cash and cash equivalents as of December 31, 2021; fast-forward to September 30, 2022, and that figure was down to $198.869 million.
AST SpaceMobile Printed Millions of Shares to Raise Capital
Clearly, AST SpaceMobile’s capital position isn’t heading in the right direction. Printing and selling millions of shares is a quick-and-dirty way to “fix” this problem, but it’s not a good long-term solution.
Not long ago, AST SpaceMobile closed an offering of 13,636,364 stock shares in order to raise $75 million. The company might also end up selling an additional 2,045,454 shares and thereby receive another $11.25 million in gross proceeds.
The ideal way to raise capital is by selling lots of products and/or services, not by selling millions of shares. AST SpaceMobile said, “We welcome all of our new stockholders,” in the press release, but what about the people who already bought and held the company’s shares? Now, they’ll be a smaller part of a bigger crowd of shareholders.
Don’t be surprised if AST SpaceMobile resorts to this capital-raising tactic again someday, maybe even multiple times. It’s an “easy” solution that’s not a proper replacement for profits driven by robust sales and controlled expenditures.
Is ASTS Stock a Buy?
Turning to Wall Street, ASTS stock has a Strong Buy consensus rating based on three Buys assigned in the past three months. The average ASTS price target is $20.67, implying over 358% upside potential.
Conclusion: Should You Consider AST SpaceMobile Stock?
ASTS stock has performed poorly year-to-date, and don’t expect a miracle in 2023. I might change my bearish stance on AST SpaceMobile someday, but not as long as the company’s bottom-line stats are getting worse.
Meanwhile, I’ll root for the company to succeed in its mission to bring 5G connectivity to remote regions of the world through innovative satellite technology. However, while the company resorts to supersized share sales to raise capital, I expect nothing from ASTS stock except a failure to launch.
