AST SpaceMobile(NASDAQ: ASTS) is one giant leap closer to the finish line. Based on the news flow around the company's plan to build a space-based broadband cellular network, the shares were bid up to around $38 in mid-August. Then, as is so common on Wall Street, investors got bored and moved on. AST SpaceMobile's stock currently trades at around $24 per share. Is this an opportunity to buy the stock?
The big opportunity for AST SpaceMobile
AST SpaceMobile partnered with more than 45 mobile telecommunications companies around the world. The list includes giants like Verizon Communications(NYSE: VZ), AT&T(NYSE: T), Telefonica(NYSE: TEF), and Bell Canada, among many other names that cellphone users would know well. In total AST SpaceMobile's partners have around 2.8 billion global subscribers. That's the pond in which AST SpaceMobile can fish for customers.
Image source: Getty Images.
Those 45 telecom partners are all potential investors in AST SpaceMobile, too. Verizon and AT&T, for example, have already provided cash to the company to help it build out its space-based broadband cellular network. So not only do the company's partners bring potential customers, but they also bring financing opportunities.
As for the actual opportunity, AST SpaceMobile highlights that 90% of the Earth's surface doesn't have cellular coverage. It estimates that there are 5.6 billion mobile devices that move in and out of coverage. The only options today for customers who want to ensure continuous connectivity is to use a separate satellite phone or buy a Starlink (which is part of Elon Musk's privately held SpaceX) device, both of which require special hardware and additional business relationships. By contrast, AST SpaceMobile uses a customer's existing cellphone and the use of its service is handled through the customer's existing cellphone relationship. It is simply an add-on feature that can be bought for as little as a single day all the way up to a full monthly subscription.
This is a very exciting technology with the backing of very large telecom providers. No wonder investors got excited leading up to the launch of AST SpaceMobile's first five operational satellites. The long-term opportunity for the company does, indeed, sound very large and very attractive.
The reality of AST SpaceMobile's near-term service offering
Unfortunately, Wall Street has a very short attention span. And the shares have since begun to cool off as investors have moved on to the next big thing. Indeed, there's a subtle problem here. The first five satellites can only offer "non-continuous cellular broadband service across the United States and in select markets globally."
Essentially, AST SpaceMobile will have a service to sell after it gets the five satellites up and running. But it will be very limited in scope. To offer a full-fledged service management estimates that it will need 95 satellites floating around the Earth. There's a lot more work that needs to be done before the company's capital spending needs start to trail off.
Until it has all of those satellites in orbit, AST SpaceMobile will likely continue to bleed red ink. And the cost will be huge, based on management's $200 million estimated cost for just the next 20 satellites. A little back-of-the-envelope math, assuming costs stay the same (which is highly unlikely), suggests that the company has another $1.8 billion to spend before it has a full-fledged space-based broadband cellular network service to offer customers.
However, if you are a long-term investor, it might be better to see this pullback as an opportunity. That definitely requires a glass-half-full view of the situation. But AST SpaceMobile has clearly demonstrated that it can live up to its promises, so it's not unreasonable to have a positive view of things. With a practically built-in pool of potential customers, there's a very real chance that AST SpaceMobile can, someday, generate a very large recurring stream of cash. So this pullback could very well end up being a good chance to invest in a start-up business with huge growth appeal.
Volatility is not uncommon in the early years
The stock prices of young and fast-growing companies often move higher in a jagged fashion. So the pullback in AST SpaceMobile's shares could easily be followed by another lurch higher, potentially past the recent high-water mark. Of course, there are no guarantees, but with such a large collection of partners and a service that is a simple add-on to an existing cellphone plan, it seems like AST SpaceMobile's rocket trips (delivering satellites into space) could be just one of the things that are moving upward in an awe-inspiring fashion with this company.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
