Summary
- AST SpaceMobile stock is currently in a severe downtrend, trading at $2.81.
- The company reported a loss in the third quarter of 2023 and did not post any revenue.
- AST SpaceMobile completed a stock offering to raise capital, but weak demand for ASTS shares is concerning.
- What AT&T, BCE, and other partners indicate ahead of AST’s upcoming quarterly report.
- Looking for a helping hand in the market? Members of DIY Value Investing get exclusive ideas and guidance to navigate any climate.
Nearly five years ago, NPA I raised $230 million to form a special purpose acquisition company, or SPAC. In April 2021, the firm and AST I Science completed the $1.4 billion merger to form the firm, AST SpaceMobile, Inc. (NASDAQ:ASTS).
Now trading at $2.81 at the time of writing, ASTS stock is trading in a severe downtrend. The firm will post fourth-quarter earnings results post-market on Monday, April 1. What might AST SpaceMobile report that would attract buyers?
There are five considerations for readers.
1/ AST SpaceMobile’s Third Quarter 2023 Loss
In the third quarter, AST reported a 23-cent earnings per share loss. It did not post any revenue in the period, compared to $4.168 million in revenue the year before. Among the operating expense items, the depreciation and amortization of $19 million and engineering service costs of $19.52 million are the most notable. This is up from $1.17 million and $14.49 million last year, respectively.
On its conference call, Chairman and Chief Executive Officer Abel Avellan highlighted its space-based 5G capabilities and 40 megabits per second data rates. Participants involved in testing 2G, 4G, and 5G included its partners, Vodafone (VOD), Rakuten, and Nokia (NOK).
As a side note, readers should heed the warning that VOD stock is at high risk of cutting its dividend. Nokia, which failed to monetize its intellectual property fast enough, filed a patent infringement claim against Reddit (RDDT). Reddit recently completed its initial public offering with great success. RDDT stock traded as high as $74.90 on Tuesday, March 26.
The CEO said that it incurred around 85% of its planned capital expenditure for the five satellites planned for launch in Q1/2024.
The company ended the quarter ended Sept. 30, 2023, with cash of just $135.7 million. Unusually, the stock initially held its value on Jan. 2 when it said it would seek to close and fund a strategic investment.
2/ ASTS Stock Offering
Unable to absorb the size of the stock offering worth $100 million, ASTS stock slid after the pricing. The firm announced the pricing of 32.26 million shares at $3.10 per share. The size of the offering along with the low price is troubling. AST likely anticipated weak demand for shares. Fundamentally, the capital raised will ensure its solvency for several quarters. For example, the company lost $50.75 million in the last quarter. Its comprehensive loss attributable to common shareholders was $21 million.
The firm said on the conference call that it expects its adjusted operating expenses will fall in the range of $25 million to $30 million a quarter. Historically, it incurred expenses of $37 million to $40 million quarterly.
Once AST completes the launches, operating costs should fall steadily in the next one to three quarters.
3/ Opportunities
AST is confident that its partners will launch its services. For example, Vodafone (VOD) is considering offering its services to complement its market-leading terrestrial network. The CEO said that its partner would use:
“the first and only phase-based cellular broadband network to offer voice calls, SMS tests, video calls, Internet browsing, e-mail, music streaming, social media anywhere where the Vodafone subscriber may be located.”
AT&T (T) highlighted in its earnings call support for Direct 5G voice calls.
AST SpaceMobile’s Mobile Network Operators list includes Vodafone, Rakuten, AT&T, Bell Canada (BCE), Indosat, Liberty Latin America, LTC, MAXs, Micon, MTN, Muni, NISA, Optus, Orange, Salam, Safran, Smart, Smile Suntel FTC, Telecom Argentina, Telefonica, Telkomsel, Tetra team, Uganda Telecom, and Jazz.
AST SpaceMobile’s 5G cellular broadband design has unique qualities. In addition to over 3,100 patent and patent-pending claims, it has optimal manufacturing processing. In its upcoming Q1 report, review the company’s progress in its manufacturing activities at its Midland, Texas facilities. The company needs to forecast lower operating expenses as it leverages its high level of vertical integration throughout the manufacturing process.
4/ Quant Warnings On ASTS Stock
Seeking Alpha Quant issued a warning on ASTS stock.
The system flagged inferior profitability and negative EPS revisions. The firm has inferior profitability metrics compared to its peers in the Communication Services industry:
The stock earned a “Sell” quant rating. In that time, the stock lost 463% compared to the S&P 500 (SP500).
Seeking Alpha
5/ Related Investments
Investors may consider Bandwidth (BAND) or Lumen Technologies (LUMN) over ASTS stock.
In Q4 2023, Bandwidth posted a non-GAAP EPS of 38 cents. It forecasts Q1 revenue of up to $166 million, up slightly from Q4’s revenue of $165.39 million. Most importantly, the firm may achieve lower expenses from its cloud communications business. Helped by its innovation investments, profitability should expand in the next few quarters.
Lumen, which posted a strong fourth quarter, needs to explain its operating cash flow dynamics more openly. Until then, LUMN stock will trade in a $1.25 – $1.75 range for the foreseeable future.