AST SpaceMobile Inc (NASDAQ:ASTS): A Bearish Investment Perspective

We came across a short thesis on AST SpaceMobile Inc (NASDAQ:ASTS) on ValueInvestorsClub by Flaum. In this article we will summarize the bears’ thesis on ASTS. The company’s shares were trading at $29.83 when this thesis was published, vs. closing price of $21.10 on Dec 31^st.

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AST SpaceMobile Inc (NASDAQ:ASTS) is a satellite designer and manufacturer building a cellular broadband network in space to operate directly with standard, unmodified mobile devices, and off-the-shelf mobile phones based on extensive IP and patent portfolio. The company’s primary focus has been on eliminating the connectivity gaps faced by mobile subscribers and bringing broadband connectivity to billions of unconnected people. In simpler words, ASTS aims to provide cell coverage for users who are away from cell towers; think of the situations when you’re fishing or skiing in remote areas but still need cellular connection.

Despite an ambitious business plan, the biggest problem that ASTS faces is the lack of funding to finance the network of satellites required to cover the globe – the company needs more than 150 additional satellites, each costing at least $20mn, bringing the total financing requirements to more than $1.5bn vs. only $300mn of cash available on hand. Furthermore, the business outlook is limited by a relatively small total addressable market – most people are 99% of their time near cellular towers or on Wi-Fi, which makes the demand for off-grid coverage rather limited. Third, ASTS is still far from generating significant revenue to finance its operations and Capex requirements, all while facing strong competition from already established giants like T-Mobile, SpaceX and even Apple. Finally, ASTS is very likely to give up a significant share of its revenues to telecom partners like AT&T and Vodafone for distribution and spectrum – the company hasn’t yet disclosed the terms of the contracts, but odds are that telecom operators will not allow ASTS to capture significant value in this business.

All in all, the May-through-August surge in stock price has put ASTS at overvalued levels, and the author believes that such catalysts as significant cash needs to finance Capex, launch delays and advancements from competitors will put the stock back below $20.00 in the not-so-distant future.

While we acknowledge the potential of ASTS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ASTS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.