AST SpaceMobile, Inc.

Moat: 1/5

Understandability: 4/5

Balance Sheet Health: 2/5

AST SpaceMobile is a company aiming to build a space-based cellular broadband network, intending to provide global cellular access to standard mobile phones.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

AST SpaceMobile’s core business is to design, manufacture, and launch satellites to provide cellular broadband service directly to existing mobile phones. They aim to bridge connectivity gaps, particularly in areas lacking traditional cell towers. This would allow for continuous global connectivity for all kinds of cellular devices, regardless of location.

Revenue Model: The company intends to generate revenue from wholesale service agreements with Mobile Network Operators (MNOs), who will in turn sell services to their subscribers. They may also sell their services to government, first responders, or other non-MNO clients, although not very prevalent so far.
Geographic Reach: While the ultimate goal is global coverage, the company’s initial focus is on areas that lack adequate terrestrial cell infrastructure, potentially starting with high-growth developing countries and areas where satellite connection makes the most sense. Currently focused on deployment in US, Japan, Africa, and Europe.
Technology: AST SpaceMobile uses highly advanced, proprietary satellite technology and aims to use existing phones with no extra hardware needed. This means it has to be interoperable with the major telecom frequencies and has to be able to use that for 4G/5G.
Competitive Landscape: ASTS operates in a complex competitive landscape with both terrestrial-based and satellite-based solutions. Terrestrial mobile networks, of course, have their strengths in densely populated areas, but do not reach everywhere due to costs. Satellite mobile providers, such as Starlink and Iridium, have coverage, but are expensive, generally need more specialized hardware, and offer low bandwidth, compared to ASTS’ proposition which aims for direct connection to phones, providing higher bandwidth and lower cost. ASTS has many agreements with mobile network operators which give a head start in terms of acquiring customers. Their patents and technologies are also hard for others to replicate at a low cost.
Recent Developments: ASTS had to push back launch of its 5 BB satellite from the end of Q4 2023, to H1 2024. However, during the recent earnings calls they have stated that they are on track for testing the satellite in the early months of 2024. They also have made agreements with several new partners in manufacturing as well as for distribution. They also secured more funding from various companies.

Moat Assessment:

AST SpaceMobile’s potential moat is weak and very uncertain. Here’s a breakdown:

Intangible Assets (Weak): While they have patents on their technology, these patents haven’t proven if they can offer a superior service with their satellite tech. As mentioned above, their technology is extremely complex. The telecom sector is littered with companies with patented tech that ultimately failed.
Switching Costs (Low): Customers can switch to competitor networks with relative ease unless they sign a long-term service agreement. However, in the initial stages, the service will likely be offered to MNOs, not directly to consumers, which are also susceptible to other companies and offers. Thus they do not have any significant switching costs.
Network Effects (Potentially Strong, but Long-Term Uncertainty): A larger network may lead to more subscribers, and lower costs per user, but they do not have this advantage yet, their network is still in construction and can be easily copied by rivals if it proves to be a good model.
Cost Advantages (Potentially Strong, but Not Proven): In theory, the technology is aiming for low cost as it leverages existing phones, but the complexity involved might create massive financial drawbacks for the company. Also the manufacturing process is quite complicated which can be a source of high cost.
Overall Moat Rating: 1/5. ASTS is operating in a new area, therefore there is high uncertainty over the durability of their business model as well as its underlying technologies.

Risks to the Moat and Business Resilience:

ASTS faces a high risk profile. Here are the primary threats:

Technological Risk: The SpaceMobile technology is extremely new and complex. They have to ensure the satellite network will work as expected, they need to get it operational quickly for investors to retain faith, also they need to keep the technology cutting edge so that it doesn’t get made obsolete quickly by other technology companies. This involves all aspects of hardware, software, and other component technology. These present a high risk if they have difficulty in any aspects of development.
Financial Risk: The high cost of launching and operating a satellite network, coupled with its pre-revenue stage, leaves the company financially vulnerable and dependent on continued fundraising. The lack of positive cash flow and reliance on external funding increases vulnerability. Also because their customers are MNOs, they might find them reluctant or slow to adopt the technology in case of a potential downturn in consumer economy.
Competition: Many other players exist that can provide communication services through satellites. ASTS might fail to become dominant because other companies become more successful in providing better speeds and coverage, as well as costs to customers.
Regulatory Risk: Regulatory approval is mandatory in various countries. Any delays or failures can significantly hurt the company’s ambitions. Regulatory hurdles are different in every country and are always changing, and ASTS might need to spend a lot of money to comply with different laws and requirements.
Implementation Risk: The scale and speed required to complete a functional global network of satellites poses major difficulties. It is also important to build local partnerships, develop reliable data networks with partners, and market the service to many customers. All of this poses serious challenges to the company to be able to fulfill.
Market Adoption Risk: Although mobile network operators have shown strong interest in the company, they are not end consumers and might not accept the service or may charge very low costs from final consumers which might hamper the growth of ASTS’ business. If consumers choose not to utilize the service, or prefer more traditional avenues, ASTS might have a hard time making profits.
Execution: All these potential advantages have to be executed well for success to occur, therefore a lot depends on company’s management, experience, and skill. Their execution is yet to be tested and has to be monitored closely.

Financial Deep Dive

The most recent quarterly report has been looked at. Here is the analysis:

Revenues: Since the company is still in its development phase, the revenues are $0, as is expected of a company before a functional launch of satellites.
Operating Expenses: They are still very high due to continued R&D and operational spending. For the three months ended September 30, 2023 the company’s total operating expenses were $66.0 million. This indicates that the company’s management has no control over expenses and spending. Although that’s expected for a pre-revenue company, it can create issues and is important to note. However, their expenses are significantly down compared to 139 million in the nine months of 2022, this is because they have reallocated their expenditures into core business areas. Also they mention that they are streamlining the operations which should further bring down expenses in the next few quarters.
Net Loss: The company’s net loss was massive at $131.6 million for the three months ended September 30, 2023. However, this loss is significantly better compared to a net loss of 335 million in the nine months of 2022, again a similar theme.
Cash: Despite high losses, they still have enough cash, mainly due to consistent fundraising activities. As of September 30 2023, their cash equivalents stood at $310 million, but that is likely to fall in the coming months. Cash flows from operations also are not sufficient, therefore it indicates that the business might need to raise more capital to maintain operations, and that it needs to be constantly and vigilantly monitored.
Debt: ASTS has a long history of raising debt but has started to consolidate that debt structure and look for favorable terms. They have debt worth $71.4 million, as of September 30 2023, which does not seem too large for the company’s size and operations. However if the operations are not successful and do not improve, the debt repayments will put an additional burden on the company.
Valuation: The valuation is very risky due to the fact that company is not generating profits, still burning cash, as well as the uncertainty of future success.

Understandability: 4 / 5

AST SpaceMobile’s business model is reasonably straightforward to grasp at a high level: a satellite network to provide cellular access to normal cell phones. However, the underlying engineering, technology, and financial intricacies are extremely complex, making it harder to understand their business thoroughly. Although the business proposition is easy to understand, the underlying complexities, combined with many technical aspects and high uncertainty, gives it a rating of 4/5.

Balance Sheet Health: 2 / 5

ASTS’ balance sheet is weak and faces high financial risk, due to its reliance on external funding, low cash-to-asset ratio, and negative earnings. A major problem is that they have negative operating and net income, so they rely heavily on debt and stock offerings. Given the high expense base, the company’s burn rate is rather alarming. Their success hinges on being able to generate revenues quickly. They also have to deal with very strict capital requirements. There is also a lot of debt, although their debt situation is stable. The company also needs to provide tangible results to maintain investor confidence. The cash on hand provides them some time to do all this. Based on all this, I am rating their balance sheet health a 2/5.

Recent Problems and Concerns

Launch delays: Their biggest problem currently is the launch delays of BlueBird1, which is extremely important for testing the technology.
Execution risks: There are several problems relating to the execution and the scale of the project, especially regarding the manufacturing of satellites.
Dilution of shareholders: They are constantly raising money through debt and stock offerings which will ultimately dilute the current investors, if operations and financials do not improve.
Low revenue: While the company has been trying to make partnerships, it still has almost no revenue, which is a cause for concern. The financial reports are also difficult to analyze which leads to further uncertainty.

In the last earnings call, the management mentioned:

They expect BlueBird-1 to be ready in H1 2024, therefore they may conduct first tests and start to achieve revenues from initial tests in late 2024.
They have secured new partnerships as well as funding for growth.
They are streamlining the operations which should lower expenses going forward.
The management seems confident in the technology despite delays.

Disclaimer: This is not a financial advice, nor am I a financial advisor. Please do your own research before making any investment decisions.