By Magdalena Del Valle, Bailey Lipschultz and Bruce Einhorn
AST SpaceMobile Inc., the small telecom company that wants to compete with SpaceX, has become one of the most traded stocks in the world this year, soaring from $2 to $28 in just six months.
Now, it faces a key test on the road to vindicating its breakthrough and proving the skeptics wrong. On Thursday morning, AST is scheduled to launch its first five commercial satellites into low-Earth orbit from Cape Canaveral, Florida, aboard a SpaceX rocket.
AST stock is up about 1,300% since hitting a record low in April and is the best performer in the small-cap Russell 2000 index over the past six months. However, more than 20% of its outstanding shares are sold short, a figure that has remained fairly constant for a while and indicates that there is some skepticism about the stock’s prospects but that can also lead to outsized positive reactions for the stock.
AST went public in April 2021 after merging with special purpose acquisition company New Providence Acquisition Corp. The stock closed its first day of trading at nearly $12 but then began a long decline, eventually briefly dipping below $2 on April 2 and 3 of this year.
A month later, things began to change. First, AST reached a deal with AT&T Inc. on May 15 to partner on providing wireless services from space, putting it in competition with Musk’s Space Exploration Technologies Corp., which has a similar deal with T-Mobile US Inc. Two weeks later, Verizon Communications Inc. said it would invest $100 million in a partnership, sending its stock price soaring.
On Aug. 19, AST shares hit a high of $38.60, sending them up more than 1,800% from their April low. They have since pared some of that gain, but are still up substantially. Shares rose 6.9% on Wednesday and closed at $27.90.
“Part of the recent rally was simply a recognition of the work the company has been doing for years,” Scotiabank analyst Andres Coello said in an interview. “The stock should never have fallen to $2.”
Now, the Midland, Texas-based company is facing something of a “show me” moment with its satellites, which are about the size of a one-bedroom apartment, ready for launch. AST is one of a handful of companies attempting to provide broadband cellular connectivity via low-orbiting satellites rather than cell towers. Eventually, it plans to have dozens of satellites orbiting more than 300 miles above Earth.
“We have combined a strong commercial strategy with innovative technology that we believe will successfully drive this mission forward,” the company said in a statement to Bloomberg News.
‘Flying cars’
“It offers an amazing technology that is extremely broad in scope, extremely scalable and extremely critical,” Kevin Mak, director of the Real-Time Investment and Analytics Lab at Stanford University’s Graduate School of Business, said in an interview. “It’s the equivalent of flying cars, of saying, ‘Oh, by the way, we have flying cars, and they’ll be available to use tomorrow.’”
However, there are still skeptics.
“The valuation here incorporates an incredibly optimistic scenario that I don’t think will materialize and I think investors are going to be disappointed,” said Sahm Adrangi, founder of Kerrisdale Capital Management, which is short AST. “We’re a long way from figuring out whether their business model and ambitions are possible in any kind of economic way. We won’t know after this launch, we won’t know after the next launch. We don’t know who the winners will be or how long it will take.”
That said, betting against AST has been a poor strategy this year. Investors who are short the company’s stock have racked up paper losses of more than $600 million over the past six months, according to data from Matthew Unterman, chief executive of S3 Partners LLC.
Five Wall Street analysts cover AST stock, according to Bloomberg, and all of them have buy ratings and price targets that indicate a 57% upside in the stock price over the next year. All of the firms Bloomberg follows and covers the stock have had at least investment banking relationships with the company previously.
Deutsche Bank analyst Bryan Kraft recently raised his target for AST to a Wall Street-high $63 from $22, saying the stock merits a new valuation methodology given the company’s improved risk profile.
With the upcoming launch, AST has a chance to demonstrate what its technology can do. “These five satellites will be the real proof of concept,” said Stanford’s Mak.
SPAC Success
AST management has long touted ambitious goals. A slide presentation accompanying the company’s SPAC announcement projected more than $16 billion in revenue by 2030. During the first half of this year, AST generated $1.4 billion in sales. And it’s on track to fall short of initial estimates of more than $1 billion in annual revenue by the end of 2024.
Still, the stock’s move stands out as a relative success story at a time when other space-related SPACs have floundered. Planet Labs PBC, which went public in 2021 and rose to $11.84, is now trading around $2. And Terran Orbital Corp. shares, which traded as high as $11.80 in March 2022, are now trading at about 25 cents.
AST shares fell late last week after the company filed to sell up to $400 million of shares in a so-called at-the-market program, which allows its bankers to create shares for sale without having to file further paperwork.
The financing facility isn’t a sign that stock selling has begun, and many companies apply for facilities and never move to take advantage of them. Still, it’s a move that has been a hallmark of meme stocks like GameStop Corp. and AMC Entertainment Holdings Inc.
“We have had a balanced capital raising strategy, including prepaid capital along with commercial agreements with our partners and we have access to various capital markets,” the company said in a statement.
In the meantime, AST is focused on building its next 17 satellites, CEO Abel Avellan said on an earnings call last month. The company expects it will ultimately need 45 to 60 satellites to provide continuous service in the continental United States.
“Satellites are a very important additional proof of concept,” said Brian Macauley, a portfolio manager at Hennessy Funds, which had a position in AST as of June 30. “But if there are some challenges, the company has money in the bank to improve and launch many more BlueBird satellites. This is an iterative process. They have plenty of opportunities to get things right.”
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First published: September 12, 2024 | 9:04 am IS
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