(Bloomberg) — AST SpaceMobile Inc., the small telecom company aiming to compete with SpaceX, has become one of the world’s hottest stocks this year, after rising from $2 to $28 in just six months.
Most read from Bloomberg
Now it faces a major test on the road to justifying its massive rally and proving skeptics wrong. On Thursday morning, AST will launch its first five commercial satellites into low-Earth orbit from Cape Canaveral, Florida, aboard a SpaceX rocket.
Shares of AST have risen about 1,300% since hitting a record low in April, the best performer in the small-cap Russell 2000 Index over the past six months. However, more than 20% of the float is sold short, a figure that has been fairly consistent for some time and indicates some skepticism about the stock’s prospects but can also lead to outsized positive reactions to the stock.
AST went public in April 2021 after merging with special purpose acquisition company New Providence Acquisition Corp. The stock closed its first trading day 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, on May 15, AST reached an agreement with AT&T Inc. to collaborate on providing wireless services from space, competing 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 August 19, shares of AST hit a high of $38.60, up more than 1,800% from their April lows. They have since pared some of that gain, but are still up significantly. The stock rose 6.9% on Wednesday, closing at $27.90.
“Some of the recent rally was just 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 gone to $2.”
Now the Midland, Texas, company is facing a kind of “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 trying to provide broadband mobile connectivity via satellites in low Earth orbit instead of cell towers. Eventually, it plans to have dozens of satellites orbiting more than 300 miles above the Earth.
“We have combined a solid business strategy with innovative technology that we believe will make this mission successful,” the company said in a statement to Bloomberg News.
‘Flying cars’
“It’s a great technology that’s extremely broad, extremely scalable, and extremely critical,” Kevin Mak, director of the Real-Time Analysis and Investment Lab at the Stanford Graduate School of Business, said in an interview. “It’s the equivalent of flying cars — of, ‘By the way, we have flying cars, and they’re going to be available for use tomorrow.’”
However, there are still doubters.
“The valuation here represents a surprisingly rosy scenario that I don’t think will play out and I think investors will be disappointed,” said Sahm Adrangi, founder of Kerrisdale Capital Management, which is known as AST. “We’re a long way from knowing whether their business model and ambitions are in any way economically feasible. We won’t know after this launch, we won’t know after the next launch. We don’t know who the winners are going to be or how long it’s going to take.”
That said, betting against AST has been a bad trade this year. Investors shorting 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, managing director at S3 Partners LLC.
AST has five Wall Street analysts covering the stock as tracked by Bloomberg, all with buy ratings and price targets indicating a 57% upside in the stock price over the next year. All of the firms tracked by Bloomberg that follow the stock have had at least a past investment banking relationship with the firm.
Deutsche Bank analyst Bryan Kraft recently raised his price target on AST from $22 to $63, a high on the stock market. He said the stock merits a new valuation methodology given the company’s improving risk profile.
With the upcoming launch, AST has a chance to show what its technology can do. “These five satellites will be the real proof of concept,” Stanford’s Mak said.
SPAC success
AST’s management has had lofty goals for some time. A slide deck accompanying the company’s SPAC announcement predicted more than $16 billion in revenue by 2030. In the first half of this year, AST generated $1.4 million in sales. And it’s on track to fall well short of initial estimates of more than $1 billion in annual revenue by the end of 2024.
Still, the stock move stands out as a relative success story at a time when other space-related de-SPACs have crashed. Planet Labs PBC, which went public in 2021 and rose to $11.84, now trades for about $2. And Terran Orbital Corp. shares, which traded as high as $11.80 in March 2022, are now trading for about 25 cents.
AST shares fell late last week after the company filed a request to sell up to $400 million worth of stock in a so-called “at-the-market” program, which allows bankers to create shares for sale without having to file more paperwork.
The financing mechanism isn’t a signal that the stock sale has begun, and many companies apply for facilities and never act on them. Still, it’s a move that’s been a calling card for meme stocks like GameStop Corp. and AMC Entertainment Holdings Inc.
“We have pursued a balanced strategy to raise capital, including upfront payments alongside commercial agreements with our partners, and have access to various capital markets,” the company said in a statement.
Meanwhile, AST is focused on building the next 17 satellites, CEO Abel Avellan said during an earnings call last month. The company expects it will eventually need between 45 and 60 satellites to provide continuous service in the continental U.S.
“The 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 still improve and launch a lot of BlueBird satellites. This is an iterative process. They have a lot of shots on goal here to get it right.”
–With assistance from Peyton Forte, Carmen Reinicke and Bre Bradham.
Most read from Bloomberg Businessweek
©2024 Bloomberg LP
