Global Mobile Data Demand And Satellite Network Expansion Will Drive Long-Term Opportunity

Catalysts

About AST SpaceMobile

AST SpaceMobile is developing a global space based cellular broadband network that connects directly to everyday mobile phones for voice, text and data services.

What are the underlying business or industry changes driving this perspective?

• Definitive commercial agreements with major mobile network operators such as Verizon, AT&T, Vodafone and stc, together with more than 50 partner MOUs covering nearly 3 billion subscribers, provide a multi year visibility path for service activation that supports durable revenue growth and higher earnings power.
• The rapid expansion of global mobile data usage and persistent coverage gaps in both developed and emerging markets positions AST SpaceMobile to monetize its first mover advantage in direct to device connectivity, potentially lifting top line growth as contracted commitments convert into usage based service revenue.
• Vertically integrated manufacturing with a targeted cadence of six BlueBird satellites per month and plans for 45 to 60 satellites by the end of 2026, scaling toward 90 to 100 satellites, should drive operating leverage and improve net margins as capital intensity per unit of capacity declines over time.
• Long term access to extensive spectrum assets, including Global S Band priority rights and L Band usage in the U.S. alongside tunable low band and mid band MNO spectrum, combined with an AI driven spectrum management engine, is expected to raise network capacity and utilization, supporting higher average revenue per user and expanding gross margins.
• A strong balance sheet with approximately $3.2 billion of cash and liquidity and over $1 billion of contracted commercial revenue commitments allows the company to fund its initial worldwide constellation without near term dilution pressure, enabling a cleaner translation of future service ramp into improving free cash flow and earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming AST SpaceMobile's revenue will grow by 385.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1639.6% today to 99.7% in 3 years time.
• Analysts expect earnings to reach $2.1 billion (and earnings per share of $3.1) by about December 2028, up from $-303.8 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $55.4 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.1x on those 2028 earnings, up from -70.1x today. This future PE is greater than the current PE for the US Telecom industry at 9.3x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is moving from an R&D focused start up to an operating business while rapidly scaling to 45 to 60 satellites by the end of 2026 and over 90 to 100 satellites thereafter. Any launch delays, manufacturing bottlenecks or cost overruns in this capital intensive buildout could slow the planned service ramp and pressure revenue growth and earnings.
• AST SpaceMobile is committing over $21 million to $23 million per satellite and expects capital expenditures of $275 million to $325 million per quarter with a constellation funded by significant convertible debt. If utilization of the constellation or pricing falls short of expectations, the company may struggle to earn adequate returns on invested capital, compressing net margins and delaying the path to positive free cash flow and earnings.
• The long term growth thesis relies on deep partnerships with more than 50 mobile network operators covering nearly 3 billion subscribers and over $1 billion of contracted revenue commitments. If partners adopt competing direct to device offerings, renegotiate terms or under prioritize marketing of satellite services, actual service usage could lag commitments, limiting realized revenue and the scalability of earnings.
• The strategy depends on long term access to spectrum assets such as Global S Band priority rights and U.S. L Band usage rights, together with tunable low band and mid band MNO spectrum. Adverse regulatory decisions, delays in FCC approvals or geopolitical shifts could constrain usable spectrum or add compliance costs, capping network capacity and weighing on gross margins and revenue growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $71.51 for AST SpaceMobile based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $95.0, and the most bearish reporting a price target of just $43.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 14.1x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $75.84, the analyst price target of $71.51 is 6.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.