Why AST SpaceMobile Stock Shot 40% Higher in August
In the run-up to AST SpaceMobile's (NASDAQ: ASTS) most important satellite launch to date, investors piled into the stock. Shares of the company soared 40.4% in August, according to data provided by S&P Global Market Intelligence. That came as the maker of satellites for space-based cellular broadband prepares for the launch of its first five commercial satellites as early as this week.
But investors may have gotten ahead of themselves by jumping into AST's stock. Some of those gains have been erased as the stock has dropped by 10% in the first week of September.
The drop was the result of the company announcing plans to raise fresh capital. A look at the August spike and subsequent pullback can help investors understand what may be in store for this growing space-sector name.
Global internet from space
The launch window opens Sept. 12 for AST SpaceMobile's five BlueBird satellites to launch on a SpaceX rocket. They'll represent the company's initial array of commercial satellites as it begins to build a network that would be the sole space-based cellular broadband network to provide internet access directly to smartphones globally.
Its network will differ from what SpaceX is already offering with its Starlink network, as the latter service requires users to purchase a satellite dish. AST's market could be much larger, as it will reach cell phones directly. AST estimates that even with more than 5 billion cellular subscribers, over 3.5 billion of them weren't subscribed to cellular broadband.
In the recent update for the launch, AST founder and CEO Abel Avellan stated, "We believe space-based broadband cellular connectivity will revolutionize how people connect, empowering communities and driving economic growth on a global scale."
Launching satellites isn't cheap
The company's plan to build and launch a satellite network will be expensive. AST is already working on building the next block of 17 BlueBird satellites. And in the final days of August, the company said it would redeem warrants issued when the company went public more than three years ago through a merger with a special purpose acquisition company (SPAC).
That will add more than $155 million and result in over $440 million in cash on its balance sheet. But it will also dilute existing shareholders as the company issues new shares to warrant holders. That led some investors to take profits after the stock's sharp run higher in August.
Long-term investors shouldn't worry about the dilution. Owning shares in AST SpaceMobile will require a good level of risk tolerance on both operational and financial levels. If the company succeeds in providing billions more smartphone users access to the internet, it should be a winning investment.
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Howard Smith has positions in AST SpaceMobile. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
