First of all, I am young and full of cum, I started gambling in 2020 before the pandemic and have been looking for high potential long-term plays (peaked at $1 million, after starting with 1k).
Today, I will cover $ASTS, AST Space Mobile. The company will provide 5G capabilities to regular cellphones from space, they target the 5 billion phones moving in and out of coverage every day or in monetary terms $1T in TAM.
Why should you care?
The recent market hit to high growth/speculative plays has not spared ASTS. This has put the stock at a relatively attractive valuation at approximately $1.1B (cheaper than for PIPE investors who bought in 40% higher).
The company represents the most asymmetric risk/reward play on the market right now. It will either 20x-100x or go bust. Let me explain if they get only 1% of their TAM, which is ~$10B then at a cheap (assuming about 80% net margin, thanks to their 90% EBITDA margin) P/E ratio of 12x (telecom industry average is 30x according to Damodaran), it gives the company a $96B market capitalization, representing an >80x opportunity.
Alright… 100x if everything goes well, right?
Yes, let me tell you why I and many others think that the company will succeed. Because this is a highly speculative play and will give you a VC-like risk/reward exposure, I analyzed it like a VC using the BMC (desirability, feasibility, and viability).
Their satellites will offer services to large telecom companies, which will help telecom companies expand their subscriber base and have a unique competitive advantage against other carriers. Think of AST's satellites like 5G towers in space. Of the currently 5B existing end users, the company has 800M subscribers under exclusivity agreements with companies like Vodafone, AT&T, Rakuten, Telefonica, Ooredoo, Telstra, and others.
To put this a bit into perspective, the only other company really trying to achieve that is Lynk, but they have only $10M in funding compared to $510M for ASTS, and currently do not have any commercial agreements.
Customer Relationships & Channels
All the customer relationship services, as well as sales efforts, are done by the carriers. Basically, AST provides the 5G capability and the carrier offers it to its subscribers moving in and out of coverage. This is a good reason why the future cost structure of ASTS is so attractive.
Designed to eliminate coverage gaps and enable billions of people globally to stay connected through their mobile phones. Imagine watching hot tub streams on the plane.
In the value chain, AST designs, integrates and tests the satellites while their subsidiary Nanoavionics builds the main components. They will use any available launch services such as SpaceX, Blue Origin, GK Launch Services, Ariane, etc. The fact that they have a wide array of choices available greatly reduces successful launch risks. Moreover, the main reason why the space-based applications industry will absolutely explode in the coming years is the ever-decreasing launch costs (price to send a kg of payload in space).
Regarding financial and strategic partners, the company has received funding from Vodafone, Rakuten, American Tower, and Samsung in previous rounds as well as in the PIPE 12-month lock-up.
AST will design and integrate the satellites. The company's CEO Abel Avellan is also a big believer in creating huge barriers to entry, they patent a lot of the key elements of their business model.
Of course, their biggest focus is getting the service up and running by 2023. Abel is also working on new wireless carrier agreements. To give you an idea, on average 1 telecom adds around 200M subscribers.
Future agreements won't be mutually exclusive (like with Vodafone), so they can add as many carriers as they want.
Talent, technology, and funding.
Abel Avellan is not much of a salesman, but he is a genius, he seeded AST and was the main contributor to a lot of the technologies that enable the 5G satellites to work.
As mentioned previously, they managed to attract funding from Vodafone, American Tower, and Rakuten. Vodafone spent nearly 18 months doing due diligence on AST's technology and has concluded that it works.
For further funding, ASTS is participating in the $9B 5G rural fund for America. They currently have the support of 7 senators (bipartisan) and AT&T. In my opinion, there is the potential for AST to get about $1B in non-dilutive funding from the government, which would significantly accelerate the company's plan for global coverage.
Revenues come from an agreement with telecom providers, basically comes in the form of a monthly subscription fee. The end-user is seamlessly connected from towers on the ground to AST satellites.
Because the satellites are in LEO orbit, they will need to be changed every 5-7 years. The company is working on a way to repair/extend the lifetime of existing satellites.
Now let's talk about an important topic: Risk.
Launch delays for BW3 (final full-size prototype) might increase costs. especially as they are not the main ride on the launch vehicle. This is a risk in the short term as the launch is scheduled for Q2-Q3 2022.
Technology does not work. While I think this has been largely minimized after the successful launch of BW1, there are some smarter people that believe it is both effective and amazing.
The company does not get licenses to operate the frequencies in target countries. Abel and the Board of Directors are very well connected and they have the support of huge telecom companies like Vodafone.
End-users do not see value in extended coverage from their current carriers. Difficult to see why that would be the case.
Telecom companies do not see value in AST's offering. AST Space Mobile has already a lot of agreements in place that suggests otherwise.
From a risk perspective, technical and technological risks are quite high and are the big reason why the stock has not priced in the potential upside. The company could literally go to 0 (or close to it if they can sell some of their techs/patents/etc.). However, I believe the company offers a unique risk/reward ratio that is difficult to find on the market.
The long-term play
Shares, shares, shares.