Prediction: AST SpaceMobile Will Sell a Lot of Stock (If It's Smart)

From an initial public offering (IPO) price near $10 in 2021 to its post-IPO nadir closer to $2 earlier this year, direct-to-cell (DTC) satellite communications company AST SpaceMobile (NASDAQ: ASTS) has taken investors on quite the wild ride these past few years.

Thanks largely to support from big telecom names like AT&T (NYSE: T) and Verizon (NYSE: VZ) , however, AST stock went parabolic in 2024. The company's gone from operating a single experimental BlueWalker communications satellite (comsat) to building five fully functional comsats ready to launch in September. It's won Federal Communications Commission (FCC) approval to launch and operate the satellites and is looking very likely to begin beta service before the end of the year.

Oh! And AST's stock price has exploded 13x in size, from $2.21 back in April to more than $29 this past Thursday. Today, I'll argue that the next step in AST's saga should be to sell a lot of that stock, cash in the gains it's made this year -- and thereby secure its future for years to come.

From skeptic to...still skeptical, but less so

I admit that I was skeptical when AST SpaceMobile first announced plans to hold an IPO back in 2021. AST burst onto the space scene making some very big boasts, after all, promising to go from a no-name special purpose acquisition company (SPAC) stock worth less than $400 million to create "the first and only space-based cellular broadband network accessible directly by standard mobile phones."

AST said it would target a market of "five billion mobile subscribers," making up a "$1 trillion global mobile wireless services market." It promised to capture this market with the use of "an extensive IP and patent portfolio," enabling "seamless broadband cellular connectivity directly to unmodified, existing mobile phones, without any need for specialized hardware."

But AST declined to specify exactly how its technology worked, explaining that it was "highly proprietary, and exactly how it works cannot be disclosed." Suffice it to say that explanation didn't inspire confidence.

And yet, within just a couple years of IPO'ing, AST succeeded in placing the first-in-history DTC phone call from one off-the-shelf cellphone to another, with nothing but a BlueWalker satellite in between. One year later, the contracts began rolling in, as AT&T and Verizon (and others) lined up to sign $100 million-plus contracts to secure access to AST's network through 2030.

Today, S&P Global Market Intelligence puts AST's implied market capitalization at $8 billion. And with $285 million in cash on its balance sheet -- more cash than it has debt, in fact -- AST seems ready to get down to business.

So, what's next for AST?

It's time to sell some stock

In its March 2024 10-K filing with the Securities and Exchange Commission (SEC), AST put the cost of "assembly, integration, testing and launch" of its first five Block 1 BlueBird (BB) satellites at approximately $115 million -- so, $23 million per comsat. The company further stated it needs between $350 million and $400 million to build, launch, and operate its next 20 Block 2 BlueBird (BB) satellites -- $17.5 million to $20 million per satellite.

As volume production kicks in, prices are expected to decline, but not by much. AST estimates the first 95 Block 2 BB satellites will cost $16 million to $18 million per satellite. That works out to at least $1.6 billion in near-term capital requirements. Eventually, the company wants to put about 168 satellites in orbit. This all implies a need to raise something on the order of $3 billion in new funds to build out the satellite network entirely.

The $285 million that AST currently has on hand won't suffice. The $200 million or so AT&T and Verizon are promising likewise won't help much. What would help AST out would be if it announced a large sale of stock at its new and improved share price.

A sale of 55 million new shares, for example, could raise the $1.6 billion AST needs to build and launch its first 100 satellites. A sale of 100 million new shares (64% of shares outstanding but only 36% of implied shares outstanding, according to S&P) would raise the entire $3 billion AST will need to complete its satellite constellation.

Caveats and provisos

Does AST absolutely need to sell so many shares and raise all this cash all in one go? No, it doesn't. AST could sell shares in drips and drabs over the course of a few years and spread out the stock dilution pain as it scales up its operations.

But that would run the risk of having to sell future shares at lower prices should the stock stumble at some point -- for example, if a rocket launch goes awry or troubles emerge in scaling the business. Shareholders, too, might tire of enduring incessant rounds of stock dilution . (Investors in fellow SPAC IPO Lucid (NASDAQ: LCID) can tell you all about this.)

From my perspective, it's better to rip the bandage off right now, get the dilution out of the way, and secure all the money AST will ever need to make its project a success -- all in one go.

Given AST's enormous cash requirements and its current inability to generate cash without selling shares, this really is the most shareholder-friendly move AST could make: Take advantage of its sharp stock price run-up today so it can focus on building the business tomorrow.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy .