Why AST SpaceMobile Stock is So Appealing to Investors
A media pundit once referred to the Nanalyze brand as “iconoclastic.” We know what you’re thinking. What sort of tool would use such a word? There’s a fine line between how many fancy words make for a great read and how many are just wasted on the 95% that didn’t go to Hahvud. Is the word iconoclastic a bit too iconoclastic? Here’s a definition from The Ministry of Truth, Google.
One of the synonyms for iconoclastic is irreverent, which is the word we use most often to describe our propensity to offend everyone equally. Other adjectives that are equally accurate include “critical,” “skeptical,” and “questioning.” Today, we’re going to turn a critical eye towards a company raised by one of our readers – AST SpaceMobile (ASTS).
Cell Towers in the Sky
AST SpaceMobile is what it says on the tin. They’re building the first and only global broadband cellular network in space to operate directly with standard, unmodified mobile devices. It’s a trillion-dollar total addressable market with a value proposition anyone can understand. Consequently, retail investors are climbing on board left and right without taking a minute to reflect on how ambitious this claim is.
The ability for something on earth to communicate with a satellite is difficult business. Let’s take Starlink as an example. Mr. Musk’s company has launched 1,600 satellites that now provide broadband accessibility to people here on earth who have a difficult time accessing the internet – like nudists. We visited a to-remain-unnamed nudist resort in rural Oregon to see just
what crazy stuff they get up to how this technology is being used. A camp board member told us about how he signed up for the beta, was approved not long afterwards, then purchased and configured a fixed-location piece of hardware that communicates with Starlink’s satellites. All the hardware needed was an open line of sight to the sky and there’s all the internet connectivity the resort can eat. “It’s what makes people stay an extra night or two,” he said nonchalantly, with his schlong hanging out.
Once you’re connected to Starlink, the ability to connect to that network with a cell phone relies on WiFi signals, something we’re all very familiar with. The cell phone you have in your hand right now won’t be able to communicate with satellites that are screaming by at 17,000 miles per hour, 300 miles above you. To think they would, no matter how much software eats the world, seems far-fetched at best. The hardware just isn’t capable. That’s what we thought anyways.
AST SpaceMobile claims to have a technology that allows a satellite to have – in their words – “connectivity to any standard, unmodified, off-the-shelf mobile phone or 2G/3G/4G LTE/5G and IoT-enabled device.” Before we would even consider investing in the stock, that claim needs to be vetted. Turns out they’re not the only company claiming they can achieve such an incredible feat.
There are 5.2 billion phone users on the planet. We’re going to turn all their phones into satellite phones.Charles Miller, co-founder and CEO of Lynk Global, tells The Verge
Formerly known as UbiquitiLink, Virginia startup Lynk Global has taken in $10 million in disclosed funding to build “satellite cell towers” that can connect to an average phone. An article last month by Capacity talks about how Lynk filed for a commercial operator’s license with the Federal Communications Commission (FCC). It goes on to say “Lynk tested the technology using a standard mobile phone in February 2020, though solely with a text message to a phone in the Falkland Isles rather than a voice call or broadband data.” That’s not exactly the proof of concept we were looking for.
An article by Verge talks about the major breakthroughs that let Lynk do what it does. Unsurprisingly, it’s driven by software which was taken from cell phone towers and placed in satellites. The smartphones are then “tricked” into thinking that satellite they’re connecting to isn’t 300 miles above them in space but 20 miles away. Another breakthrough is that these satellites will communicate with phones using the same radio frequencies that are already allocated for cell service providers. An article by Fierce Wireless talks about how Lynk has “signed testing agreements with 27 mobile operators around the world, but it can’t work with all of them for its commercial launch, so it’s starting a Flagship Carrier program” which they plan to commence next year pending FCC approval.
We can conclude two things from all this. Lynk’s PR firm is doing a solid job of getting the story told to the masses, and the proof of concept hasn’t proved Jack. The question then becomes, what proof of concept does AST SpaceMobile claim to have demonstrated?
About AST SpaceMobile Stock
Long story short, AST SpaceMobile was founded in 2017 and acquired a few companies before going public using a special purpose acquisition company (SPAC), a deal which now appears to have gone through given the ticker changed to ASTS. They have some revenues trickling in from their 51% interest in a Lithuanian smallsat company, but the star of the show will be their 168 low earth orbit (LEO) satellite constellation that will allow anyone with a cell phone the ability to achieve connectivity as soon as they leave cell phone tower range.
They’ve entered into “agreements and understandings” with mobile network operators (MNOs) which collectively cover approximately 1.3 billion mobile subscribers, with revenues expected in 2023 when they launch 20 satellites to cover 49 countries. (Note that your typical memorandum of understanding and $3 won’t get you a Whopper at Burger King these days.)
UPDATE 02/07/2022: A reader pointed out that some of the MOUs AST SpaceMobile has are in fact legally binding contracts. We’re not sure why a company would call a contract an MOU when the generally accepted definition of an MOU is a legal handshake, but it doesn’t change our thesis in any way shape or form. Revenues are what we care about. MOUs and/or contracts are not revenues.
As for a proof of concept, here’s where AST SpaceMobile is at (taken from the latest company filing – an S-1 filing submitted to the SEC four days ago).
On April 1, 2019, we successfully launched BW1, which connected directly to an antenna (“BW2”) at our facility in Midland, Texas, to test its satellite to ground communications technology. During such testing, we were able to validate its cellular architecture and was capable of managing communications delays from LEO orbit and the effects of doppler in a satellite to ground cellular environment using the 4G-LTE protocol.
So, the BW1 satellite connected to an antenna called BW2 at their facility in Texas. Somehow that doesn’t leave us feeling reassured. Simply saying they were able to hold a single voice-to-voice telephone conversation between two cell phones connected via their BW1 satellite would have been astounding. If the BW1 satellite was launched several years ago, why hasn’t this key milestone been announced yet? For those people saying, “they’re in stealth mode so they can’t say anything,” that doesn’t cut the mustard. Their competitor Lynk says, “no one else has successfully connected a phone on Earth to a satellite in space – the critical first step to providing universal mobile broadband connectivity.” Let’s hope that’s not true for the sake of AST SpaceMobile investors.
If everything goes through without any hiccups, AST SpaceMobile expects to spend $1.7 billion to bring their vision to fruition, with their second satellite – which is currently being tested and assembled – expected to launch later this year. The usual regulatory hoops need to be jumped through, but that seems to be the least of their problems. What’s missing is a proper proof of concept.
Proving the Concept
We’re skeptical about the technology claims being made here by both companies, and even a single successful voice-to-voice test is hardly reassuring, though that’s better than what either company has managed so far. Sure, you might be able to send some texts via a few phones that connect briefly to a satellite (an incredible feat in itself,) but being able to facilitate millions of conversations being held at once across millions of various devices across this planet is another story. Lynk began testing in August of 2019 and all they’ve managed to do is send a text. The naked truth is that we’re not sufficiently convinced a piece of software that tricks cell phones, or any other piece of software, can turn any cellular device into a satellite phone.
We’re very skeptical of this notion that any device can connect to a cell phone tower in the sky at scale. Not just connect, but these devices need to communicate someone’s voice from one location on earth to another with a sufficient degree of latency such that a normal conversation can be had.
And if one of these companies manages to build cell towers in the sky, we’re all supposed to ignore the quirky elephant in the room that’s launching satellites faster than we can count. It’s an exciting story, but we don’t invest in stories. We’ll be avoiding AST SpaceMobile stock going forward, but will definitely take another look once they manage to get 10,000 paying subscribers on their platform.
Tech investing is extremely risky. Minimize your risk with our stock research, investment tools, and portfolios, and find out which tech stocks you should avoid. Become a Nanalyze Premium member and find out today!