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 $1.2B (cheaper than for PIPE investors who bought in at $1.4B).
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 (some incredible DD from other investors like u/apan-man) 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 $464M 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.