AST SpaceMobile is about to launch its satellite internet service.
Its direct-to-device technology could revolutionize the sector.
Despite this potential, the stock looks like a risky buy right now.
The future economy will be powered by space. Companies are talking about building all sorts of things in space, from pharmaceutical manufacturing to data centers powered by solar panels. Hype is building in the sector, and now space-economy stocks are soaring.
One stock that has risen by more than 1,000% over the last three years is AST SpaceMobile (NASDAQ: ASTS). Despite generating little revenue today, investors are excited about the prospect of the company's giant BlueBird satellites enabling satellite internet connectivity directly to smartphones.
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The company is about to unveil its commercial capabilities in 2026, if all goes according to plan. Where does that put the stock five years from now?
AST SpaceMobile's special sauce, as it pitches to investors, customers, and clients, is its gigantic BlueBird satellites' ability to directly connect a smartphone to the internet. Unlike Starlink today, which requires a terminal to use, this would open a huge addressable market for mobile internet use worldwide.
Fast internet without the need for WiFi, cell towers, or other on-earth infrastructure could be a game changer for the industry. That's why major telecommunications providers are partnering with AST SpaceMobile, including Verizon Communications. The dream scenario for AST SpaceMobile is to have these cellphone carriers include its services within existing plans or as an add-on subscription, with the company splitting revenue with these partners.
If launches go according to plan and all the BlueBird satellites are put into orbit by the end of 2026, AST SpaceMobile will have potential coverage across the United States, continental Europe, and Japan, helping it access hundreds of millions of existing internet users.
Image source: Getty Images.
Even though revenue is under $20 million today, there is a scenario in which AST SpaceMobile generates $1 billion or more in sales within five years. $5 in monthly revenue over 10 million customers is $600 million in annual sales, which is an entirely plausible scenario within the next five years from its first target markets.
The problem is that AST SpaceMobile stock is already pricing in this kind of growth, and more. Today's market capitalization is around $24 billion, with more shareholder dilution on the way. The company is burning a lot of free cash flow -- almost $1 billion over the last 12 months -- meaning it will have high expenses even as revenue reaches the hundreds of millions and likely remains unprofitable.
Sum it all up, and it is likely that AST SpaceMobile's stock will be flat or down significantly five years from now.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile. The Motley Fool has a disclosure policy.