Why AST SpaceMobile Stock Was Diving Today

Shares of AST SpaceMobile (NASDAQ: ASTS), the satellite-based broadband service provider and competitor to Elon Musk's Starlink, were trading lower today after the company announced a private offering last night, diluting existing shareholders.

As a result, the stock was down 13.5% as of 12:50 p.m. ET.

Image source: AST SpaceMobile.

AST puts its hand out

Last night, the company announced a private offering of $1 billion in convertible senior notes due in 2036, raising it from an initial target of $850 million earlier in the evening. According to the agreement, the notes will have an initial conversion price of $96.30, which was a premium of 22.5% to its closing price yesterday, but is now closer to 40%. They will have an interest rate of 2%, and purchasers will also have the option to buy an additional $150 million in notes.

AST expects to receive $981.9 million in proceeds from the sale, and it intends to use the funds for general corporate purposes, including the deployment of its worldwide constellation of satellites.

What's next for AST?

Investors typically balk at capital raises for profitless companies, so it's not surprising to see them do the same for AST, which barely has any revenue.

Since it's convertible debt, it won't immediately dilute investors, so the move seems preferable to a straight equity offering, especially since the interest rate is low.

AST remains a high-risk stock after the pullback, now trading at a market cap of $26 billion, and it expects to begin generating meaningful revenue in the second half of the year, targeting $50 million to $75 million as it deploys intermittent service in the U.S.

Given the high up-front expense in building and launching satellites, investors should expect more dilution, as AST is years from profitability.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.