Why AST SpaceMobile Plunged Today

Shares of AST SpaceMobile (NASDAQ:ASTS) were down as much as 13.4% on Tuesday, before recovering to an 8.7% decline following the release of the company's third-quarter earnings report.

The results likely didn't matter as much in the wake of today's hotter-than-expected inflation report. AST currently has very little revenue, so a potential rise in interest rates disproportionately reduces the present value of AST's future profits.

AST's drop continues a very bad year

AST's stock price has already fallen by a whopping 100 points from its late May high of $133 per share, and today's price action adds insult to injury. The primary reason for the stock's precipitous fall over the summer was likely competitive concerns regarding Elon Musk's Space Exploration Technologies (NASDAQ:SPCX). SpaceX announced, in conjunction with its June IPO, that it will pursue a direct-to-cell mobile service, AST's turf, whereas SpaceX had only previously tackled broadband.

Last night, AST reported third-quarter results, with revenue growth of 187.3%. Still, that growth figure was off a tiny base and slightly missed expectations. Overall revenue came in at just $42.3 million, while adjusted (non-GAAP) operating expenses came in at $133.6 million, up in the mid-teens.

The sharp increase in revenue against slower expense growth was welcome, but it may take more to get investors back on the AST SpaceMobile bandwagon amid pressure from SpaceX. In fact, AST still uses SpaceX for some of its satellite launches, essentially paying what is now its biggest competitor to run its business. That being said, AST management recently announced its own 20-ton reusable rocket called Blacklift, which management said should be ready for launch in late 2028.

Image source: The Motley Fool.

SpaceX and higher interest rates are a bad combination

Despite the positives, AST SpaceMobile has seen the same selling pressure virtually all telecoms have been experiencing since SpaceX announced and augmented its direct mobile wireless ambitions. For its part, AST aims to work with terrestrial wireless companies to expand their service in areas where earth-based networks don't reach, and counts 60 partners to that end, representing over 3 billion subscribers. AST also counts governments worldwide as customers.

Nevertheless, today's hotter-than-forecast inflation report means the Federal Reserve could raise interest rates, which would disproportionately hurt capital-intensive, loss-making businesses such as AST.

Therefore, today's move may have less to do with yesterday's results and more to do with attaching higher discount rates and risks to AST's future revenue and profits, which should ramp up in the years ahead as it puts more satellites into orbit.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile and Space Exploration Technologies. The Motley Fool has a disclosure policy.